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Smart meters and advanced metering will contribute towards a revolution in energy service subscriptions. Image: Getty.
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Energy as a Service: The next major evolution of the energy market

Smart meters and advanced metering will contribute towards a revolution in energy service subscriptions. Image: Getty.

You could be forgiven for thinking that the energy consumer has never had it so good. Solar panels on roofs give people the chance to generate their own energy. Shiny smart meters offer households the chance to monitor their energy consumption. And consumers are no longer constrained to a handful of energy suppliers.

Yet the energy system continues to let the consumer down. We see ongoing price increases coupled with consumer apathy. Consumers are frustrated by the way they interact with the companies providing them energy services - confusing tariff pricing structures, unclear tariff names, a seemingly homogenous product offer - it makes a consumer wonder whether it’s worth the effort to switch.

Principally, people are frustrated by high costs. This summer has been a case in point – with people consuming less energy due to the sweltering heat, they would expect their bills to fall, however this is not necessarily the case. Just witness the recent raft of announcements by energy companies increasing their tariffs.

Somewhere along the way, the consumer has been forgotten.

We have seen other sectors transformed by putting the consumer at the centre of the business model. Uber achieved this by making it easy and convenient for a user to order transport as a service at a competitive price. Netflix disrupted the TV and film industry by bringing choice, accessibility and simplicity into the home.

Such a shift has happened in the energy sector on a small scale, but not system-wide. It makes one wonder why the change has been so slow. Despite the slow pace, this is the logical evolution of the energy system, with a move towards a subscription-based model for energy, commonly referred to as Energy as a Service (EaaS).

Energy as a Service does away with charging customers for how much energy they use, focusing instead on how they use energy. Rather than paying for the number of kilowatt hours you consume, you will instead select a tariff such as ‘Comfort’ where you could pay a monthly subscription at a competitive fixed price rather than a cost per kilowatt hour. Just like mobile phone companies moved from charging for calls per minute or text to an overall monthly all-inclusive service offering, the same is possible for the energy sector.

Admittedly, energy suppliers are constrained by the system on what they can offer. If that’s the case, then why don’t we change the system? This is possible by introducing new technologies already under development. For example, the adoption of smart technologies that bring price signals to the distribution level will create a wealth of opportunities for innovation.

One criticism of a Netflix-style energy system has been that consumers will find it too complicated to find the best tariff and will end up poring over an app to change their settings each night to try to secure the best energy price for the next day. But this misses the point because new technologies bypass the need for consumers to be overly engaged.

It’s about keeping things simple. Consumers should input their preferences once into an app or website and then the system should do the work autonomously to give them the optimal prices and offering.

Some may regard EaaS as a revolution for the energy sector. Yet it was actually the original value proposition of utilities in the 1950s when consumers were offered instant, continuous, low-cost electricity services. Utilities attached value to consumers’ energy consumption behaviours and what went on behind the meter. But things got tricky with regulation, deregulation and reregulation. Somewhere along the way this message was lost and the people behind the meter became an afterthought.

In fact, the true end point of the energy value chain is not the meter but includes the cost of appliances and equipment - the white goods, TVs, phones, and gadgets for households and equipment,

machinery, and computers for businesses.

So actually, EaaS isn’t a revolution. It’s coming back to the original principals of providing the best possible service to consumers and taking advantage of the full electricity value chain.

Ultimately, people want things to be simple. They want heat, light and fair prices.

Richard Dowling's photo
Contributer

Richard Dowling Chief economist, The Faraday Grid

Richard Dowling is chief economist at technology provider The Faraday Grid.

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