30 November 2017

The electricity supply market is going through a period of rapid change. The days of the ‘big six’ are coming to an end and we are seeing more and more innovative supply models emerge. The chief exec of Ofgem, Dermot Nolan, has issued a clear warning that “change is coming” and even talked about the role of the traditional energy supplier becoming redundant.

So this week, Regen published the third edition of its paper on the role of local supply in a changing market in partnership with Stephens Scown and Cornwall Council. The focus of the paper is on whether local balancing of generation and demand can result in cheaper power to local people and a better price for the local generator. You can download the report here.

There are several reasons why local balancing could, or should, result in cheaper power.

When customers are matching their demand with local generation they are reducing their pressure on the electricity networks; they can avoid the peak times of day to support the network operators and access cheaper wholesale prices and use of system charges; and they can help their supplier reduce its imbalance risk.

One approach is to work with a local trusted intermediary, like a community group, to promote a local tariff or scheme that may cost a little more, but has meaning and importance to local people. Suppliers can then target those that are less likely to switch in the first place, as well as retain them for longer. This can be rewarded through either a better deal or a referral fee for the community group.

Working with communities to build customer loyalty could be particularly attractive give the proposed cap on standard variable rates will mark the end of the traditional ‘tease and squeeze’ model of attracting customers with a low tariff and then hoping they will stay after the first year when the tariff increases.

The report identifies four emerging models that could access sources of value from a more local approach and feeding these through to customers and generators via better prices. They are:

  1. Local generation tariffs
  2. Microgrids
  3. Peer-to-peer trading
  4. Aggregators

Our aim in the report is to set out the benefits and challenges of each, along with case studies of where they are being tested or rolled out. Find out more here.

Disruptive technological shifts mean the supply market will continue to be a dynamic space. We are beginning to rethink our energy system from the bottom up and we are likely to see further announcements from Ofgem on changes to regulations and charging structures that will impact on different supply models. Our view is that balancing supply and demand at the most local level possible is going to play a key role and the emerging new models in the market will develop rapidly. So don’t be surprised to see the fourth edition of this paper sooner rather than later.

Author: Tamar Bourne [email protected]