New Thinking: The changing role of consumers in the energy system

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on Jul 8, 16 • posted by

New Thinking: The changing role of consumers in the energy system

Richard-Hoggett-blog-smallerRethinking the role of consumers in our evolving energy system

Richard Hoggett, IGov Team, 8th July 2016

The GB energy system is designed to meet the energy demand of consumers, whether they are domestic, commercial or industrial users. Regardless of the level or timing of demand, the system is designed to ensure there is always sufficient supply available to meet it. This practice dates back to the post war years when the desire was to maximise energy output to keep pace with growing demand, to support economic growth. This supply-oriented focus has changed little since then, despite the then monopoly state owned system being privatised and liberalised. It has led to a GB energy system that is highly centralised (but siloed) across electricity, heat and transport. Energy moves in one direction from production through to consumption and policy and wider governance has become dominated by supply side thinking. It has also led to consumers that are for the most part, especially for smaller energy users, passive and disengaged from energy.

The energy system is now undergoing rapid and profound change, due to a range of different drivers from technology and ICT developments through to new business models and social practices. The latest Energy & Climate Change Committee report on low carbon infrastructure highlighted how significant quantities of generation, such as small-scale solar and wind, are connecting to the distribution networks. These forms of Distributed Energy Resources (DER) are part of wider range of options that include demand reduction, demand side resources, and storage, many on the customer side of the meter. Despite all sorts of barriers to development, there are also new entrants in the market, including local authorities and companies offering a range of services, including aggregation, virtual power plants/markets, etc, and there has been a growth in community energy schemes and investment in in small and large renewable energy schemes by individuals.

All the expectations are that these trends will continue. It seems likely that the system will move away from linear to multiple energy flows, and will focus increasingly across-vectors for heat, power, and transport. Collectively all of this is starting to challenge the current top down, centralised approach to energy system operation and supply. This is particularly because many of the energy system changes are from the bottom up and therefore much closer to the consumers that create demand. Smart meters will open up even more opportunities. The expectation from DECC, Ofgem, the NIC, albeit with limited discussion about how this will happen, is that the system will become increasingly smarter creating more opportunities for consumers to engage. It has never been more important to think about what role people have in the energy system: as consumers, customers, citizens (and voters).

Consumer engagement is not something GB has been great at. There has been a sustained lack of action to inform consumers of what changes are happening, why they are happening or what the cost implications are, or could be, for them. CSE has done work on this and highlighted the need to gain ‘meaningful public consent  given that: people will pay for some of the costs of transforming the energy system through their bills; they will have to accept change within their communities and landscapes; and they will need to be willing to act e.g. such as through behaviour change, investment decisions and through giving permission for data sharing. In terms of engagement we have also been stuck in a rut since privatisation, where consumer engagement tends to be equated to switching supplier. Something that, looking at the CMA’s final report, we have also not been great at enabling to date, particularly in terms of smaller energy users. The way the system is changing means we need to rethink and re-engage with the role that people play within the system, if we want to create a legitimate low carbon energy system that is also secure and affordable.

There are some useful lessons we could learn from other countries. In the US, the reforms taking place as part of the New York State’s REV are something that IGov has extensively written about. The NY REV redefines customers according to three types of customers based on how they might interact with the system:

  • Traditional consumers are those who do not choose to actively manage their energy usage, or for whom it is difficult to do so
  • Active consumers are those customers who undertake DER[1] measures that allow them to actively modulate their usage in response to rate signals with the purpose of reducing their bills
  • Prosumers who install or participate in DER including generation or other technologies that allows them to provide services to the grid


The interest in New York is about how to create value for both (all types of) customers and the system itself as it transforms; and they recognise that system needs to be optimized at the customer end as well as the centralized production end. With a growing uptake of DER they also highlighted how the distinction between consumer and producer begins to dissolve, making it increasingly important to provide customers with new value signals to engage with the system.

In Australia, the energy network companies are also taking a customer-orientated approach to their electricity future. This is partly a response from network companies grappling with the rapid system changes that are happening as a result of the uptake of PV. It was estimated this year that around 1.3 million residential users have installed around 3.8GW of rooftop PV, with considerable scope for more, especially in non-residential sectors. Even more profound changes could occur from the uptake of storage, as falling costs could lead to a rapid growth in the uptake of electric vehicles and solar/storage systems in homes, offices and in neighbourhood mini-grids. This could see distributors facing a “death spiral” from increasing grid maintenance costs at a time of falling distributed generation and storage costs. IGov current has a PhD opportunity in this area.

