Flexibility “will probably be one of the most important commodities in the future energy market”, according to Simon Pickett, investment director at Octopus Investments.
The firm, which manages over £7.5bn for retail and institutional investors, is one of the biggest renewables investors in the UK. But its energy arm hopes to bridge the gap between capital and solutions by becoming a ‘virtually integrated’ company.
The aim is to finance generation and deliver power through flexible and virtual PPAs, meaning they need not be long-term nor buyers locked in to a single supplier; supply energy through Octopus Energy; provide flexibility services through platforms such as its investment in Reactive Technologies, and increasingly, deliver transport solutions as part of an integrated energy package.
“We want to become a next generation business that puts technology at its heart, not just a fund manager investing in renewables,” says Pickett.
In terms of convincing people to unlock flexibility within their processes and operations, Pickett says the challenge is two-fold.
“The first is a fear from the operations side that [providing demand-side response] will have a negative impact. That is understandable; their core business has to remain untouched. But good technology allows you to unlock flexibility without touching processes, so that is an education piece,” he says.
The bigger challenge is that “businesses have been approached by multiple people all trying to do different things,” according to Pickett.
“Very few [energy or services companies] have taken a truly holistic approach to cover all energy needs – and transport is a key part of that moving forward. The diesel bill is about to become the electricity bill. You cannot do that in isolation.”
Scale and sizzle
Pickett says businesses recognise that vectors are beginning to converge, but believes there is room for greater creativity from market participants to help unlock demand.
“It’s a bit like selling a sausage,” he suggests. “You have to sell the sizzle otherwise you are selling a dead pig. The energy industry has been a bit guilty of that.”
However, he accepts that delivering everything as a service is no mean feat and forcing the pace is likely to result in failure.
“We need to engage at the rate that customers want, not at the rate we would like. As a fund, it would be nice if things had scale, but we started with solar one project at a time, then moved on to multiple deals, then invested billions in really good projects. Transport is the next frontier, so [the challenge] is how to work in a way that works for the customer, not just for deploying capital.”
If suppliers can bundle transport and energy services correctly, the opportunity presented by harnessing vehicle batteries is significant, Pickett suggests.
“We hope vehicle-to-grid (V2G) comes to fruition in the way we are expecting. The easy approach in the first instance is to just shift charging. But the opportunity to go beyond that is huge, in terms of flexibility,” he says.
That potential prize is one reason why the company has not yet piled into standalone battery storage.
“Storage is interesting, but I see it as a subset of flexibility – and flexibility is probably one of the most important commodities in the future market,” says Pickett. “So does it come from switching off a fridge freezer, shifting the charging of thousands of electric vehicles, or from a battery?
“All of that technology and flexibility at a granular level will become massively important to integrating renewables into the system. So we think that taking a total systems approach, and funding all the requirements, is important.”
In its traditional form, the corporate PPA “is a bit of a nightmare,” says Pickett. “[The market] has not scaled globally in the last ten years, so we have spent a lot of time trying to simplify PPAs and to make them more flexible for businesses.”
Part of that is around contract length.
“Not everybody wants a 15-year contract. At a supermarket, for example, anything longer than a year goes to board level. So you have to ask what is the right length of contract for the customer, not the investor or developer community.
“If we can design products that work for customers rather than big, complicated transactions, then PPAs will become an interesting and more scalable market.”