I’ve enjoyed the last couple of days talking to a lot of people on the state of the UK energy market. It was a pleasure to Chair one of the sessions at National Grid ESO’s Power Responsive Summer Reception focused on delivering zero carbon ambitions through demand side flexibility and then attend Utiligroup’s Smarter Energy Insights forum in support of a client.
Through presentations, Q&A and a lot of networking some clear themes crystalised for me-
1) We all know where we want to get to- Whether it be in the creation of a smart enabled world through the roll out of SMART metering or the development of new deep and liquid flexibility markets to support the system operators (both transmission and distribution) on balancing the system in a world of distributed, small scale renewables. No one is disputing the benefit of the future world and can see the commercial opportunities associated with both- once we get there.
2) There is tangible frustration on all sides- Whilst everyone can clearly see the benefits of the end game, moving there is glacially slow. The smart meter roll out is way behind schedule and struggling with enormous technical challenges in smart prepayment meters, northern communication links, asset availability and SMETs1 interoperability. That is before even considering the slowing down of customer take up. Whilst suppliers are obligated to ‘offer’ a smart meter to all customers by the end of 2020, there is no longer any pretence that the roll out will be anywhere near complete. And until smart meters are in homes, the changes required for half hourly settlement of domestic meters, which is the real game changer, cannot be rolled out. We’re looking at the mid 2020s at least before the underpinning enablers are in place.
On flexible markets, there are some positives, in that there has been material growth in participation. The downside associated with this is the consequent decline in market prices. Some businesses have been burnt by early adoption and there is not really enough value to go round to support all the players that make the market happen. So whilst the need is unquestioned, there is some way to go until we’re in a state of predictable market fundamentals, full scale participation and value growth.
3) Brilliant ideas have lots of opportunities to be tested- There are sandboxes, trials and support available from all sorts of directions, whether OFGEM, Elexon, DCC, BEIS, or the System Operators- funding, trials and a willingness to support innovation is not in short supply. What we’re struggling with is the ability to turn brilliant ideas into genuinely commercial propositions before core enablers are in place.
4) Take a punt and hope for the best- The market is not standing still, and there are many businesses developing some great innovative products with supporting capital investment. Many of these businesses could have significant commercial value if and when the underpinning markets are in place. Some will fail as markets don’t develop as hoped, some will fail as they run out of cash before full commercial scale can be achieved. However, by the balance of probabilities, some will survive and thrive. Investors are showing a willingness to take a punt.
5) Don’t wait for policy and regulation to catch up- There is so much to change and the wheels turn so slowly. The argument put forward is that by being transparent with the direction of travel the market is being given early warning signals- the trouble is those signals are often years ahead of the forecast changes being implemented. There is some sympathy- market design needs to fundamentally change all at the same time. However, there seems to be a lack of willingness to really prioritise and accelerate key changes, or work in a more agile way to deliver faster.
6) Joining the dots creates the value- Individual component parts of the new world jigsaw in many cases are struggling to make ends meet. As I’ve written before, there is little value in any individual component of the market currently, and many new entrants whether technology led, supply led or developer led are struggling to get traction. However, there is still value to be created by joining the dots together- That’s where I spend my time and that’s where there is opportunity to lead the pack.