The Australian Energy Networks Association (ENA) is involved in an Electricity Network Transformation Roadmap which recognises that these developments are part of a wider transformation in customer aspirations and new levels of empowerment, not just about technologies themselves. Comparisons are made to the sort of changes that have been seen in terms of taxis, accommodation, newspapers and telecommunications where conventional approaches to service delivery have been upended. The uptake of DER, like PV, which are more decentralised in terms of geographic location, ownership status and operation profiles are influencing how customers use, produce and value electricity services. Ultimately it is leading the Australian network companies to recognise that the design and operation of the wider system needs to be rethought and that begins with putting customers into the centre of their thinking, in terms of what they will value as the system changes. The shift is from a supply side focus based on historical or existing products and services towards the demand-side based on customer needs and aspirations – focussing on the outcomes that customers seek. It is also a resetting of their mindset so that they have a process whereby they automatically think about how they can actively and meaningfully engage with customers within the process.

The ENA analysis has moved their thinking of consumer from: residential; SMEs; commercial and industrial towards a spectrum of ‘empowered- engaged-essential’, not that dissimilar to the New York REV, as discussed above. In addition, the ENA provide a range of finer detail on each segment e.g. empowered users are further segmented into those that are ‘autonomous’ or ‘Tech-focussed’, etc. A summary of the different end-user types is shown in Figures 1 and much more detail on each segment is available in the report[2]. They have an expectation that the majority of consumers will become either actively or passively engaged within the electricity system going forward.

Figure 1: Example market segmentation curve for residential customers in 2025

Customer segmentation

Source: Electricity Network Transformation Roadmap Interim Program Report p33

From a network perspective, the ENA also highlight the emergence of new customer type – new and existing service providers and other market actors who function as a ‘value network’, collaborating and/or competing with network businesses to provide diverse energy and other solutions to end-users. Again, this is not dissimilar to what is expected to occur in the New York REV through the creation of Distribution Service Providers.

Linking to the comments on the need for meaningful public consent above, another interesting take away from the Australian research is a discussion on the way that incumbent energy actors have eroded their social licence with customers. The idea of a social licence has emerged from the Corporate Social Responsibility world, as a way to provide a more legitimate way for companies to gain acceptance and approval from local communities and the wider stakeholders (e.g. customers) that they are involved with. The social licence is based on a hierarchy moving upwards from legitimacy (e.g. to operate), through to credibility (e.g. to provide reliable information and honour commitments) and ultimately resulting in trust (e.g. by building common or shared experiences). Applying this to the electricity sector in Australia, the ENA suggest that some customers feel that they cannot control electricity costs, or understand what makes up their bills and that the combined result of this is that it fosters a lack of ‘permission’ from customers. They give as examples the fact that some customers perceive that networks are not on their side or are not offering value for money. There are clearly parallels here with has been happening in the UK in respect to trust and transparency in the retail sector, which resulted in increasingly political and media attention over the cost of energy and quality of service, much of which ultimately lead to the CMA Energy Inquiry. However, unlike GB, both the NY and Australian response to the changing energy world for customers is to totally rethink the role of customers within the system, including their engagement with how the system may change.

Many of the changes to the GB energy system are more focussed on the demand side and at the distribution level. The system is becoming more flexible and the expectation is that the demand side will become increasingly important for helping to balance variable supply. Not only will consumers need to adopt low carbon technologies and behaviours, or engage with companies that offer such services on their behalf, but they will also need to accept decentralised infrastructure in homes, businesses or their local area. All in all, the consumer will have a much more central role within the energy system than is currently the case. Not all consumers will engage with the changes that are occurring and GB need’s to ensure that those who cannot, or will not, are protected.

However, it is vital that GB starts to rethink the relationship between the energy system and the customers that ultimately shape it. This first requires recognition that thinking of consumers as domestic, commercial, industrial is not particularity useful in the system of the future. A much more nuanced approach is needed, based on customer wishes and needs and reflecting the way that might engage with the system, similar to the ENA’s customer differentiation based on ‘empowered-engaged-essential’. At the same time we also need to have a new conversation with customers about what is happening within the energy world, how it might affect them and what it might cost, in order to gain meaningful public consent. This will require a new national conversation on energy, linked to bottom up local conversations. There should also be the introduction of a new social licence for actors within the energy system, to ensure that consumers are engaged in the process and become the central focus for the way the systems develops; this would match the myriad technical licences which energy stakeholders are required to sign up to.

Our governance approach in GB still seems to view consumers as passive takers of energy. It is time that was rethought so that both GB and (all) customers can capture the benefits or system change and avoid unnecessary disruption.




[1] They define DER as energy technologies that include energy efficiency, and distributed generation, which are engaged at the low voltage, distribution level of the electric grid, either on the customer-side or utility side of the meter. (In Australia the discussion on DER includes distributed generation, storage, DSR)

[2] For non-residential customers the sub-segmentations are: Empowered (Autonomous); Engaged (Active and Passive); Essential (vulnerable and service dependent).

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