Ofgem has outlined the exponential challenge of regulating a smart energy market over which it would currently have limited jurisdiction.
In a new position paper, the energy regulator floats concerns around lack of consumer engagement with smart meters, vast swathes of personal data being collected by suppliers and non-regulated entities and whether suppliers might try to pick only ‘desirable’ customers based upon that data. That kind of profiling and segmentation could leave even more customers paying more than is necessary for their energy, it noted.
The regulator said such developments may require it to change supply license rules.
The Future Insights paper also outlines the challenge of engaging consumers that in the main show little interest in energy.
Despite being able to save hundreds of pounds by switching supplier, and being bombarded by advertising as well as doorstepped by increasingly brazen third parties, two thirds of UK consumers are still paying over the odds for their energy. Almost half have never switched supplier. If they don’t respond to relentless messaging and that kind of price differential, are they likely to do anything with a smart meter, if they agree to have one installed?
Rolling out 53 million smart meters in the next three years is highly unlikely at the current rate of installation.
To date, the big six suppliers have rolled out 5.17m smart meters, most of which has been done by British Gas. Some major suppliers have rolled out as few as 130,000.
Even if a significant proportion of consumers accept a smart meter, how many will engage in a dynamic energy market requiring active participation on their part?
Ofgem notes that recent trials, such as Western Power Distribution’s Sunshine Tariff trial, which examined the potential for domestic demand side response, suggest automation will be required to deliver any real benefit in terms of load shifting and financial reward to householders. Ofgem asks how many households might be prepared to cede control of their domestic appliances and heating systems to third parties, what consumer and data protection rules would need to be in place and how and by whom they might be enforced.
Even if everything ‘smart’ can be made simple to use and interoperable – and robust data and security protocols can be implemented and enforced – the regulator has repeatedly emphasised the role of consumer behaviour in delivering a smarter energy system.
The paper, which it stresses is ‘emerging thinking’ from its Insights for Future Regulation project rather than an ‘official’ Ofgem position, reiterates that view.
“Developments such as the smart meter rollout and potential future changes to the appliances that heat our homes are examples of physical change that will enable, and in some instances require, consumers to behave in different ways,” it states.
If habits do not change, Ofgem suggests there could potentially be consequences.
“If the behaviour change necessary for a flexible energy system is not realised, restrictions on choice and activity could in some cases be justified – for example with regards to charging times for electric vehicles,” the paper states.
It concludes by recognising the need for the regulator to prove and move quickly.
Likely far more quickly, and managing far more moving parts, than it has ever done before.
Download the Insight paper here.