The September gas price crisis has brought the fragility of parts of the UK’s energy system into sharp relief. Reliance on imported fossil fuels for power generation, coupled with a lack of gas storage and under-developed flexibility markets have wreaked havoc on the competitive supply market, leaving many retailers on the brink and consumers exposed to higher costs.
As smaller suppliers struggle, without the means to hedge their customers’ demand, even more established players are exposed to extreme volatility on the short-term markets. Whilst absorbing this cost may not present the same existential threat to larger retailers, it will ultimately result in a greater energy cost burden for customers which will be felt for some time.
As well as the price of electricity rising sharply, September has brought a massive increase in volatility. The average system price spread increased nearly six-fold between August and September
However, beyond the gloom, the advancement of demand response technologies offers the industry hope in not only navigating price volatility but keeping the net zero agenda in focus. At Kaluza we believe that the intelligent deployment of flexibility offered by growing fleets of in-home smart devices can play a critical role in protecting energy suppliers and their customers from the worst impacts of the turbulent commodity markets. Through our work with the UK’s third largest supplier, OVO Energy, developing innovative, flexibility-backed propositions, we are showing a vision of this future today.
Optimising vehicle charging
A large fleet of electric vehicles charging at home has enormous potential for demand side flexibility, potential which can be realised through Kaluza-powered smart charging. The pioneering smart charging services we have delivered with OVO illustrate the value of this technology to energy retailers. Leveraging AI to select the optimum charging pattern for any connected device – based on accurate market price forecasts and tuned to each customer’s requirements – the Kaluza platform ensures that demand is minimised when prices are at their highest. As such, Kaluza reduced an energy retailer’s exposure to imbalance costs.
Based on the data from our platform that connects to and controls thousands of EVs, a typical charging home session using a fast unidirectional 7 kW charger, takes about 4-5 hours and delivers around 28 kWh of energy.
As prices have grown more volatile, the value of flexibility has increased. The average value of the flexibility offered by a 28 kWh electric vehicle charging session overnight increased from £2.50 to almost £8.
The cost of supplier imbalance typically increases in proportion with the volatility of the market. A powerful feature of demand side flexibility is that its value also increases proportionally in these conditions. This follows: as prices spike, the savings to be made by those who are flexible enough to avoid those spikes will grow in proportion to the spikes themselves.
Protecting Consumers: The ‘Type of Use’ Tariff
One of the key roles of the energy supplier must be to protect its customers from the slings and arrows of the energy market, offering stability and security regardless of conditions. By reducing the cost and risk of supply for customers with electric vehicles, Kaluza enables OVO to do just this. The pioneering ‘Drive Anytime’ proposition is the UK’s first energy tariff directly backed by demand side flexibility. Electric vehicle drivers are offered a market leading kWh rate to fill their car regardless of time of day. For their household consumption, they remain on OVO’s lowest fixed rate 24 hours a day.
By ensuring that the cost of charging is minimised whatever time a vehicle is plugged in, Kaluza allows energy suppliers to offer innovative tariffs which are simple, cheap and without consumer risk, while also managing their own exposure and keeping the grid in balance.
Type of Use vs Time of Use
Much has been made of the idea of the ‘dynamic time of use’ or ‘tracker’ tariffs, in which an energy supplier passes the changing cost of energy directly on to consumers. By publishing prices in advance, customers can make informed decisions about when to use electricity, for instance, by avoiding peak times. While tariffs of this type may be suitable for some consumers, they have two drawbacks which will come to light if high energy prices continue:
Firstly, they require customers to follow prices closely and adapt their behaviour accordingly. As a customer, failure to do so means you are forced to pay a steep penalty price for consuming electricity at the ‘wrong’ time. Take your eye off the ball and you risk a serious shock on your next bill!
Secondly, as prices follow the market on a live basis, risks normally borne by a supplier are passed on to the consumer; in this way, customers are perhaps inadvertently speculating on market prices on signing up for such a tariff. Over the course of this September, customers on these tariffs are likely to have seen their bills increase by more than 50%. By contrast, customers on OVO Drive Anytime can be certain that their prices will not fluctuate day to day.
This plot shows the kWh rates of a hypothetical dynamic time of use tariff tracking wholesale and network costs in August and September. Customers on such a tariff would have been exposed to a 50% increase in average unit rate in just one month.
The Future is Flexible
We hope that the events of September 2021 will serve as a call to action to ensure resilience is built into the zero carbon transition. Not only the number but also the range of devices which can offer demand side flexibility in UK homes is growing. Alongside electric vehicles we see huge potential for flexibility in heat pumps and other low carbon heating and heat storage solutions. Microgenerators are increasingly looking to home batteries to manage self-consumption and export. Air conditioning units, while perhaps less ubiquitous in the UK than other countries, are a mature technology which remain under-utilised. Through all of these devices, Kaluza sees the potential for intelligent technology to protect both supplier and consumer through the unpredictable and unstable times ahead.
1 This cost profile shown is an average of the total of half hourly system price , TNUoS, DUoS and BSUoS. It shows the typical profile of costs for a supplier which are passed on to customers in dynamic tracker tariffs.
