What is Open Energy and could it become a reality in the UK?

In an intentional mirroring of the recent open banking regulations there are growing calls for the opening up of data in the UK energy sector under what would be known as Open Energy.

Scott Carey Oct 03rd 2018
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In an intentional mirroring of the recent open banking regulations there are growing calls for the opening up of data in the UK energy sector under what would be known as Open Energy.

Last month a report from the Federation of Small Businesses (FSB) produced by Fingleton Associates - an independent consultancy that offers strategic advice on competition and regulatory issues which also co-produced the 2014 report that led to open banking - investigates the possibilities of bringing Open Energy regulations into effect here in the UK.

Andy Poole, deputy head of policy at the FSB told Computerworld UK: "The journey with Open Energy dates back two years from a report called The Price of Power. How we generate and use energy is transforming drastically to more distributed and carbon neutral systems, which requires a lot of investment, which comes down to bill or tax payers. So where in the past we speak about unfairness in the existing market, especially for businesses, we look forward to a future smart market."

So what benefits does open energy promise to bring and what needs to happen to make it a reality?

What is open energy?

"Open Energy is the name we give to the reforms that can solve many of the energy market's problems – by making it more like a normal market, not by adding even more regulation to the mix," the report outlines.

"It is a set of policy reforms designed to change the terms of the energy market in favour of customers and innovators, primarily by making market information available through machine-readable open APIs and giving energy customers power over their meter and contract data."

The report makes three broad recommendations to make this a reality:

a. Standardising tariffs and other relevant market information in machine-readable formats to allow automated comparisons of energy tariff offerings.

b. Making smart meter data available through a secure standardised API for approved third parties.

c. Allowing energy customers to delegate contract switching powers to third party intermediaries.

This would allow for "a new generation of technology that connects individual usage with the demands of the overall grid, and to better integrate people's energy consumption by, for example, giving electric cars the information they need to charge when electricity is cheapest, whenever that might be," the report adds.

Technical requirements

In terms of the technical requirements of Open Energy, it would need the entire sector to formalise a more open approach to the data it holds on customers and open up customers' ability to leverage the data coming off of smart metres as they continue their rollout across the UK.

This would allow, in theory, for home and business owners to adjust their energy use according to the supply and demand on the grid for more responsive, and transparent pricing.

The idea hinges on more flexible energy pricing and consumption through what it calls 'price signals'. The report explains: "When energy is plentiful and cheap to produce, it should be cheap to consume too. When demand is high and supply is relatively low, it should be more expensive.

"This is how we manage scarcity in other functioning markets, and without this kind of price mechanism we're doomed to be reliant on fossil fuels or expensive nuclear generation. Introducing price signals, and making the data available for smart home technology to use them, may make it possible to shift much more of our energy use to clean technology – without more subsidies."

Just with open banking, this would require encouraging - or forcing, through the regulators - energy companies to open up their data via a set of standard, secure application programming interfaces (APIs) that could access and leverage these new data streams, ideally driving more switching and bring new, innovative energy services into the market.

The report states: "Open Energy would give business and domestic customers the power to securely authorise other parties to access this data. This would enable accurate comparisons of different tariffs, which would be particularly useful under a time-of-use tariff regime, and allow third party services to use this data for other purposes such as demand management and better monitoring of energy use."

When it comes to technical standards, the FSB recommends closely mirroring those used for open banking, where the data is more sensitive by nature. These include the use of secure Rest APIs, vetting third party access to these APIs (whitelisting), giving users full control over how their data is being used and the implementation of security standards, such as the use of HTTPS for API transactions and OAuth 2.0 encryption.

This will require quite a drastic change for what Andy Crouch, CTO at the Open Energy Market, calls an "archaic" industry when it comes to data.

"At present, there are a great number of data collectors, suppliers and data sources but the vast majority do not welcome integration," Crouch told Computerworld UK by email. "The industry is underpinned by 40-year-old technology where Excel spreadsheets and FTP file exchanges remain the preferred mechanism.

"In fact, even recently I've been offered the choice of CSV file format when integrating with one data collector; they had over 30 different formats thanks to different suppliers enforcing their own column layout, which is laughable in 2018."

Smart meters

Smart meters and open data could form the backbone of this new, open energy ecosystem. By 2020, around 30 million households and businesses across the UK will have a smart meter fitted.

