Ofgem Chief Executive
This week [July 20] the Government and Ofgem published a plan that will help revolutionise how we all use and pay for energy not just how we generate it. This is essential to hitting the UK’s net zero climate goal while keeping energy bills affordable for everyone. The prize is huge. According to the Carbon Trust, it will save households and businesses an estimated £16.7bn per year by 2050 as we transform the way we generate power, drive our cars and heat our homes. These savings are essential to maintaining public support for net zero. To realise them, we need everyone who can to play an active part while protecting those who can’t.
By 2030, 1 in 3 cars on the road in the UK are forecast to be electric. If everyone charged their electric vehicle at the same time on a winter’s evening, the costs would be huge. We would need to build lots of expensive back-up generation and grid capacity, especially when renewable generation is low because it’s not windy or when it’s dark. If instead people charged their car at different times, we can avoid some of these costs.
To incentivise customers to do this, suppliers will offer them cheaper rates to charge their electric car or run their dishwasher overnight when demand is low, or when renewable generation is high, but still be ready for the morning commute or breakfast. Households shouldn’t notice any difference – apart from lower energy bills. It will also reduce system costs – and bills - for everyone else too.
This represents a fundamental change to how we use and pay for our energy. Today, we typically pay the same for a unit of electricity any time of day. In the future, we will use more electricity when it’s cheapest. As these new tariffs are rolled out in the coming years, we expect companies to offer popular and easy to use smart appliances which automatically draw electricity from the grid at cheaper rates. These include smart chargers which find the cheapest time to charge electric cars and can even earn their owners more money by selling electricity back to the grid when it’s needed. Smart appliances such as freezers can also keep food frozen but use electricity at the cheapest rate to do so.
Consumer attitudes to these new tariffs and smart appliances vary. A small number of people, typically younger and more likely to own an electric car, have already switched to one of these tariffs, but around a quarter of those surveyed (more likely to be older and have no internet access) said they wouldn’t. According to Ofgem research, concerns raised included household appliances being turned on remotely when no one is at home.
Ofgem will work closely with suppliers and other companies to build consumer trust and overcome the practical barriers to rolling out these tariffs and products on a mass scale. We know from other new technologies like smart phones that early adopters tend to be younger but, in time, most people across all generations end up using them. Our research also showed that people who have not yet switched to one of these new tariffs found the potential to cut their energy bills, as well as helping the environment, was compelling.
Protecting the vulnerable
We do know that customers in vulnerable circumstances, who Ofgem has a core remit to protect, may find it harder to adopt these new services. Some cannot choose when they use their energy, for example if they have to keep medical equipment permanently switched on. We will make sure these customers are treated fairly. We do not rule out any options, including price regulation, if we start to see some consumers disadvantaged, especially those in vulnerable situations.
In preparation for all these changes, Ofgem, working closely with government, is making the necessary reforms to the system. Millions of devices from electric cars, heat pumps and smart appliances to solar panels and battery storage will need to be seamlessly integrated, supported by the national smart meter roll-out. This requires a huge change in how the system responds to more complex and flexible energy flows, and bigger roles for automation, data and artificial intelligence to manage them. The innovation and investment needed will generate more green jobs and growth over the next 30 years.
The revolution in how and when we use electricity is good for our wallets and the planet. The more that people adopt these new smart appliances and tariffs, the more we will all save, so it’s in our interests that this succeeds. To do so, ordinary consumers need to be involved, not just the affluent, tech savvy minority. The incredible vaccine roll-out has shown what can be achieved through innovation and the private sector, government and all of us playing our part. We need a similar collaborative approach to net zero. As energy regulator, we will work together with government and industry, to help consumers make the changes needed and ensure the transition to net zero is affordable, fair and inclusive for all.
To find out more about approaches to flexibility and energy system digitalisation, and how that impacts consumers, please join us at our next Green, Fair Future event.
Green, Fair Future: Delivering the flexible energy system of the future takes place 29 July, 12:30 BST: Book your place
This article first appeared in Utility Week.