Chief executive’s view: Price-signal magic

“A mindset of viewing customers as a passive, sometimes inconvenient offtaker at the end of a wire pervades the energy sector.”

Customers don’t want to engage in energy. They don’t want to think about it – they just want to flick the switch. At least that’s what we’ve all been told by “industry experts”. But are they right, or can we empower customers to drive an affordable green energy revolution through a smart grid?

First, let’s remind ourselves just how far the sector has to go before it genuinely understands consumers. The phrase “behind the meter” is an example that says it all. From a customer’s perspective, “behind the meter” is the grid! A mindset of viewing customers as a passive, sometimes inconvenient offtaker at the end of a wire pervades the energy sector.

But a new generation of companies like Octopus have proven this doesn’t have to be the case – and have set out to bring the smart, flexible system to fruition faster and more effectively than industry experts predict.

The most immediate application is that hot topic of the grid impact of accelerating electric vehicle (EV) sales. Our current system can support the equivalent of every single home having an EV if they charge at night, yet some in the industry are suggesting we should throttle EV charging to avoid overloading the system.

The issue isn’t whether the system can handle it, but ensuring that people charge at off-peak times. The most obvious, and consumer-centric, way to do this is to create price signals in the grid to incentivise efficiency.

Octopus’s time of use tariffs show that customers absolutely respond to price signals – our Agile tariff has not only shifted 47 per cent of EV demand out of peak but created a new peak in the early hours. The magic of such tariffs, particularly when combined with existing integration platforms, is that they can shift demand to any pattern we need. Different households in the same street can have their consumption peak at different times so that demand can be managed seamlessly.

And it’s not just electric cars in some far distant future that this applies to. By next year, for example, all new Samsung devices will be internet-enabled, so when a dishwasher’s on button is pushed, the machine can wait until electricity is cheap before starting its wash cycle. Our Agile tariff already works automatically via an API with hundreds of devices – from car chargers to hot tubs, from dishwashers to home batteries.

Concerns have been raised that consumers of such products are early adopters, and not representative of typical households. Nonsense. The iPhone was a classic early adopter product. In the UK it came with a minimum contract approaching £1,000 (and that was 12 years ago), setting it squarely in the camp of the well-off. But it was that exclusive device that paved the way for today’s $30 Android handset.

The reality is that early adopters act as pathfinders; they generate investment in products, services and customer experience, which leads to affordable mass-market products. This bottom-up approach devolves risk to companies, private investors and the wealthy, rather than socialising it. And it incentivises companies to find the exact product that works for their customers – fast – rather than trying to create solutions by committee.

Some well-meaning observers object that a system that encourages households to use energy when it’s cheap will benefit only well-off, “sharp-elbowed” EV-owning consumers. But that is a myth – a patronising one. Low-income householders can be incredible bargain-hunters when given the right information. Energy switching hasn’t worked well at truly engaging people, because it promises an opaque benefit they’ll never really see. Compare that to the proposition that doing your washing now will cost 50p but in a couple of hours’ time it’ll be 15p. It may not sound much, but small instant benefits harness the same power as the 5p plastic bag, driving big behavioural change.

To achieve a smart grid, we need to expose maximum price signals throughout the system, incentivising efficiency at every stage and positioning retailers to build products that suit their customers. Octopus is betting that people will respond to price signals, and we are building all the tech and expertise required to deliver that. Other retailers may believe that customers just want flat monthly prices, as with broadband, and look to optimise everything under the hood.

The magic of the market – and the huge opportunity to drive cleaner and greener energy – is when companies compete to drive down costs in a dynamic system, finding the answer through rapid innovation and competition. This might not work for every retailer straightaway, but those who embrace it will drive down total system costs and enable a greener future more quickly.

Some people may not be able to shift the timing of their energy consumption, but if we harness those who can, we will bring total system costs down and be able to target support – and the benefits of cheaper, greener energy – at those who need it most.

Energy is different, they say. But every single sector that has been revolutionised by technology has thought that. The tech revolution is coming to energy now, and will bring a greener world faster and more cheaply than most participants believe. We need to harness it for the benefit of everyone in society – and for the planet.