New Thinking - Discussion Papers

 

From time-to-time Sustainability First publishes papers and holds round-table discussions on topics which will shape a more sustainable future.

Engaged, or just good friends? – A discussion paper on energy customer ‘stickiness

In April 2017, we published a discussion paper by Jon Bird about the ability and willingness of domestic energy customers to engage in the market for energy both now and in the smart energy future. You can find the paper here.

Electricity and gas customers are increasingly offered a range of options by energy suppliers.  As well as different tariff options, customers may choose green or low-carbon tariffs, an offer from a smaller supplier, a dynamic approach involving demand-side response, and / or a local option from a local authority or a community energy provider. While increasing numbers of customers take up such options, in practice it remains a minority who engage and benefit: many customers currently remain unable or unwilling to engage. This paper explores this question in relation to energy pricing, both now and for the future. The approach suggested is relevant to customer innovation and choice, and to the public interest more widely – including in relation to future low-carbon smart energy. These themes are also explored in other Sustainability First papers.

The paper looks at what might be done to ensure fair pricing for all customers in such circumstances. It compares proposed approaches to market regulation, now and in the ‘smart’ world, by how far they each manage to meet two key objectives, proposed in the paper, as a means of testing that arrangements are fair to all customers.  These are:  (1) arrangements  that encourage companies to price competitively and to innovate to meet the changing needs of the market, and (2) avoidance of particularly unfair pricing for any domestic customer. The paper examines the impact of these approaches in terms of how they affect three groups of customers:  those willing and able to engage, those able but unwilling to engage, and those unable to engage. 

In September 2017, we held a small roundtable to discuss the issues raised in this paper, and in particular the implications for the future 'smart' world.  A set of slides used at the discussion and a summary note of our discussions can be found here and here.

‘Smarter, fairer? A discussion paper on cost-reflectivity and socialisation of costs in domestic electricity prices’

In March 2016, we published a discussion paper by Jon Bird about the implications of introducing greater cost reflectivity into domestic retail electricity prices. You can find the paper here.

Using price signals to encourage customers to use less electricity at times when the cost of producing and delivering the electricity to them is high (and either use it at other times or less altogether) is one way to encourage demand-side response, a subject dealt with extensively in Sustainability First’s GB Electricity Demand project.

The paper considers the impact of greater cost reflectivity through looking at static time of use tariffs, making use of examples from other industrial sectors and results from recent smart grid projects. A number of lessons emerge of general application to any change in the structure of the way domestic customers pay for electricity:

  • If cost-related retail pricing is to be used to encourage customer behaviour change, there needs to be greater coherence in the current socialisation of charges faced by suppliers, and a clearer understanding of how suppliers might reflect these charges in retail prices.
  • Domestic customers are very variable in their overall and peak time use of electricity. Any change to the structure of retail pricing will create winners and losers, and the impact of this needs careful examination.
  • A greater understanding is needed of the factors that can influence consumption at peak times, particularly for those customers who contribute most to the peakiness of the electricity system – both those with significant flexible load and those with little flexibility. Care is needed to avoid incentives having unintended or perverse consequences.

 

Smart Meter Data & Public Interest Issues

In summer 2015, TEDDINET, the Centre for Sustainable Energy and Sustainability First launched a joint ‘research challenge’ to understand how future household smart-meter energy data might be deployed to serve the public interest. We jointly commissioned two university researchers to consider these questions and for each to write a short discussion paper, one on the national perspective and the other on sub-national issues, for publication and debate. You can find the papers here.

We held a successful invited workshop with interested parties, following the completion of the papers in March 2016. The papers are also to be found on the TEDDINET and CSE websites.

 

‘Let’s Get it Right : a suggested framework for improving Government low carbon interventions’.

In June 2015, we published a discussion paper by Jon Bird which spells out suggested principles for government to adopt in the design of new low carbon interventions. You can find the paper here.

The paper puts forward these principles as a guide for policy-makers in reviewing or devising new low-carbon interventions. Many have already been applied piecemeal to particular policy interventions, but in our view have not been applied consistently across the board.  The aim is to avoid needless stop-start for investors – while maintaining the ability so far as possible to keep down costs for energy customers and for the tax-payer.
The principles are :

  1. No retrospection.
  2. Stability of intervention policy with well-defined and pre-determined break points.
  3. Underpinned by well-understood cost curve predictability and development of a competitive supply-chain.
  4. Use of economic modelling only where this adds value, with the assumptions and methodology behind the projections made explicit.
  5. Dialogue with Brussels to ensure long term consistency with State Aids regime.
  6. Be clear on the impact on different user groups (eg fuel poor, all-electric households, and intensive energy users).
  7. Contracts may be preferable to legislation.
  8. Price-based intervention often preferable to quantitative target.
  9. Long term nature of investment requires a cross-party approach.
  10. Learn from previous experience in UK and elsewhere and try to avoid conflicts with the single European energy market.
  11. Progression from even-handed support for new technologies over a clear trajectory to a technology-neutral approach with a common price for carbon.
  12. Keep number and amount of new interventions to a minimum and reduce complexity.