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Podcast S0E0

Special Episode: The Energy Crisis

In this episode, Jon Slowe, together with Delta-EE experts, explores how the energy industry and policy makers are responding to the energy crisis – and why he is frustrated that more isn’t being done on the demand side.

Episode transcript

[00:00:04.690] - Jon

Welcome to Talking New Energy, a podcast from Delta-EE, the new energy experts. We'll be talking about how the energy transition is developing across Europe with guests who are working at the leading edge of this transition.

 

[00:00:21.750] - Jon

Hello, and welcome to the episode. Today in this special episode, we're looking at the energy crisis that is engulfing Europe, well and beyond at the moment and what is being done in response to that and what we think can be done in response to that. To explore this, I'm joined by three of my colleagues. Let's say hello quickly. Nigel Timperley. Hello, Nigel.

 

[00:00:45.570] - Nigel

Hi, Jon.

 

[00:00:47.250] - Jon

Alix Weil.

 

[00:00:49.230] - Alix

Hi, Jon.

 

[00:00:50.260] - Jon

And David Trevithick. Hi, David.

 

[00:00:52.600] - David

Hi, Jon.

 

[00:00:54.270] - Jon

So we're going to look at three things, the policy focus, which we won't spend too long on because it's a subject of a lot of discussion. And most of you listening will probably be a bit bored by all the policy news, energy policy news that's out at the moment. Then a bit around what the energy sector is doing in response to the crisis and weave that in with what we think the energy sector could be doing in response to this crisis. And hopefully this will stimulate some ideas for you to take back to your companies, your work in the energy transition. Let's see where it goes. So, to start off, let's have a quick look at policy. I wrote a LinkedIn blog recently that got a lot of views because I think I started it with a line - I'm very frustrated - which is probably a bit of a catchy line, but I'm frustrated at the lack of focus on the demand side. So if we look at policy focus across different European countries, it tends to be on nuclear, more big renewables, things like that on the supply side rather than the demand side. And that frustrates me hugely because I think we should be starting with the customer, putting the customer at the middle, focusing on what the customer needs and doing that in the most efficient way, and then working out how to supply that.

 

[00:02:23.610] - Jon

So opening it up to David, Alix, Nigel, am I naive to be frustrated or are you frustrated as well? How do you feel?

 

[00:02:37.630] - Nigel

I'm pretty frustrated as well. I don't think we're alone in that. The general tenet of a lot of the policy responses have been supply led upstream, as you say, big nukes and so on, all, which is fine. But it's only half the story. And as much as anything I'd say, I'm frustrated, puzzled by it, really. It's a baffling situation when there's a clear open goal that governments don't seem to want to take the opportunity of putting the ball in the net, Payback opportunities on demand side measures have never looked so attractive as they are now, because energy prices are doing a fantastic job of providing free subsidies, in effect, which suppliers could capitalise on and policy makers could build on. And yet policymakers don't seem to want to step into that gap. It's very strange.

 

[00:03:52.240] - Jon

Nigel, I'm frustrated. You're puzzled. Alix, if you look at the situation in France, there's a bit of support for heating subsidies, isn't there at the moment. So are you puzzled or frustrated or would you characterise it as something else?

 

[00:04:07.450] - Alix

I'm trying to stay optimistic, Jon, but I'm also quite frustrated, I must say, because you're right, there have been changes, new subsidies, as you say, for heat pumps, for insulation, for biomass heaters. But I don't think that's enough. Usually those help. There may be €1000 more and obviously that's just not enough to provide the innovation wave that I think we need in France and in Europe, I think there should be, as you say, more focus on the demand side and we don't really see it. So in France, it's presidential election time and it's a great time to implement changes, I think. But that's not really what we hear in the speeches at the moment.

 

[00:04:55.630] - Jon

So that €1000 more. €1000 more than what? As a household in France, what could I get to help me put in a more efficient heating system and insulate my home better?

 

[00:05:10.990] - Alix

So it will depend on the income of the household. I think the maximum subsidies that you can claim is around €10,000 to install a heat pump. So with this 1000 Euro more, you end up with €11,000.

 

[00:05:24.080] - Jon

Okay, so frustrated, puzzled, optimistic. David, your speciality is energy insights and customer engagement. I'm not sure that's a government or a policy topic or perhaps there are things governments or policymakers could do. How are you feeling about the policy response overall?

 

[00:05:46.990] - David

Well, frustrated as others, I think. But if you bring it back to the consumer right now and the immediate problem, it's around high energy prices and they're faced with a bill, and with that bill, there are a lot of costs that are not controllable for them. So actually just spitting them out. So you take out, for instance, the government green initiatives and network costs and actually leave an energy bill that customers can actually control. And then you might be able to see some initiatives that they can do to reduce that consumption, see a difference to their bill will be a bigger proportion of reduction, for instance, that they might see with all these additional fixed costs built into the bill.

