Business suppliers are being forced to buy too much energy due to a mismatch between the profiles used to generate estimates for usage and the actual behaviour of their customers during the coronavirus lockdown.
Residential suppliers are conversely needing to buy less energy than their customers are actually using. Speaking to Utility Week, Eon head of volume forecasting Sallyann Blackett said the error will eventually be corrected upon meter reconciliation, but this could take up to three years for the gas sector.
“Profiles are great where you’ve got no other information,” Blackett explained. “For a long time, they’ve been the only thing that we’ve had to work with and they still are for a big chunk of the population. Until we’ve got smart metering across the board, we have to have some way of estimating what people are using.
“The problem is the profiles only work in aggregate, so they’re not right for anyone really. They are just right for a group of people on average, which is fine if you’re somewhere close to average.”
She continued: “We know that big weather changes a long way from the seasonal normal can cause issues because the correction mechanism in the deeming algorithm doesn’t reflect weather enough. They also in no way, shape or form allow for significant changes in behaviour away from the profiles.”
As a result of the coronavirus lockdown: “We’ve got a large number of the supply points in power and gas that are dropping demand.
“Not all of them; there are some customers that are using more because they’re supplying to supermarkets, or toilet paper, you know. Not everyone is doing the same thing.
“But a lot of larger supply points that are not working or having reduced their demand a long way from where they normally would be.”
Blackett said residential customers are “probably using a bit more” and certainly not less: “Where you’ve got people in the house all day, they’re going to have heating on that they wouldn’t otherwise had done.”
In a “perfect world” this would be reflected in what suppliers need to buy and what they charge consumers. But, she added: “What happens in practice is both power and gas look at the total amount that’s gone through, which is down, and then smear that down proportionately across the profiles.”
What companies need to buy and what their customers are using are “two massively different things at the moment”. Residential customers are using more energy but their suppliers are needing to buy less, “which sounds wrong but is what you need to do to not over-purchase.”
In the gas sector, Blackett said the problem is exacerbated by the issue of unidentified gas. This gas, which cannot be attributed to metered consumption or leakage and is generally assumed to be lost to theft or metering errors, is spread across all non-daily-metered supply points, typically residential and smaller business customers.
But the overall reduction in demand means the amount of gas considered unidentified is often falling to below zero on a daily basis. As a result, these suppliers are buying even less energy than they should be.
And whilst the error will eventually be corrected, Blackett said this will take longer than usual as suppliers will be unable visit customers to take meter readings themselves.
Nevertheless, Blackett said: “I think it’s almost impossible to change the profiles and that’s what we’ve fed back to the industry. Xoserve, to be fair, did suggest amending the profiles for gas. But the trouble with that is, what do you amend them to?”
She said a crude adjustment could be applied, for example in the gas sector, by shifting the currently negative volume of unidentified gas onto suppliers serving smaller business customers. This would have the effect of reducing their overall allocation and would offset the error somewhat.
However, Blackett said the evidence on which to base such an adjustment is limited and would therefore amount to “layering a guess over a guess.”
She said another, perhaps larger concern, at the moment is policy costs, which now need to spread across a smaller volume of energy than before. For many suppliers, she said the impact of this is likely to run into the “millions”.
Elexon, the code administrator for the Balancing and Settlement Code, recently announced that it would not be seeking changes to the load profiles for electricity for the time being.
Whilst acknowledging that there “will be some misallocation of non-half-hourly volumes”, Elexon chief executive Mark Bygraves said the organisation was “monitoring the data as it becomes available and will report on any findings.”
“We will continue to review this stance and will come back to you with guidance when we have proposals,” he added.