I’ve recently been taking a look at the sharing economy. Enabled by the internet, this movement for sharing and saving resources has really taken hold over the last few years. Neighbours share skills and tools, get rid of things they no longer want, and its corporate equivalent, or make some money from spare capacity in their homes or vehicles (AirBnB and Uber).
Many of these sharing economy ideas are money saving, resource optimising and socially enabling. Some argue we could do with a hefty dose of that in our electricity supply thereby democratising energy and taking power from the Big Six. It all ties in with optimising assets, moving away from the centralised top-down approach to network management (with passive participants), to the active network and smart grid of the future.
So could the principles of the sharing economy be applied to electricity trading? Is this peer-to-peer power idea a pipedream? Or is it the direction in which power supply will inevitably move? What’s happening out there now, and is it starting to deliver value?
Clearly, supplying electricity is a great deal more complex than, for example, borrowing a drill or shifting unwanted belongings. Open Utility discovered this when starting out on its path...
Open Utility’s founders set out with the intention of enabling clean local generators to supply green local customers with local power, facilitated by a compelling and user-friendly website. They soon discovered just how complex that process was going to be and reigned back their aspirations to a mere PPA comparison service. However nothing beats e-POWER for going out to a number of suppliers and securing the best price, plus it takes care of billing and settlement. There is no point in reinventing the wheel!
Open Utility’s Peer-To-Peer project is now moving forward via a trial to be piloted in 2015 aided by a £310,000 grant from DECC. I, for one, will be watching with interest how it develops.
‘License lite’, of course, is another approach. The GLA initiative will be a great start, but in terms of the peer-to-peer trading envisaged by Open Utility, it is very much the tip of the iceberg.
‘White labelling’ seeks to create the social cohesion of the sharing economy. This allows a local entity to send its ‘own’ energy bills to local customers.
Ovo Energy recently secured its second community energy group, Community Energy South. This is a move welcomed by Amber Rudd and praised in the local newspaper as something that will ‘take out the middleman’.
Ovo Energy's scheme supplies Community Energy South members with electricity and bills them on CES’s behalf. Everybody is happy: Ovo gains new customers (the type which might otherwise be ‘sticky’ and not prone to switching), CES gets closer to achieving its objectives and everyone feels they’ve stuck two fingers up to the Big Six.
So the first tentative steps are being taken in terms of changing the models of energy supply, however it's important to look for the value where it really exists, rather than to respond to a knee-jerk reaction.
One such reaction is to accuse the Big Six of charging too much. I don’t have the resources to study this in depth, but I have a hunch that they aren’t necessarily and what is portrayed as the “value” gained in cutting them out comes from the smaller suppliers avoiding the costs of environmental and social levies. Of course, there may be other complaints about the Big Six, such as customer service, but this piece is not about discussing that issue.
With respect to value that could be extracted by better asset use, it seems that this is constrained by our regulator system and thus not necessarily the fault of those trying to innovate in this space. If the energy regulation doesn’t change then maybe we won't be able to experience much of a difference.
This begs the question that if energy regulations were to change, would much additional value be realised and if so, how might it be shared and in what proportions? It could go to suppliers, generators or consumers. My wish would be to see the lion’s share go to generators. If there is value by virtue of generators being local and therefore less infrastructure required to get their power to local customers, the generators should be rewarded for it. Subsidies for renewable energy are rightly reducing (and there is no excuse for the continuation of fossil fuel subsidies). If more of the true value goes to the generators, subsidies can be reduced sooner and renewables will reach grid parity quicker.
As for the majority of the additional value going to suppliers, I personally see less justification in this option unless they are actually doing anything significantly different. They supply an identical product - kWhs; their only means of differentiation is in the quality of their customer service and the supply mix of their portfolio. Enabling environmentally-conscious customers to coalesce around a local tariff (if that is what is wanted), is responding to a demand and perhaps suppliers should be rewarded to an extent, but then again, maybe winning these ‘sticky customers’ is reward enough.
I’m not sure that customers who want to buy local green power do so in the expectation of it being cheaper, although there is merit in some of these savings going to community energy groups as this can enable them to develop more renewable energy and energy saving projects.
In summary, I feel there is a strong case for generators reaping the rewards of any additional value that can be squeezed out from new approaches to supply. However, it appears to me that these new approaches are often overlooked. The Ovo community literature makes reference to renewable power being purchased at competitive prices and the savings passed to customers. Passing the savings on to customers certainly isn’t going to hasten subsidies falling.