We are going through a challenging period in the energy market. The global surge in demand for gas as economies emerge from Covid restrictions has massively driven up market prices. In the UK, we are seeing the shockwaves of this as one supplier after another shutters and consumers brace themselves for a winter of soaring energy bills.
This situation has highlighted how reliant the UK is on fossil fuels. We are one of the most gas-dependent countries in Europe and around half of our electricity is generated by burning fossil fuels. These factors make the UK particularly exposed to the price hikes hitting the global energy market.
The current state of affairs demonstrates the importance of moving towards more sustainable, renewable energy sources. This is in addition to policy drivers and the increasing consumer awareness of the impact of traditional energy sources on climate change.
Technology is playing an integral role in supporting and accelerating this change as energy companies invest in ways to support customers moving towards smarter, more decentralized means of energy consumption and generation. However, the industry needs to take a closer look at the evolving energy needs and behaviors of customers, as well as flexible technology platforms (also known as flexible energy platforms), to ensure that they are at the forefront of the energy industry’s evolution.
Decentralization & the potential of flexible technology platforms
Renewable energy consumption reached 1.2 exajoules in 2020. This is in part because many of these lower-carbon energy sources (such as solar panels, heat pumps and wind turbines) are now more affordable and easily available, making it possible for households to, at certain times, meet their own energy needs without drawing on the central power grid, or even generate a surplus.
In this decentralized environment, patterns of energy supply and demand are much more variable. Flexible technology platforms aim to provide better insight into how, when and where we generate and consume electricity across the network, as well as facilitate the trading of energy to manage that demand in more cost and energy efficient ways. With flexible technology platforms, energy companies can allow households to store and sell surplus energy back to the grid and then redistribute that energy to where it might be needed. The current energy crisis has highlighted the UK’s lack of gas storage capabilities; by contrast, flexible platforms could allow for greater energy storage across the network.
Energy companies can also offer customers rewards and incentives based on their energy usage, remunerating customers for the surplus energy they generate or providing interest on their positive balance. These are aside from non-financial incentives such as renewables-only tariffs that allow customers to actively contribute to a greener future. OVO Energy’s Kaluza and Octopus Energy’s KrakenFlex are examples of flexible technology platforms spearheading this new era of energy supply and demand management.
Platforms like these allow retailers to offering more customized tariffs to fit the needs of the customer, therefore providing a more compelling proposition for consumers. With greater insight into energy consumption and generation, advanced analytics and Machine Learning (ML) can be applied to offer customers even more powerful personalized insights into their energy usage.
These platforms also allow retailers to manage their distributed energy resources (DERs), as well as automating processes like portfolio management and ancillary services and trading. The ability to optimize demand side response can provide major efficiencies and therefore commercial benefits. ML can also be applied to market data to forecast trading revenue and protect the business from market fluctuations like the current high prices.
Flexible platforms allow businesses to make rapid decisions in based on real-time views of supply and demand. In practice, this could allow an energy supplier to offer customers on a flexible tariff cheaper energy when wholesale prices fall. However, in the current energy crisis, customers on flexible tariffs are the ones who have been most exposed to the rises in wholesale prices compared to those on fixed tariffs. This is the exact scenario that Ofgem’s price cap exists to address. But, as we have seen recently, the existing cap has prevented UK suppliers from passing on price increases onto consumers and forced many (particularly smaller, newer market entrants) into shutting down. As Ofgem sets out to consult with energy suppliers about how the energy price is calculated, there is a clear need to establish protections for both customers and retailers from the financial impacts of market changes like we are currently experiencing.
Overcoming the barriers to innovation
When it comes to the benefits and opportunities of flexible technology platforms, there’s often an unfortunate disconnect between an organization’s innovation ambitions and how they translate into meaningful technology platforms or products. It’s understandable in an industry that has traditionally been built on slow-moving, waterfall-style technology change. However, companies now need the ability to pivot rapidly to address changing markets conditions like those driving the current crisis.
Ultimately, this requires a radical shift in thinking. A more agile approach based around quickly bringing innovative products to market and iterating on them, will help businesses identify and capitalize on opportunities. There’s also a need to put data at the heart of the business, which involves adopting lightweight, comprehensive and enterprise-wide data models to ensure information is available to anyone in the business that needs to use it.
And, when designing and implementing technology solutions, there are a few learnings we can share based on our experience at BJSS. First, design for simplicity, aiming for something effortlessly efficient and require as little input as possible. Second, design for responsiveness so users aren’t frustrated with a slow experience. Third, design to provide a feeling of progression and ownership to users so they invest in the product through their experience. Four, design to engage and delight across the entire experience.
The organizations that understand these lessons are set not only to continue to gain market share through the creation of more attractive propositions for consumers, but also optimize their own businesses and therefore protect themselves from ongoing fluctuations in the wholesale energy market.
Ben Cooper is Commodities and Utilities lead at BJSS. BJSS is the UK’s leading privately-owned Technology, IT, and business consultancy. As the winner of a Queen’s Award for Enterprise, the company works with the world’s largest organizations, delivering the IT solutions that millions of people use every day.
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