Efficient electricity prices are only the first step to unleashing the potential for consumers to help drive the energy transition. In this webinar, David Robinson from the Oxford Institute for Energy Studies will present on how consumers can help decarbonize the electricity system and how to engage the demand side through a combination of price and non-price incentives.

1. Power to the People: shifting control over
electricity to citizens and consumers
1
Dr David Robinson
UsersTCP10 webinar,
September 10, 2020

2. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
2INDEX

3. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
3INTRODUCTION

4. • Today, electricity consumers have little influence in the sector
– Liberalization not working as conceived: markets driving decisions
– Central authorities take key decisions (e.g. mix, reliability); consumers pay
• However, power is shifting to consumers and citizens for three reasons:
– Changing electricity system: demand flexibility key
– Changing consumer: incentives and means to exert greater influence
– Changing political calculus: engage consumers and citizens in transition
• Public policy challenge is to create a new liberalization paradigm
– Allowing consumers to drive the process
– Aligning incentives of consumers and the system through markets
4INTRODUCTION
Power to the People

5. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
5THE CHANGING ELECTRICITY SYSTEM

6. 6THE CHANGING ELECTRICITY SYSTEM
Electricity Industry Upside Down

7. • From flex supply to flex demand (for some system requirements)
• New types of flex demand
– Two-way: from interruptible to up/down flexibility
– Real-time: from predictable to unpredictable flexibility
– Local: from system-wide to local flexibility
– All: from large consumers to all consumers
• But incentives to provide this demand flexiblity are weak
Need to develop incentives for consumers to be flexible
7THE CHANGING ELECTRICITY SYSTEM
The system needs flexible demand

8. • Demand exceeded available supply after sun went down (solar off)
• Replacement for solar inadequate, leading to planned rolling blackouts
• Demand flexibility (e.g. lower demand or batteries) could have helped
– Did so for large consumers
– But not for small ones, due to absence of price incentives for flexibility
Incentives for demand flexibility (downward) needed to avoid
unnecessary blackouts and support renewables penetration
8THE CHANGING ELECTRICITY SYSTEM
Glimpse – California outages 08/2020

9. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
9THE CHANGING CONSUMER

10. • Active consumers could contribute in many ways
– lowering costs of system energy security
– facilitating renewables penetration
– competing with existing energy resources
– disciplining energy supply companies
• Consumers now have greater potential and incentives to be active
– The growth and declining costs of BTM resources and digitization
– The rising value of flexibility to the system
– New commercial and social models facilitate active consumption
Consumers have new potential to make competition more effective
and take control of decisions affecting their energy supply.
10THE CHANGING CONSUMER
Why consumers will become more active

11. • Behind the meter (BTM): rooftop solar pv, batteries, smart appliances …
• Relatively limited in most countries but growing quickly
• Reasons for growth depend on asset, consumer, economics, but include
– Falling costs and potential to reduce energy bills
– Wish to control energy mix and security
– Environmental and social objectives
BTM assets empower consumers
THE CHANGING CONSUMER
BTM assets (1)

12. 12THE CHANGING CONSUMER
BTM Assets (2)

13. 13THE CHANGING CONSUMER
Rising EU electricity prices 2008-15
BTM Assets (3)

14. 14THE CHANGING CONSUMER
Rising value of flexibility to balance
Renewable penetration and decentralization raise the cost of
balancing the system and the value of flexibility

15. • Role: Buy flexibility from multiple consumers to resell in markets
• Attractiveness for consumers: lower bill; information about consumption;
environmental attributes; alternative to traditional suppliers
• Attractivess for system: lower cost of demand flexibility; competition for
existing generation.
• Main concerns are related to market access, impact on existing suppliers
and remote control of consumer flexibility
15THE CHANGING CONSUMER
Aggregators
Aggregators use optimization platforms to manage BTM resources

16. • Role: citizens form communities to share energy generation, storage,
distribution, supply, optimization and trading
• Attractiveness to consumer/citizens: most ECs emphasize potential cost
reduction, regaining control, along with environmental and social goals
• Attractiveness to system: policy makers emphasize citizen engagement
in energy transition and tapping demand flexibility; these communities
may also enhance system security of supply
• Main concerns are to ensure that communities increase social welfare
and do not raise system costs or shift costs to others
16THE CHANGING CONSUMER
Energy communities
European legislation encourages development of ECs

17. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
17THE CHANGING POLITICAL CALCULUS

18. • Governments need energy consumers to participate
– Decarbonized electricity system (flexibility)
– Low carbon energy investment (electrification)
– Political support for the energy transition (gilets jaunes)
• Political calculus on liberalization
– System MC > AC: intervene to limit price rises
– System MC < AC: support liberalization to enable lower prices
Governments more likely to support liberalization and consumer
participation as renewables rise and costs of renewables fall
18
Political calculus
THE CHANGING POLITICAL CALCULUS

19. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
19NEW PARADIGM OF DISTRIBUTED POWER

20. • Conditions creating opportunity for consumers to participate in
markets and determine their energy mix and reliance on the system.
• This involves aligning consumer preferences with system needs
– Efficient prices and market access
– Non-price (behavioural) incentives
– Innovation and experimentation
– Managing risks of non-alignment
– New market design: Two-market approach
20NEW PARADIGM OF DISTRIBUTED POWER
Creating the new paradigm

21. • Decarbonization is very expensive.
• Need efficient prices that reflect changing costs
– Fiscal policy reform
– Tariff reform
– Market reform
• Market access
– Access for consumers to all existing markets
– Create local energy and flexibility markets
Reforms to provide efficient prices, access to all markets, new markets
21NEW PARADIGM OF DISTRIBUTED POWER
Efficient prices and market access

22. • Behavioural issues affect success or failure of consumer participation
– Loss aversion, confidentiality, control, comfort, understanding
• Key role of technology and communication strategies (Sarah Darby)
– Connectivity – interactions between technologies, software architecture
– Control – interactions between people and technology
– Care – interactions between people
Behavioural issues can be as important as efficient price signals
22NEW PARADIGM OF DISTRIBUTED POWER
Non-price behavioural incentives

23. • Need for innovation
– Regulation (e.g. tariff design)
– Markets (e.g. new markets and products; consumer acccess)
– Technology (e.g. optimization programmes)
– Social and business models (e.g. aggregation, energy community)
• Government support for R&D is justified on demand side
– Financial support for innovation
– Industrial strategy (EV with renewables)
– Training for users
– Regulatory sandboxes and pilots
23
Innovation and experimentation

24. • Consumers may raise system costs; and system may raise costs or
threaten security by ignoring consumer preferences
• Hidden subsidies (e.g. tariff design with fixed cost in variable tariff)
– Raise system costs and shift cost to others
– Remedies: explict subsidies and tariff reform
• Balkanization (e.g. Energy Communities try to isolate)
– Raises community costs and system costs
– Remedies: consumer freedom, integration opportunity and benefits
• Consumer lose control (e.g. remote control of devices)
– System needs, not consumer preferences, drive remote control
– This can raise system costs and lead to consumer withdrawal
– Remedies: commercial options for consumer control
24NEW PARADIGM OF DISTRIBUTED POWER
Managing risks of non-alignment

25. 25NEW PARADIGM OF DISTRIBUTED POWER
Two-market approach

26. 26NEW PARADIGM OF DISTRIBUTED POWER
• Energy mix that lowers emissions
– Use AA renewable energy whenever available
– Limit need for OD fossil energy
• Efficient level of security of supply
– Reflects consumer preferences regarding reliance on system (VOLL)
– Consumers buying OD energy are responsible for the cost
• Investment incentives
– Flexibility resources
– Supply chain to support demand flexibility
• Exit strategy for renewable subsidies and for capacity support
Benefits of two-market approach

27. • Full benefits of two-market approach require a fundamental change
• Experimenting with individual elements would deliver benefits without
major disruption, for instance incentives to consume AA energy
– AA pricing within an energy community
– AA product offered by supplier
– AA product sold (PPA) to an energy community or industry
– Central auction for AA power backed up by AA contracts
• Government could provide financial support to make the AA attractive and
for required equipment, software and communication.
• These projects could be monitored in a regulatory sandbox and be the
basis for future development of the two market approach.
27NEW PARADIGM OF DISTRIBUTED POWER
Two-markets: experimentation

28. • Introduction
• The changing electricity system
• The changing consumer
• The changing political calculus
• New paradigm of distributed power
• Conclusion
28

29. • Active consumers and citizens are essential for net zero emissions
• Fundamental changes are under way in electricity – the aim should be to
let consumers drive the process rather than central decision-makers
• The aim of the proposed paradigm and the two market design is to open
the way for them to do so.
29CONCLUSIONS
Conclusions

30. • Here are links to OIES selected papers on electricity market design These
and other papers published by the OIES electricity programme can be
found here: https://www.oxfordenergy.org/electricity-programme/
• https://www.oxfordenergy.org/wpcms/wp-
content/uploads/2019/11/Prices-Behind-the-Meter-Insight-61.pdf
• https://www.oxfordenergy.org/wpcms/wp-
content/uploads/2017/06/The-Decarbonised-Electricity-Sysytem-of-the-
Future-The-Two-Market-Approach-OIES-Energy-Insight.pdf
• https://www.oxfordenergy.org/wpcms/wp-
content/uploads/2016/02/Electricity-markets-are-broken-can-they-be-
fixed-EL-17.pdf
30

31. David Robinson
david.robinson@oxfordenergy.org