Rich Hampshire

Utilities: Interesting Times – Blessing or Curse?

When I first heard, “May you live in interesting times” my reaction was, ‘what a cool thing to wish from someone’.  It wasn’t until almost a decade later that someone pointed out that it was an apocryphal Chinese curse.

There’s no doubt about it, the Utilities sector is living in ‘Interesting Times’ and those times are becoming ever more ‘interesting’.

So why are things in Utilities so interesting? And why should we all be excited about it?

Energy has become intrinsic to the way we live our lives, from the angst we feel when our smart phones run out of battery to its unseen role in controlling our home heating or helping traffic flow around our cities (or not as the case may be!) or in the production and distribution of our food.  Indeed, energy has become so reliable that we have come to take it for granted and only appreciate it when it’s not there!

The tech sector has a habit of misusing the terms ‘transformation’ and ‘fundamental’.  But, for once, it is no understatement to apply those terms and say that Britain’s electricity system is on the brink of the most fundamental transformation since its privatisation in 1990 and quite possibly, from an engineering perspective, since the construction of the national grid almost a century ago.  The electricity system is undergoing a number of changes, each of which has the potential to be considered transformational in its own right across the spectrum of technology, regulation and consumer experience.

The challenge of ensuring that energy is available when we want it at price that doesn’t cost the Earth (in both senses of the term), the so called ‘Trilemma’, is growing as we seek to address climate change by decarbonising electricity supply.

This decarbonisation is driving a more decentralised model; one where more of our energy needs are satisfied from intermittent renewable sources and our demand is growing through the electrification of heat and transport.

Those intermittent renewables are changing the fundamental dynamics of the electricity system, and are replacing conventional, fossil-fuel generation – which, today, provides the primary source of the flexibility the system needs for the lights to stay on.  However, the new sources of demand and sources of storage provide the opportunity to replace that lost flexibility – with Demand Side Flexibility (DSF).

This is where the tech community in particular can start to get excited.  Ensuring that demand side flexibility is available to the electricity system as a whole opens up the third D of the so called 3Ds. After ‘D’ecarbonisation and ‘D’ecentralisation comes the ‘D’igital opportunity (personally I try to avoid the use of ‘Digitalisation’ given the Free Dictionary defines it solely as “the administration of digitalis for the treatment of certain heart disorders”!).

It is this digital opportunity, created by the transformation in the electricity sector that has led CGI to work with Utility Week for the second year in the row to understand what Demand Side Flexibility means for our clients’ businesses. The “Demand Side Flexibility in UK Utilities” online survey attracted the second largest number of responses that Utility Week has seen for a survey of this type (interestingly enough, the first largest was last year’s “Energy Flexibility: transforming the power system by 2030” survey!); which we are taking as being indicative of the interest that the industry has in understanding this area. The survey was targeted at senior managers with a role in this area.

Just like last year’s first research report, this year’s report produced some interesting insight, the headline findings being:

  • The market for flexibility is in its infancy, with participants having low confidence that the forthcoming regulatory reforms will address the barriers to DSF.
  • There are significant differences in the perspectives of the different market participant roles, leading to the conclusion that communication and co-operation is one of the main challenges the market faces and that market participants would do well to understand the challenges from one another’s perspectives.
  • A tipping point for the value of DSF was established as 2024, leading to the conclusion that ‘time is short’ if the necessary regulation and market mechanisms are to be established in time.
  • It was felt that early movers in the provision of demand-side services will gain commercial advantage; but
    • the political environment around energy supply currently makes it unacceptable for energy firms to admit much interest in the possibility that demand-side services might be lucrative for them.

And utilities are already implementing strategies to respond to the market changes that are coming. Both big and small retailers are pursuing energy service strategies and getting closer to customers (and, indeed, the big guys are shifting from vertical integration) – driven by decentralisation and need for access to flexibility in a decarbonised energy system.

With all this change it’s a good job I still regard living in interesting times as a blessing rather than a curse.​

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