"Smart meters will change the data available on energy use from one manual reading every few months to an automatic reading every half hour," the report goes on to state.

However, says Allen Creedy, FSB energy and environment chair in the foreward to the report: "Simply installing this new hardware won't automatically provide any benefits to customers.

"Instead, the benefits of smart meters will only be realised with the changes to the market, and the resultant changes to customer behaviours, that this technology empowers."

Benefits

The benefits of Open Energy closely mirror those intended for open banking, namely: a better deal for consumers and a more modern, transparent energy industry.

The FSB calls for "a new, smart energy market that acknowledges a diverse customer base and enables smaller businesses to make holistic decisions.

"Business customers must be empowered to understand and choose what services they pay for, where they can find the best deal, where they can save energy, and where and how their energy is generated."

"In this context, therefore, it is absolutely critical that businesses and consumers – and those operating on their behalf – have timely and secure access to consumption and usage data," Creedy writes. "Open data is the key to unlocking the potential of a smart, flexible and fair energy market."

As well as saving customers some money on their energy bills, Open Energy could fundamentally rejuvenate people's trust in the energy industry.

As the FSB report states, it's about "enabling customer choice to be the fundamental driver of competition in the market, switching to better value of more innovative suppliers, even if that means incumbents decline or go out of business. If we can make energy a more open and dynamic market, we may be able to rescue people's perceptions of markets more generally too."

This will be music to the ears of new entrants to the UK energy market like Bulb, which promises more renewable energy distribution at lower prices than incumbents.

Switching

Just like banking, energy customers generally don't switch providers, allowing themselves to be locked into bad deals through complacency. Lack of access to information and a remaining 'hassle factor' continue to prove the main barriers to switching for many energy customers.

"The solution, we argue, is to give SME and domestic energy customers control over their usage data and the power to outsource some of their energy decisions to others," the report states.

According to Crouch at Open Energy Market: "Applications could empower the consumers through automation and artificial intelligence.

"The hassle can be removed by identifying the most suitable and cost-effective contract, while automation can handle the switch over to the new contract. Those long, drawn-out processes can be hugely reduced to minutes. That would be a real driver to increase the number of consumers who switch on a regular basis."

He feels the report's recommendations do not go far enough, however. "The FSB recommendations are a great start, but the report is limited by only covering domestic and SME-size business users. It ignores the larger, more archaic commercial energy markets that suffer from even greater issues," he said.

Access to information is of course integral to switching though. A recent trial involving 50,000 customers by Ofgem found that more than one in five disengaged customers of a simplified collective switch ended up changing their energy deal, averaging savings of around £300. That is eight times the switching rate for customers who received no information about better offers.

Rob Salter-Church, Ofgem's interim executive director for consumers and markets, said: "The results of this trial demonstrate that offering a simplified collective switch and providing personalised savings can be a big help in giving these customers the confidence and reassurance they need to start a switch."

This may seem obvious, but it should only strengthen calls for a more open energy market that benefits consumer and small businesses, in much of the same spirit as open banking seeks to help consumers get the best deal on their savings account or mortgage.

What next?

The recommendations of this report are just that however: recommendations. They will require cross-industry support and the enforcement power of the regulator Ofgem.

"Legislation or regulatory enforcement may be the best way to bring the energy industry into the 21st century," Crouch from Open Energy Market said. "Suppliers and data providers will need to invest considerable time and money into implementing a new standard. That standard would almost certainly need a body like Ofgem to sponsor it and enforce its rollout. The project would need to allow data sources time to comply and during that period customers are unlikely to see any benefit. So, the faster this standard can be formalised, the better."

Computerworld UK reached out to Ofgem for further comment about the possible implementation of Open Energy but the regulator has not responded at time of publishing.

Poole from the FSB is optimistic. "If you can do this for banking, with all the critical data involved there, then we should be able to do it for the energy market," he said. "So we are looking at open banking as a template."

"I think it comes down to the industry, " Poole added. "We need to closely monitor open banking and we are hopeful that the benefits will filter though. I think for us at this stage we want to make the case, we aren't market experts, but our view is to push this onto the industry to make this a priority and get the regulator Ofgem to start thinking about this as well."