Decentralised energy — who is the customer?
Last night I had the privilege of attending the annual dinner held by the Energy Research Partnership, a UK based public-private partnership that aims to accelerate innovation in the energy sector. We were fortunate to have the company of Nicola Shaw CBE, Executive Director of National Grid, the UK Transmission System Operator and Tim Rotheray, Director of The Association for Decentralised Energy, a trade association representing companies working in Combined Heat and Power and at the ‘grid edge’.
We asked them to debate the ‘complementarities, clashes and opportunities presented by a decentralised energy system’. We deliberately picked a topic that would get an interesting discussion going and be potentially divisive but constructive, particularly given the speakers ‘ying and yang’ positions in the energy system.
Things were looking good, both speakers agreed on several things; technology will be a game changer and in the future whatever your role, you need to focus on the customer. It started to fall down on the latter point however, as it unfortunately it transpired that they weren’t talking about the same customer. From National Grid’s perspective, the customer is anyone connecting or supplying services to the transmission network, while from the ADE’s perspective the customer is anyone consuming energy or interacting with the energy system. It is difficult to see alignment of agenda’s when there isn’t a common customer. So who was right?
In fact I think they are both wrong. One of the challenges identified was the issue of engaging consumers of energy with the energy sector, particularly when it is either too complicated or a relatively small proportion of their annual outgoings.
There was agreement that technology has the potential to simplify this, a devilishly complex system, and deliver greater value to the end user, which I completely agree with. But in this scenario, we need to think about whether the consumer is consuming energy, or the services it enables. In this respect, I think we could quickly agree on a common customer as being the manufacturer of the energy consuming device rather than the consumer who uses it or the generator that supplies the energy. When you think in this way, it unlocks a whole new way of looking at the world.
For example, lets think about my Smart TV. I don’t particularly care how it works, or what powers it, all what I care about is the service, the pictures and sounds it delivers. So imagine if when I buy my next Smart TV, I buy it with a lifetime supply of energy. While simple, this thought experiment opens up a whole new set of perspectives that may help focus business and policy makers’ minds.
As a TV manufacturer, suddenly I would have an additional feature to strengthen my value proposition to my customer. Suddenly there would be a real incentive for me to make my television as energy efficient as possible, designing out silly red lights and perhaps designing in a small amount of storage capability to buffer power flows. I could even aggregate all my televisions and sell this flexibility as demand side response. Suddenly I would have an incentive to gather data on the usage of my television and optimise the supply of power to it. Suddenly with the upfront payment to cover energy future energy costs (paid for up front or on finance or credit by the consumer) there would be capital to ensure investment in energy supply infrastructure. I could even charge a premium to those who wanted assured low carbon entertainment. Suddenly there would be an incentive to replace the old TV when there is a new TV that consumes less energy. Suddenly my smart meter becomes largely irrelevant — metering at the most fundamental level, the appliance, gives the most insight to usage and customer behaviour. Instead of buying a TV, I’m buying television as a service. And while a TV is an easy concept to grasp, this way of thinking can be applied to any other provision; lighting, cooling, heating, pumping or mobility.
So perhaps rather than worrying about today’s customer, the ADE and National Grid should both be worrying about tomorrow’s customer — the Samsungs’, the Apples’ and the Teslas’ of this world.
So what do I think needs to be done to enable this revolution? Firstly, regulation or support is key to ensure that manufacturers make and sell products that are a smart enough to talk to each other. This is a clear role for government — set the rules of the game and the market will respond. Secondly, a common language, or communications protocol needs to be agreed. This protocol would ensure transparency in transactions while remaining secure, be owned by everyone and by no-one central entity. In this respect, we have some great examples to learn from — HTTP was gifted to us by Tim Berners Lee at CERN and helped enable the internet, and Blockchain was gifted to us by Satoshi Nakamoto and underpins Bitcoin. In this respect, the work of organisations like the Energy Web Foundation are key to avoid a Babel like scenario where devices, whether they be generation, demand or distribution assets, can’t talk to each other and work in harmony. Finally, there is the accounting issue of reconciling charging at appliance level against that of the household level during the transition, but hopefully that is easily achievable if we can deliver my first suggestions.
I think that perhaps if we can do this, who knows what innovation will be enabled, and maybe, just maybe we can scale previously unfathomable heights. We’ve experienced nationalisation and then privatisation in the energy sector, now it’s time for democratisation.