There’s a famous saying, “never let a crisis go to waste”. The current energy crisis – while having a terrible impact on many customers – gives the energy sector a golden opportunity to get in shape for the energy transition.
The crisis, being felt to different degrees across Europe, is a consequence of several unrelated factors happening at the same time. Global demand for gas has picked up rapidly, some gas and power facilities have been offline, gas storage levels were lower than normal, and weather conditions resulted in low output from renewables.
The focus has inevitably been on the high energy prices that have fed through to customers and, in some cases, energy retailers’ inability to pass these prices on due to regulated tariffs and price caps.
This short-term focus is understandable, as is the need to protect vulnerable customers. But what are the consequences for the energy transition? We have identified four take-aways that need to be embraced.
They encapsulate our thinking around customer centricity and a more distributed, joined-up energy system. They need to be pursued urgently if we are to hit our carbon goals and have a just, rapid and effective energy transition that works for all customers.
Our four takeaways:
- Current retail energy markets are not fit for a decentralised, highly efficient low-carbon future. Markets today focus on supplying energy up to the meter. They need to integrate energy supply, self-generation, and efficient consumption for customers. Align propositions, business models and market structures around customers and their ultimate needs such as comfort. Focus on providing the services customers need in the most efficient, cleanest way.
- Transform how the energy sector engages with customers – this applies not only energy retailers, but product manufacturers and more. Build transparency and trust; provide personalised insights and advice; empower customers to have more control and make well-informed decisions about their energy needs. The first phase of the energy transition didn’t hugely involve customers – the next phase will.
- Empower smart energy communities – local, green generation integrated with provision of supply and services. These can even be partly, or wholly community owned and led. This will build more resilience from inevitable future global commodity price shocks than many current green tariffs have done during this crisis.
- We urgently need more demand management and flexibility. The new energy system has very different challenges to the old one – including integrating renewables with variable output. Reducing peaks in demand, and increased flexibility to better match generation and demand (in time and in space) will be critical to a successful transition. The solutions lie in demand reduction to reduce peaks, smarter tariffs to incentivise reduction in peak demand, and demand side flexibility – as well as some traditional ‘peaking plant’.
Urgency and speed are important. We need to be making much, much faster progress to hit our 2030 and longer-term carbon targets and goals. We look forward to continuing to work with our clients and the wider industry to, at the required pace, reach a lower carbon energy future.