Why UK energy customers need to be able to make smart decisions

The relationship between UK energy suppliers and consumers must change. As well as migrating towards a smarter and more logical system for distribution and use, we need to become smart customers, using intelligent energy.

The UK energy market faces two problems. First, energy is unnecessarily valued at a commodity trading price, even if it has not been purchased and its costs of generation have not increased. Secondly, tariffs for energy vary between ever greater extremes due to imbalance between supply and demand, but become fixed when it is consumed. Neither situation is sustainable.

At the same time, the UK should seek to become as self-sufficient as possible to minimise the impact of a weaponised energy market. This will automatically make UK renewable energy more important.

UK electricity is generated by gas/oil (42 per cent), renewables (38 per cent), nuclear (17 per cent) and coal (3 per cent). Renewables, which comprise wind (26 per cent), solar photovoltaic (10 per cent), and hydro (2 per cent), are intermittent and seasonal. Gas has a simpler structure – it is imported, or domestically generated, and may be used to generate electricity or distributed by grid systems that currently reach 85 per cent of consumers in 23 million homes.

Recent energy company failures have demonstrated that fixed customer tariffs for electricity are no longer sustainable. Elexon, which oversees the strategic operation and day-to-day management of the Balancing and Settlement Code, comparing how much electricity generators and suppliers say they will produce or consume with actual volumes, reports that the normal range of traded tariffs between £121/MWh and £800/MWh has increased recently due to supply instability. This cannot be managed by raising fixed tariff prices – load levelling is also needed. Variations in tariff must be shared with consumers in the form of intelligent energy, which uses price to level load with demand. This requires smart customers, who are able to make use of variably priced energy.

Commodity pricing of energy does not usually cause undue problems, but when crises arise, it makes a nonsense of the market. Energy bought from an external market will be commodity priced, but energy generated in the UK and consumed in the UK should be priced on an internal market basis. We need an internal energy market, in which costs of generation have not changed and the energy is consumed in the UK. This price (representing some 50 per cent of our energy use) would be stable and unchanged and disconnected from the lunacy of commodity pricing.

Much of this energy may be from renewable sources and offers another reason for enlarging our installed base of renewable generation. An internal market immediately halves existing price rises. Meanwhile, gas and oil from UK sources should also be priced at internal market price if they are not sold abroad, avoiding excessive profits and much of the impact of energy prices on the cost of living.

How does a variable tariff to the home shape a smart customer? The smart meter’s time may come at last, although it may take ‘3D’ generation devices (or a separate online display or traffic light system unit) to communicate the tariff to the user or the appliances in the home. The cost of energy used is then clear to smart users and there is less need for a smart grid. Power distribution has no investment capacity to modernise let alone pay for expensive smart grid batteries.

Smart customers need to be able to avoid peak times and take advantage of low tariffs as simply as possible; initially by intervention and off-peak use, but later by domestic appliances, electric vehicles and other large loads being able to avoid high-tariff periods automatically via add-ons, smart sockets or ‘smart’ functionality. In smart customers’ homes, a low-energy mode for buildings may be introduced, with light-current rings operating but high-current rings switched off or load-restricted when tariffs are high.

Variable energy tariffs make batteries in buildings highly desirable. Time-shifting means that low-cost power may be stored, then used when prices are high. Intermittent power from renewable sources and on-grid/off-grid installations can be bridged. Smart customers with batteries can avoid power cuts entirely as well as being able to consume their own renewable energy.

An additional benefit may be achieved if the smart customer has extra battery capacity. Low-cost nighttime energy could be fed back to the grid during the day when the price is much higher. If the amount of energy and the price differences are well chosen, a customer’s net energy bill may be zero or even negative. Given the spreads between low and high tariffs, those who can load level may not have to pay for energy at all.

The cost of batteries in buildings may be carried by the energy company and their depreciation cost can form part of the smart energy bill. Batteries tend to be lithium ion these days, and while new batteries would be economic in this role, post EV batteries may be repurposed and reused. Nickel iron batteries, which have nearly infinite life, could be considered too.

The smart customer’s relationship with heat must change as heat can now be stored in heat batteries. Silent, fuel-cell-based combined heat and power (CHP) units may make efficient use of gas grids and, if used in conjunction with heat batteries, allow both power and heat to be used efficiently. Ground-source heat pumps make sense when no gas is available; when gas is, CHP solutions become viable. There is a gas/fuel cell issue to be solved first, where fuel cell design must cope with such gas as is available.

We must become smarter users of energy and our energy pricing must be linked to the actual cost of energy. Self-learning AI dashboards showing real-time energy usage will change how a smart customer treats energy. Heat batteries will allow combined heat and power to enter the market and free energy may become a benefit for smart customers who use batteries wisely. An internal energy market, smart customers and intelligent energy is the path we must now take.

Mark Scibor-Rylski FIET is a committee member of the IET Innovation Management Technical Network. Views expressed in this column are personal, based on his work with the University of Exeter in Cornwall launching and developing eco-commercial renewables companies in a county which he believes offers an ideal laboratory for future energy solutions.