The Disrupted Decade
It has been said that people often overestimate what can happen in 2 years and underestimate the change that will take place in 10. This is true of the UK energy market today.
Most debate focuses on rising or falling prices, incremental policies and worries about looming supply shortages. However, new technology such as cheap solar power, advanced batteries and big data analytics could mean more dramatic change.
This report looks at potential changes to the energy market over the next 10 years and how we can make sure what happens is in the interest of consumers.
We looked at disruptions that could affect the energy industry and identified four that could have the most impact on consumers. These are:
1. New pricing models
How energy is priced hasn’t changed a lot for decades. Most consumers are billed (usually on estimated use) a fixed standing charge and flat per unit charge.
In the next 10 years, new technology and better understanding of consumer behaviour could lead to the creation of pricing models that are far more tailored to consumers’ lifestyles. The biggest change is ‘time of use’ (ToU) tariffs, that vary energy costs by time of day. Another is energy bills indexed to wholesale costs. Regulators need to understand these developments, because the impact of the changes will vary for different groups of consumers.
2. Energy retail intermediaries
Most consumers buy household energy directly from a retail energy company. However, in the next decade, we see the rise of intermediaries who could allow consumers to reduce their energy bills, making it easier to find and switch tariffs by handling part or all of the switching process for them.
More sophisticated intermediaries will use smart meter data to advise consumers on how to cut their consumption. We need to know how barriers to entry can be lowered (to allow these innovations) and how these intermediaries would be regulated.
3. Widespread adoption of storage
Storage could dramatically reduce demands on the electricity network at peak times by matching demand to supply from a different time of day. This becomes more important if rising demand for electricity continues, and if the grid uses more intermittent renewables like solar. These changes could make electricity cheaper for consumers, and make it far easier and more efficient to use renewable energy.
4. Distributed generation and costs
The rise of distributed generation, like rooftop solar panels, may result in a re-allocation of network costs.
If we keep the tariff structure we have now costs will be spread out unfairly. People using solar generation or storage will increasingly escape paying for networks, while those who don’t will pay over the odds. The longer we delay changing this system, the gap will get larger, and change will be harder.