One of the biggest challenges surrounding the deployment of smart meters and smart grids is how we create a market infrastructure that will simultaneously protect the competitive nature of the British energy market while delivering meaningful, new choices for consumers over how they consume energy and embrace low-carbon technologies in their homes and lives.
We often hear about the British energy market being unique. This is not always a good thing, especially when trying to attract investment, because unique markets are often also perceived as risky markets. Certainly we are different. We are consistently one of the most competitive energy markets in the world. Britain is one of the few markets where energy suppliers will be responsible for installing smart meters for their customers, putting the consumer at the heart of the programme.
The programme itself is arguably the most ambitious in the world, with around 53 million meters being installed in almost 30 million homes and small businesses. The UK also operates perhaps the most deregulated and unbundled energy market, with a multitude of businesses participating in the market across different roles.
The real challenge in any smart-enabled, competitive energy market is opening up the information and communications infrastructure created through the deployment of smart meters and the creation of smart grids, to all participants. The organisations making use of this physical infrastructure are unlikely to be those that own it. These organisations will change throughout the life of the infrastructure investment as consumers choose their energy suppliers and service providers. Additionally, that infrastructure may be used concurrently by these different organisations for different purposes: traditional energy supply; operation of the energy networks in smarter ways; and the provision of low-carbon energy services.
However, many of the challenges that we face here in Britain are common around the globe:
· the smart metering infrastructure is not deployed overnight; it is progressive – so how do you align investment with making a return?
· today’s smart technologies are continuing to mature and commercialise – so when is the right time to make that investment?
· smart technologies will continue to evolve – so whatever is put in place needs to be able to support multiple generations of different technologies;
· consumer attitudes are evolving all the time – and different consumers are motivated by different things;
· how do those investing in smart metering and smart grids and developing low-carbon technologies realise their return?
A highly unbundled market with a lot of participants and multilateral commercial arrangements can look daunting. However, the required investment can be secured if policy, legislation and regulation are coherently aligned; there is clarity over the roles and responsibilities of market participants; and the mechanisms are defined for how the physical infrastructure is shared and there is a common market infrastructure in place that supports those market arrangements.
It is this latter, essential piece of the smart equation that is seldom discussed: the importance of defining the market rules and establishing a market infrastructure that enables the market to operate effectively.
The guiding principle for any market infrastructure should be that it only handles activities that are common to all market participants. Additionally, the infrastructure should not be responsible for activities where market participants can either differentiate themselves or create cost leadership. When these fundamental principles are applied to the creation of market infrastructures, the value of the market is maximised and the barriers to competition minimised. This makes it easier to get innovative new products and services to market, making it an attractive place to do business and enhancing consumer choice.
An effective infrastructure can reduce the complexity of operating in a market that requires organisations to manage the multilateral and multiple bilateral commercial arrangements that exist in highly unbundled and competitive markets with high rates of consumer switching. In doing so, it removes cost from the market in managing those processes. This clarity helps to secure the required investment.
Britain’s smart metering implementation programme is focused on creating the required market rules and infrastructure through the design of the Smart Energy Code (Sec) and the creation of the Data and Communications Company (DCC) at the heart of the smart-enabled energy market. But it is vital that, in doing so, we do not lose sight of why the Sec and the DCC are so fundamental to Britain’s energy security.
Companies that operate in less unbundled markets often find it difficult to understand how Britain’s energy market operates successfully. It is much easier for those of us with experience of operating in highly unbundled markets to look at more aggregated markets and understand how they operate.
In less unbundled markets, the distributor is responsible for the deployment of smart meters. Therefore, they are likely to have responsibility for delivering the sort of market infrastructure that enables the use of the physical smart infrastructure by multiple parties and supports the consumer switching processes. In markets with a lot of participants, where individual distribution businesses do not have the scale to implement this sort of market infrastructure, it may be that governments create a DCC-like body to facilitate the operation of their national energy markets.
It is the benefits being targeted by governments and regulators that will drive not just the approach to market roles and responsibilities, but also the technology choices and the approach to deployment. Therefore, the lessons and experience from other markets, while valuable, cannot directly translate to the challenge we face here in Britain. Instead, we should fully expect that, as happened following the opening of the market in 1998, our experiences here will inform the thinking in other markets as they embrace the smart revolution, creating opportunities for British businesses to leverage their experience globally.
Rich Hampshire is Logica’s lead consultant for smart metering and smart grids
This article first appeared in Utility Week’s print edition of 21st September 2012.
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