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Andy Compton, director at Compton Energy Associates and Matthew Brown, energy lawyer at LexisNexis, examine the rise of the energy 'prosumer'.
LexisPSL includes a variety of practical guidance on GB electricity and gas supply/retail regulation. Click here for a free trial of LexisPSL.
There’s a perfect storm in the energy market likely to radically alter how our electricity is supplied in future, bringing with it some unexpected opportunities for individuals as new business models come to the fore.
While the increased penetration of medium and small scale energy suppliers in the domestic supply market is a well-established trend, there is a far more fundamental factor at play: changes in where and how electricity is produced and stored, and how electricity usage is monitored, have the potential to dramatically shift our relationship with the energy system.
Step forward the ‘prosumer’ – an individual who is both an electricity consumer and a producer. Although still a relatively new concept, there are a number of incentives involved in being a prosumer that make it an attractive option for the business minded. At present this type of production is mostly through privately-owned solar panels, but it could soon involve and encompass a whole array of other technology types.
Take electric cars for example.
With electric cars (or simply ‘EVs’) and plug-in hybrid electric vehicles (PHEVs) becoming increasingly prevalent (the Committee on Climate Change has stated that the majority of cars and vans should be electric by 2030), more and more consumers will find themselves (almost by accident) in possession of their own store of electricity. Rather than electricity being only available, via suppliers, from large generators, there will increasingly be significant amounts in the hands of the individual and it should only be a matter of time before vehicle to grid (V2G) technology will enable owners to use or sell the power that is excess to their travel needs when it makes financial sense to do so.
If a car battery has been charged at night when (with ‘time of use’ tariffs) electricity prices should be lower, why not export or use the stored electricity when the system has high demand and therefore marker prices are higher? Similarly, ‘smart’ EV chargers should help balance intermittent renewable output by adjusting charge rates to incentivise/disincentivise charging during times of electricity abundance/scarcity.
This presents opportunities for individuals and also of course businesses, such as EV/PHEV manufacturers, operating in the area. Could we see retailers/manufacturers selling energy as part of a bundle with a product? Why not buy a vehicle or even laptop/mobile phone/TV along with the electricity needed to run it? With advances in smart meters, products could be linked with the electricity they use, meaning we would be buying our electricity from a whole host of different providers in this way. This vision, however, must be heavily caveated – given the challenges faced by the ongoing roll-out of relatively basic smart metering, sophisticated metering of this nature looks some way off.
Furthermore, if customers can supply the market, so too can they supply other consumers, resulting in peer-to-peer direct trading, potentially utilising blockchain as a mechanism, which bypasses a centralised hub altogether.
All this could radically alter the market but there is a note of concern: those who don’t – or can’t – take advantage of the new models may well be worse off. This would not only exasperate social inequality but, of greater concern, it could theoretically give scope for potential exploitation with groups of individuals using control of electricity supply as a means of gaming the system to the detriment of others. Regulation on this therefore needs to be ahead of the game rather than the government being forced to take steps to re-level the playing field.
As prefaced above, the changing market also creates significant challenges for the system: as the technology advances, the existing grid is already proving to be increasingly stretched by these newer energy models. This is unsurprising. The grid was designed to move power almost exclusively one way (from large generator to end user) and, as a result, lacks the necessary flexibility to accommodate ever-increasing volumes of mid-scale and micro generation. It is also challenging for regulation to keep pace here too. With energy entering (and leaving) the network at all levels, we are already seeing the situation where prosumers are generating their own energy ‘behind the meter’ with minimal visibility to the network operator. Under existing arrangements, taken in the aggregate, enormous quantities of power could be produced and consumed without prosumers paying their fair share of the network charges required to fund maintenance of the system that they fall back on when they are unable to produce their own power.
The changing shape of energy supply looks set to explode into the public consciousness, bringing with it a whole new set of exciting opportunities for households and businesses not traditionally associated with the energy market. Against this backdrop, government, regulators and network companies in particular will need to work hard to ensure the needs of the system and of less engaged consumers are robustly protected.
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