Bringing new innovations to a traditional market - How energy companies could be and should be embracing technology

Technology is at the very heart of the energy industry – unfortunately, most of it is at least a decade out of date. And the rest is worse.

Brutally, even when I worked on Y2K projects I didn’t see systems this archaic.  In fact, the core systems of the energy industry remind me of my experience working with, and debugging, PLCs (Programmable Logic Controllers) in factories in the early 1990s.

This is the fabric that underpins UK energy supply, and goes a long way to explaining why they call 21 days “faster switching” and why it’s beyond many companies to imagine switching in less than 3 days.

Unfortunately, (for consumers and for the UK as a nation) even the biggest technology projects in energy at the moment are rolling out legacy technologies that we’ll possibly come to regret, and which will certainly fail to deliver the benefits they could, as well as being late and over-budget.

The future, though, could be much rosier. In energy supply, new companies are breaking the hegemony of the legacy players (The Big 6), and bringing with them new ways of solving problems, new technologies designed to be massively more flexible and efficient – and which could put the consumer at the centre of the industry as has happened in so many other sectors.

Adopting the right approach to technology is critical to solving The Trilemma – the national challenge of simultaneously delivering cheap energy which is both sustainable and reliable.

Where we are today is a creaking and outdated system for managing energy supply – who supplies which meters, which meters are in which premises, how much those premises consume and how much each energy supplier needs to deliver into the grid. This system was built to handle highly predictable fossil fuels, delivered by regional or national monopolies, policed by armies of meter-readers, with customers paying by cheque after receiving their quarterly bill.

A whole new approach

Where we need to get to is smart meters transmitting real time consumption data to suppliers who are trading in highly volatile markets for renewable generation, and balancing this by enabling (even rewarding) users to increase or decrease demand depending on the availability.  We’ll need technology to operate energy storage – charging and discharging batteries at grid level, in the home or even in parked cars.  This needs to be secure, understandable and trusted by customers and the public at large.

To achieve this, we’ll need a whole new approach to technology in the energy industry. 

The current approach is typified by big central systems, designed by committee, in response to consultation with all the industry participants.  But this needs to change radically, to allow decentralised solutions, with competitors innovating to beat each other - making technology capability a core competence.

For example, the government is consulting on a “faster switching” platform. This involves an RFI among all the companies in the market – asking each to consider what its cost of implementation will be.  These costs, along with the costs of the central system, will then feed into a cost-benefit analysis.

Whilst on the face of it sensible – we’d hope that government understands the costs of proposed changes - this approach is fundamentally flawed and crippling the ability of the energy industry to make progress;

Existing players have no incentive to adopt faster switching – it suits them to submit expensive project plans.  As senior technology professionals we all know that big systems changes can be exceptionally hard to predict, and vary in delivery costs by orders of magnitude.

So a process like this necessarily leads to the adoption of a lowest common denominator system delivered on painfully slow timetables that will be out of date before it’s delivered.

Instead, a competitive market place should use competitive pressures to deliver better technology faster. Ofgem could simply publish a set of APIs and service standards and unleash competition to bring about the change. Suppliers able to deliver projects sooner can promote the speed and efficiency of their switch, others will be forced to move fast or suffer. You can bet your bottom dollar that this would deliver faster projects at lower cost.

The energy trilemma

By way of example – Argos weren’t allowed to ban Amazon from doing same day delivery – instead they had to move fast to win business. Good for customers and rapidly creating a new standard of service, which acts as the baseline for the next stage.

This approach not only utilises market forces to drive down cost, and hasten innovation, it also avoids big bang projects, and the attendant risks (gambling certainties) of overrun and failure. APIs can be added to existing systems more easily than new systems can be built. This is especially important when a whole industry is affected. Adding APIs to legacy systems allows each supplier to migrate at its own pace (with perhaps some eventual deadline).

Adopting a “competition-driven” approach to technology is a huge opportunity for the energy sector. Not only would it help eliminate wasteful big-bang projects, but it would also enable companies which are more technically proficient to drive down costs for their customers and provide better service. 

This is critical because we can only address the energy trilemma if we have agile, consumer-centric systems.  For example, energy engineers love the idea of using the batteries in electric cars to balance the grid – at times when energy supply is tight, car batteries could top up your house’s supply – or your employer’s. But how will the economics of this be handled? Will your employer pay you for the energy they take from your car battery?  What if your battery discharges in the evening just as you need to pick the kids up from ballet?

These challenges cannot be addressed by centrally-designed, centrally-procured systems. Instead, the UK could enjoy a flourishing market where each supplier develops solutions which it thinks will best meet customer needs – and consumers then choose which works best for them. This will drive down energy costs, improve sustainability and build a real competitive edge for UK PLC.  According to the CMA, we spend £1.5bn a year too much on energy.  Technology-driven competition could go a long way to eliminating that.

James Eddison, Chief Technology Officer at Octopus Energy
Image Credit: TeroVesalainen / Pixabay