Industry
Energy, Resources & Utilities
Rebalance the energy equation
Highlights
- Utility customers have limited control over their energy mix, leading to continued reliance on traditional fuel sources and a lack of incentives to adopt clean energy.
- Suppliers can design custom-made energy products, promote peer-to-peer trading, and promote renewable energy adoption by enabling customers to choose their preferred energy mix and participate in demand flexibility programs.
- Informed decision-making helps increase customer engagement. Reduced carbon emissions and lesser dependency on fossil fuels also benefit sustainability.
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Current scenario
Active engagement of customers in the UK’s energy systems decarbonization is certainly increasing and evident.
National energy system operator’s (NESO) demand flexibility services (DFS), launched in 2022 is a case study of such increased engagement of customers. Over 1.6 million participated in the DFS programs that year and the subscription increased to 2.6 million customers in 2023. Each year, during these events, the customers were instructed by NESO to turn down their electricity consumption during notified periods and were financially compensated for doing so. On the other hand, thanks to this demand reduction, NESO managed to offset around 7000 MWh of energy supply from traditional fossil-fuel sources.
In summary, by using DFS, NESO could decarbonize the electricity grid during those peak demand hours, and avoiding the purchase of expensive fossil-fuel energy from generators outweighed the payouts to customers.
Democratization
This is surely a landmark moment for the UK energy systems, as these events helped the country avoid using traditional carbon-rich fuels to meet peak demands.
Besides the success of achieving decarbonization, this paves the way for increased democratization in the energy system, where customers are empowered to decide what type of fuels should be used to meet national energy demand at peak hours. Customers of a leading energy supplier in the UK who participated in the above events are also ready to respond to a demand turn-up use case to avoid curtailment of renewable generation at peak generation periods.
Energy mix choice
We believe customers’ involvement in enabling a greener energy mix in the system should not be restricted to winter peak demand management events.
This positive shift in customers’ behaviors should be leveraged by energy suppliers and system operators to encourage them to take a more active role in determining the fossil-fuel dependency of the energy system. One way to enable this is to allow customers to have a say about their preferred energy mix in the electricity supply and account for their willingness to pay for the same. By adopting this principle, energy suppliers may offer the customers an option to choose the exact percentage of their overall electricity demand that should be supplied from green energy sources like wind, solar, and other renewables at an agreed value-added price.
Energy use cases
As overall energy prices have started to reduce since their unprecedented rise a couple of years ago, some engaged and informed customers are likely to be able to afford the preferred energy mix proposal in view of the longer-term benefits it brings to the energy ecosystem.
A few examples are discussed below:
Aggregating customers' energy-mix preferences provides suppliers, system operators, investors, and regulators with an informed view of the demand for clean energy. This can help develop regional or local clean energy plans and prioritize renewable investments and connections with higher demand.
Suppliers can use this information to effectively engage customers and design new energy products and tariffs. For instance, customers paying excess for a preferential energy mix can receive some form of carbon credits in return. The useful information about collective green energy demand from their customers, in turn, can help suppliers procure green energy from renewable generators at an economic price point.
Energy community
Active customers keen to have a cleaner energy mix may be clustered into a local energy community.
The local energy community of active customers could be either physical or virtual. This motley group can form a segment in the local energy market where they participate in trading their small-scale renewable generations, conduct peer-to-peer trading, and even have the right to use their carbon credits to their advantage. By another mechanism, carbon credits may also be tokenized for donations towards reducing energy poverty, where such credits can be monetized and donated to customers who struggle financially to pay for their energy usage during winter periods.
Way forward
Energy transition in the UK and most parts of the world is typically driven by the supply side.
Driven by the supply side relies on investors to introduce green energy supply in the grid, and suppliers respond to such investments by buying clean energy to meet their energy security and fulfill their obligatory renewables requirements. Engie, one of France’s largest energy retailers, has possibly taken the first step in offering a similar tariff model (Elec Vert+) to its customers. Their electricity customers now can pay a minimal extra amount (€ 3) on top of their monthly bill to ensure that every KWh they consume is re-injected as green energy in the grid.
If we look at other walks of life, we can see customers willingly paying for value-added services, for example, choosing organic or locally sourced produce over mass-market products. We are at a similar juncture to test energy consumers’ willingness to adopt a cleaner energy future by making their preferences clear to the energy producers and suppliers.
