Ilse Dubois Unlocking demand flexibility for cheaper electricity 12th November 2015

Inefficient electricity systems and inflexible demand result in higher electricity bills

Demand flexibility offers opportunities for improved, efficient electricity systems and cost savings

Unlocking demand flexibility for cheaper electricity

Energy industry in transition

In the past Transition

• Engineering infrastructure investment opportunity

• Large capital and long term investment with low returns based on generation revenue

• Significant risk premium paid by customers

• Technology enabled opportunity

• Low investment needed that enables arbitrage opportunities and higher margins

• Transition inevitable, pace of change driven by innovation

• Government policy still focused on driving capital investment

• New business models with greater risk sharing

Vertical integration in a traditional supplier business model is focused on maximising the amount of electricity sold to customers, not minimizing cost to customers

‘Big 6’ supplier business model

- The market is dominated by the ‘Big 6’ suppliers who also own generation assets

- Their supply businesses primarily exist to buy electricity

from their generation businesses and they are not interested in when customers use energy as they are settled based on assumed time profiles

- This is unhelpful and inefficient for the system, and means they cannot take the opportunity to make savings through demand flexibility

Explanation

Supplier buys from own generation plant well in advance (e.g. 1 year)…

…Supplier aims to maximise how much they sell to customers…

…usage based on assumed time profiles so no saving opportunities through offering demand flexibility

…can only influence their own operating

costs…

…limited savings passed onto

customers

The system is built to service peak demand – which comes at a cost to customers

-Generation and network infrastructure built to meet peak demand

-In UK in 2014:

-Peak demand for the year ~2.5 times higher than the minimum

-Within a day peak can be twice the minimum

-Generation assets only utilised on average at ~58%

Demand

Capacity margin ~10%

Under utilised assets

Total Capacity (de-rated) ~58.2GW

time

GW

System demand and capacity over a day (illustrative example) Explanation

A day in the UK market - Fluctuations in electricity prices

Impact of demand and generation fluctuations on price [UK half hourly spot prices, 27th Oct 2014, £/MWh]

66

225

69

2

3

0 50 100 150 200 250

£8-20

£20-50

£50-100

£100-200

Over £200

0

10

20

30

40

50

60

70

80

90

100

time (half hourly

periods)

£MWh

£86/MWh

£17/MWh

Number of days

Difference between max and min prices in a day [£, number of days, 2014]

Influencing the timing of electricity use becomes crucial as we transition to a low-carbon system if we are to avoid huge costs in building new assets

This transition will further increase the intraday electricity price volatility

Due to greater electrification especially in transport and heating

Impact of low-carbon transition (illustrative example)

GW Under utilised assets

time

Increase in capacity required

Increase in demand peak

Due to new inflexible nuclear and intermittent renewable generation assets (e.g. wind & solar) reducing generation flexibility

Inefficient electricity systems and inflexible demand result in higher electricity bills

Demand flexibility offers opportunities for improved, efficient electricity systems and cost reductions

Unlocking demand flexibility for cheaper electricity

Utilising demand flexibility changes the way suppliers buy electricity, saving money by improving the efficiency of the system

Suppliers with a traditional model use an assumed demand profile for NHH customers to estimate usage rather than actual data so when customers use electricity it makes no difference to them

Demand flexibility (illustrative example)

Flexible demand profile

time

GW

Current demand profile

Consumption of flexible customers can be moved to cheaper periods

The physical structure of energy delivery defines the industry’s cost structure; the Energy Supplier is the hub that manages the financial flows associated

ENERGY SUPPLIER

Distribution Network Operator

Transmission Network/System Operator

CUSTOMER

Physical Energy Flow

Financial Flow

Wholesale Energy Price

Transmission Network Charge &

Balancing costs

Distribution Network Charge

Generator

Regulatory control

Wholesale costs

Supplier operating costs Supplier

profit

Environmental & Social costs

VAT

Network costs

Demand flexibility can be used to optimise most elements that make up the bill

Minimised by shifting flexible demand to off-peak periods

Reduced by actively trading

and varying demand to

match low price periods

Household Bill Savings with demand flexibility

Balancing charges also minimised by

managing usage in real time

Wholesale costs, 39%

Supplier operating costs, 13%

Supplier profit, 6%

Environmental & Social costs, 11%

VAT, 5%

Network costs, 26%

Household Electricity Bill Breakdown (Ofgem 2015)

Government taxes, regulations and legislations Costs of running a supply business

[the only costs that traditional suppliers can effectively control]

Transmission and distribution costs

Cost of electricity trading

11 Further opportunities can arise from raising revenue from participating in balancing services and capacity market

Inefficient electricity systems and inflexible demand result in higher electricity bills

Demand flexibility offers opportunities for improved, efficient electricity systems and cost reductions

Unlocking demand flexibility for cheaper electricity

Tempus unlocks value from customer flexibility to reduce its cost of supply

This approach increases the efficiencies in the system in generation, transmission, distribution and balancing, resulting in lower electricity bills for the customer

We acquire customers who have the potential to be flexible in their electricity use

We fit equipment in their premises to unlock their flexibility

We work with their flexibility to obtain electricity as cheaply as possible

We share this value with our supplied customers by offering more competitive tariffs

Tempus can operate this model due to its proprietary optimisation and control technology, the SAM™

SAM™ (Smart Aggregation Manager)

Customers

Energy purchase based on prediction

‘Real-time’ demand flexibility according to changing market needs

Control signals

Real-time usage data (KWh)

Flexibility profiles (KW)

Consumption profiles (KWh)

Weather data

Market data

System data

…shows variations from

predicted demand…

…over/under use in Grid… In 30 min

settlement period

Prediction

The SAM™ model

Tempus’ system interacts with existing technology at the customer site

Existing

New

Interface controller (secondary equipment)

Tempus Energy Control

BMS control based on Demand Flexibility plan

Existing BMS controller

BMS cloud services

BMS control override and other cloud services (e.g.

energy analysis, maintenance functions)

Internet

… Other

Key:

Assets

Head Office

Cold Storage HVAC Hot water

BMS = Building Management System

- Smart meters: Need to settle customers on their actual consumption to extract value from flexibility

- Non-time sensitive, non-critical load

Ilse.dubois@tempusenergy.com

Thank you!