How could we buy energy in the smart future?

Dr Jeff Hardy explores possible business models which could emerge over the coming years, how these could change the way we buy energy and the effect this could have on our energy system.

Our energy system is undergoing a quiet revolution. It’s becoming cleaner and smarter – and a smart energy system is a big opportunity for innovative businesses. Digital technology has already created huge disruption in markets like retail and travel – but what could a new energy market model look like? Today, our relationship with an energy supplier is simple – we pay a price for each unit of electricity or gas we consume. We often receive estimated energy bills, have little control or visibility over energy use and rarely switch supplier. This article explores three possible business models which could emerge over the coming years, how these could change the way we buy energy and the effect this could have on our energy system.

It starts with the humble smart meter. 

At the vanguard of this quiet revolution are smart meters, which are being offered to every household by energy suppliers as part of a national upgrade. They will empower us all to take control of our energy use, and alongside other enablers, their data will open up opportunities to run our energy system in smarter, more efficient and secure ways. Smart meters and the smart energy system will create a market that’s ripe for innovation.

Imagine trading energy with your neighbour

A peer-to-peer energy network allows customers to directly buy, sell or swap electricity with each other. This is the sharing economy – but for energy. These systems rely on accurate energy generation and usage data, as provided by smart meters. Trials by a company in Australia (Power Ledger) are allowing people with solar panels to sell electricity directly to other households – without the need for a retailer. If models like these become the norm in the mass market, they could drive a huge rollout of microgeneration, large scale storage and other technologies. Rather than energy being transported miles across countries and borders, most energy could be generated, traded and used locally.

Paying for a service, rather than what you use

Energy Service Companies (ESCos), sell holistic packages – such as warmth or illumination – rather than trading in units of energy. They guarantee a saving in the customer’s energy bill, and achieve this by installing tailored energy efficiency measures and home energy management systems – informed smart meter usage data. The customer pays for these upgrades over time, out of the savings in energy used, meaning ESCos make no money unless the customer saves. This model, which is already available to businesses and public sector bodies in America and Germany, could drive energy efficiency improvements in homes and drive an increase in microgeneration technologies and energy storage.

Imagine never having to search for the best energy deal again

In Britain, most customers don’t switch energy suppliers regularly. Emerging services allow customers to handover the hassle of researching the best offers to third parties, which will automatically move them to the best deals for them. Over time, smart meter data could allow third party services to offer tailored services like insulation to customers. In New Zealand a company called Savawatt is already offering automatic switching, with similar services under development in Britain. This model could drive competition in the energy market, lower bills and also drive the uptake of smart home technologies and energy efficiency measures.

Predicting the future

The problem with predicting the future is that you are inevitably wrong. What we do know is that smart meter data and other emerging smart technologies are creating an environment that’s ripe for innovative approaches to energy supply. Whatever happens, it is clear to me that our future relationship with energy is likely to be smarter, more personal and maybe even exciting.

Dr Jeff Hardy is Senior Research Fellow at the Grantham Institute - Climate Change and the Environment at Imperial College London. He has previously been an energy regulator in the UK, and worked with the Intergovernmental Panel on Climate Change

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