Utility Week

UTILITY WEEK | APRIL 2021 | 27 Customers Comment Laura Sandys W e have exciting, challenging and essential tasks as a sector in relation to our customers – whether domestic or business. The big opportu- nity is the role that our customers can – and must – play in the energy sector through aggregated flexibility and energy efficiency. The route to delivering this flexibility is much deeper digitalisation of customer assets and ser- vices. The biggest challenge, however, is how we unlock access to the capital assets that customers need to decar- bonise their heat and transport. None of these comes cheap and they are no "easy sell". The heart of the problem is that we are still selling a commodity. First, few understand what a kilowatt-hour is or does… but more fundamentally with increasing cost sitting in system management, it is not the commodity that will have the added value but what you do with it, where and at what time. To optimise as well as to decarbonise the hard to reach, we might need to deploy new equipment and introduce new ways of consuming energy into people's homes and businesses. Services not commodities Other than the rich, few will be able to find the capital to invest in these necessary assets – so how best to deploy them at scale? In our ReCosting Energy report we focused on how to create business models that can allow greater access to these assets. Our key recommen- dation is that we need to allow for many more busi- ness models – moving from commodities to services, enabling large companies to make the investment in the assets and then amortising their value over the service contract period. There are some exciting models such as Social Energy and Sero and the Living Lab at the Energy System Catapult which have direct consumer experi- ence – and evidenced consumer delight – of the service model. However, this will not be enough to make assets really widely available. Properly reward customers We need to reward customers for the fully loaded system value that they deliver the system. Currently it is only a simple flexibility payment for balancing and some emerging constraint management payments. However, unless we want to create butter mountains and milk lakes we need to reward them for all the other costs they are helping the system avoid. We did some exciting research with Frontier Economics, the BEIS modelling team and LCP that shows that against whole system costs and compared with generation, demand-side assets have some really exciting value – and avoid costs for us all. But we need to ensure that this value flows through the system and doesn't get caught in the current cost silos. Treat demand equally to supply We also need a mindset change within policy, regulation and the sector to regard demand actions as important as generation actions. Let's commend ourselves for being far ahead of other markets, but we have now arrived at a point where demand actions and their related assets are crucial to system costs, and system stability. The Bridg- ing the Gap project by the ESO really highlights how technology, data and digitalisation and markets must come together to deliver sustainable business models. But to recognise the equality, demand assets should be able to access similar support mechanisms to those that large developers can access. The investment period is similar for most customer-facing assets, and the finan- cial "ask" is as big comparatively. So, these assets that deliver system value and increase capacity should be able to access with greater ease the capacity market and contracts for difference. How this could work We developed a model around a car leasing company that leased an EV to a customer with, say, 300 miles per week embedded into the contract – distancing the customer from the energy component. The leasing com- pany would be able to access a micro-capacity market payment, would sell flexibility options to the DNO and ESO and trade their customer's battery according to the preference of the consumer, and at the same time the leasing company would be incentivised to charge the car at the very lowest price. This would reduce the cost of the car and offer the leasing company revenue streams that would further reduce their leasing contact costs to the customer. Nothing new There is nothing new in the world – and there is nothing that we propose in ReCosting Energy that is not adopted widely in other markets. The energy sector can learn the lessons from other sectors, adopt the best and avoid the worst, but we can move forward and deliver for custom- ers and the planet by accelerating the deployment of demand assets, through services, and reward demand and supply equally. Laura Sandys is chief executive of Challenging Ideas and a non-executive director at SGN and Energy Systems Cata- pult. Between 2010 and 2015 she sat as a Conservative MP. "We need to reward customers for the fully loaded system value that they deliver the system." Demand assets should be valued in the same way that generation is – then the true value of energy can be established as a service rather than a commodity.

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