Friday August 8th 2014
The head of the UK Demand Response Association says there’s a better way to organise our confusing energy market.
There can’t be many energy company directors like Sara Bell. In fact I’d bet my breakfast – delicious, despite being served with a side order of clattering pneumatic drills over which Bell fights to explain the concept of demand response – that she’s one of a kind. You have to be clever and an excellent communicator to be able to clearly set out our complex energy market, which bamboozles its customers so comprehensively that most of us never understand our quarterly bill.
Bell, by contrast, really does understand what’s going on behind the bill – and she’s not happy about it. Thanks to her, I now grasp the basics of the beast and have some sympathy for her quest to reform a market that relentlessly exploits its customers with barely a nod towards the public interest in the service it provides.
Bell founded her company Tempus Energy two years ago. In November it will become an energy supplier, using complex mathematical algorithms to make sure whoever signs up gets the most cost-effective energy source possible. It will do this by sticking a clever box into a customer’s business premises (homes will follow later), which will talk to the devices you use and switch them on when energy use is at its cheapest. To the untrained ear, it sounds like a fancier version of Economy 7.
Bell acknowledges that the technology to make this happen isn’t new. What is different, is the maths that the PhD student she funds at Manchester University has come up with, which ensures that every customer’s need for energy. Whether that’s inflexible such as wanting to make a cup of tea right now, or flexible such as an industrial washing machine, it can be optimised to respond to market prices, which change by the hour.
Energy bills, Bell says, drawing a picture for me, are made up not just of the commodity cost of each kilowatt unit used, but include transmission charges, distribution charges, imbalance charges, and capacity charges. You don’t need to understand what each of those does to grasp her point: by using algorithms, she can “push the customer into the cheapest possible price point for every unit they use”.
“Energy efficiency and this type of optimisation go hand in hand,” Bell says. “Demand response and energy efficiency totally complement each other: the more you invest in insulation, for example, the more flexibility you have.”
The energy market in the UK, Bell believes, has never valued the customer as its core priority. There’s a reason for this: “As a supplier, you are in an ideal position to manage all of these costs. But we have a market structure in the UK where most suppliers own [energy] generation assets. You are almost duty bound to your shareholders to optimise its revenue, so you have to sell at the highest price.”
Her arguments don’t make Bell popular; she reports she has been shouted at in meetings. “I tend to focus on the positive rather than the negative,” she says, taking a mouthful of egg on toast. “You could take the approach that ‘we hate the big six, they’re evil’, or you can take the approach that we want to make this really work for the customer and focus on that – which kind of makes it about the love.”
Bell believes the world is moving from a business model that worked when we only had fossil fuel generation, to a different system entirely. “Those who are working on the old one are scared because they haven’t worked out quite how they fit in the new regime. Because fear is not a very positive motivator generally in life, they’re focusing all their efforts on lobbying to hold the status quo, and aggressively so.”
The protectionism she perceives has prompted Bell to form an alliance for the digital energy economy. The project will bring a group of companies together to start talking to government and policymakers about how to build a business case for selling energy differently.
Bell already has some big players on board: a department store, a global technology company, a renewable generator and several new startups. Together, she hopes, they will have more clout when they speak out against measures that prevent competition.
But there’s a fly in the ointment. A bill that has gone though parliament will allow National Grid to offer energy generation companies up to 15-year contracts. Demand response companies, by contrast, will only be offered 12 months. “If I say to a managing director who needs to agree to make some changes to their business practice to get the full value of the demand response approach … ‘I can only give you a 12-month revenue stream’,” she pauses. “Well, they will tell you to get lost.”
As executive director of the UK Demand Response Association, Bell is among those who have been lobbying against the change, but she has so far seen no movement from energy department officials. It’s clearly frustrating because she passionately believes that the business model for energy has to change. “We need to change,” she says. “But we need to somehow make that change more appealing by showing that there is a profitable future in this. There might be some pain in the transition but the end game is going to be positive, both for customers and for the industry.”