Consumer engagement - a critical step on the road to net zero
We are about to enter the most complex and critical stage of the energy transition.
One that will require rapid and well-orchestrated regulatory changes, as well as the digital transformation of retailers, generators and system operators.
One that will demand the rapid deployment of renewable generation – and at a rate never seen before.
And most importantly, one whose success will be dependent on driving high levels of consumer engagement.
So, how do we do this and enable the move to an energy system that’s fit for a net zero future?
The energy transition
Firstly, let’s consider how we reached this point.
We view the energy transition as taking place in three key stages:
Figure 1. The three stages of the energy transition with increasing levels of local generation, local storage, and consumer interaction.
1. The subsidy era
The transition began with what we refer to as the subsidy era. Governments globally began incentivising renewable generation. Consequently, developers supported by various subsidy schemes aggressively developed solar and wind generation up and down the UK, and in countries across the World. The success of these schemes led to significant drops in the cost of deploying renewables, reducing the need for subsidies.
2. The merchant era
During the current stage, the merchant era, we are enjoying the continued growth of wind and solar developments that are less dependent on subsidies, with more distributed energy resources (DERs), such as batteries, electric vehicles and heat pumps, also making an entry. As anticipated, the intermittency of renewable generators has led to price volatility and made balancing the system harder and more costly. However, the energy system has continued to be largely supply-led and the demand-side has remained, at best, an afterthought.
3, The consumer era
The stage that we are about to enter, the consumer era, will require consumer engagement on a massive scale. For the first time since the early 2000s, electricity demand will increase rapidly due to the electrification of both transport and heat. It will be vital for the DERs that will drive this rapid increase in consumption from electric vehicles, heat pumps, batteries and smart thermostats, to home and building energy management systems to provide flexibility. One of the key issues that needs to be addressed is how we ensure this happens by making the owners of these DERs active participants in the energy system.
The scale of the flexibility challenge
Last year, National Grid ESO - the organisation with responsibility for ensuring the lights stay on - outlined the projected uptake for electric vehicles and heat pumps.. Electric vehicles are projected to reach 35 million by 2050 and 25 million households could have heat pumps.
This combined with increasing levels of intermittent generation means the system will require up to 160 GWs of additional flexible power by 2050 to meet the peak electricity demand when people plug-in their EVs to charge or set their heat pumps to operate, both occurring roughly at peak time during weekdays.
We can only succeed in meeting this demand if consumers engage with the system and provide 50% of this flexibility through smart charging and electric heating (Fig. 2). This has the potential to reduce peak demand by over 40%.
Figure 2. Over 50% of the flexibility required by 2050 will come from consumer led technology.
Smart management of DERs is the only way to achieve an affordable energy transition. The alternative is what we have already started to see, in a quadrupling of balancing costs in recent years. Whereas, if done correctly, the technologies that enable domestic flexibility could save the UK up to £13billion per annum.
To do so, the system will need to transform dramatically. We need markets that will engage the demand-side, and a digitalised system that can monitor and orchestrate these DERs to ensure that they maximise the use of green electricity while managing network constraints.
The importance of trust
The success of the consumer era will be contingent on consumer engagement. However, we have a major problem - consumers do not trust their utilities.
Every year, Edelman publishes its Edelman Trust Barometer, which gauges consumer sentiment. Energy consistently ranks amongst the least trusted industries, together with financial services, and more recently social media. In fact, for the tenth year in a row, energy companies ranked amongst the least trusted in the world (Fig. 3).
Current events are likely to perpetuate the issue further.
Figure 3. Edelman Trust Barometer 2022 for industries.
The ingredients that are needed to promote trust between commercial organisations and consumers include expertise, honesty and empathy/care, and if applied to the energy sector they could make a real difference.
Expertise needs to be communicated and reaffirmed through every touchpoint a utility may have with a customer. At the moment, however, the average wait time on the phone for one of the largest energy companies in the UK is 23 minutes and in some cases this has been as high as 2 hours and 47 minutes! Some ‘live’ chat functions also take around 18 minutes to respond.
In regards to honesty, there’s a big difference between what energy companies say about themselves versus what their customers say about them. This isn’t sustainable. Companies must be accountable and consumer centric.
For years, business models have also been based on taking advantage of loyal customers, in an approach called the ‘teeze and squeeze’. Prices would lure customers in, before then being hiked up after the first year. In the UK, this was occurring to such an extent that the government had to intervene and introduce an energy price cap to stop it from happening - a lack of care.
Rebuilding trust through technology
One solution for rebuilding trust is through the use of technology, which can aid transparency, while helping form a connection with consumers by giving them visibility and awareness of the active role they might now play in the journey to net zero. But, again, it needs to be done intelligently.
Most energy companies have a web of different technologies that don’t interact or communicate well and this ends up creating a poor employee and poor customer experience.
What is needed is a single technology platform that can deal with every aspect of the customer journey.
Although today's GB electricity market and system has successfully enabled the UK to match nearly 50% of demand with renewable generation, we need to go further and faster.
The next stage of the decarbonisation of the energy system is going to be critical and will require some big transformations – to the system, the technology and also opinion, with success reliant on consumer engagement.
We believe that the current web terminology used to describe today’s technology is a distraction and deterrent. What we should be focusing on is educating consumers and building trust. Net zero and the future energy system depends on it.