 

[00:06:32.050] - Jon

And in your view, David, how much do customers really understand where their energy is going? We hear a lot on the news about people not being able to afford to put the heating on or having to decide how often to heat their water tank at home. Do you think customers are really aware of, they see the energy bill, but how that breaks down? Or do you still think we've got a long, long way to go before customers really understand how they're using energy?

 

[00:07:02.050] - David

People are at different stages of that. I think for a lot of customers, they're at the very early stages of understanding and a big information drive is needed if you like there. But the beauty at the moment is that there's an opportunity. There's a huge amount of demand right now. We're seeing customer interaction through energy retail websites, through apps, through call centres. People are engaged now that perhaps weren't before. So that is a great opportunity to engage them, whether that be through information campaigns or whether it's actually going to take use that demand and actually enable them to take action on the back of that.

 

[00:07:44.290] - Jon

It's a really interesting point, actually, because many conversations I've had with energy retailers about providing more added value services. The response here is our customers don't care about energy. Energy is a low interest category. No one cares, no one's engaged, no one's bothered. But now suddenly everyone's bothered. So is it a really big opportunity for the industry actually at this stage, or are they too much on the back foot? What do people think?

 

[00:08:18.550] - David

I think it's a huge opportunity. It's just how it's framed. You say people engage in energy, people perhaps don't care too much about or understand what a kilowatt hour is, but they might know what a Euro in their pocket is. So it's about reframing the conversation in ways and lifestyles that make sense to people.

 

[00:08:37.330] - Nigel

Yeah, I think I agree with that. David also used the word control a moment ago, which I think is a factor. There's a lot of very scared people around and we need to give people the ability to control their costs. So, yeah, insight is definitely the first step on that journey. But just telling them, don't worry, we'll build some nukes upstream in ten years time, doesn't really do a lot for how the hell am I going to keep my house warm this winter? And it's that lack of control. If the answer is some vague upstream mystery, well, that's no real answer at all. But if you help me to insulate my home or you help me, for instance, we've seen, particularly in mainland Europe, the emergence of solar as a service offers, okay, where the capital barrier to obtaining solar is removed by companies like DZ-4 and essentially rent a solar system, in their case, either with or without storage for a fixed monthly amount. And the economics of that just got a whole lot better because it's now eating into a larger bill. And we've just done a big piece of work, actually, at Delta-EE on self consumption, which is an idea whose time has definitely come, self consumption from PV, because again, this sort of free subsidy the market is giving householders, along with the sheer terror of wanting to do something and take back control, if you like.

 

[00:10:18.710] - Nigel

That is creating the opportunity. Policymakers have not responded to that, but we are seeing mercifully, the market itself provides some solutions.

 

[00:10:29.630] - Jon

So, Nigel, does that open something like solar, for example, unless it's on social housing, it's been probably be considered a rich customer solution. And, you know, for all of us speaking today, yeah, the rise in energy prices hurts us, but we're not going to have to choose between heating and eating. We're in relatively well paid jobs. So do those models then bring solar to people who are really struggling with energy bills at the moment? Can they really open up the market through these finance models in that way?

 

[00:11:09.890] - Nigel

I think so. I think we're in the really early days of that. But absolutely, to be fair, there are a few of these solar as a service model. Companies like Otovo and Yellow Solar offer it as well. So we asked to see more of that. Otovo in particular are doing very well and are in several different European countries now. So, yes, it's not just about appealing to the affluent middle classes. As soon as you take that capital barrier out of the way and you can see a clear payback in your energy bill, it starts to make sense to a much wider set of customers. But I still think it's got a lot further to go as a possible model. And in particular, energy suppliers could do more with that model. I think there's a lot of finance. We've done a lot of work on finance recently on finance providers, a lot of finance trying to get into the green energy space, the new energy space, and these sort of amortisation type models, which have done very well in the B2B space, have made comparatively little few in roads into the B2C space.

 

[00:12:24.330] - Nigel

So, Alix, you were talking about an interesting model you see in the States from Enervee.

 

[00:12:29.450] - Alix

Yeah, absolutely. So I actually just had a conversation with this company called Enervee, based in the States. And they developed a marketplace that they offer to utilities. And on this marketplace, they provide white goods or heating assets such as heat pumps, together with installation. But the really interesting aspect of the offer is that they actually provide what they call eco financing with it. So customers are able to get some finance to acquire these white goods or heating systems that are actually very environmental friendly. They have been rated and selected by Enervee, and they're actually able to offer that because they have partnerships with banks and also with the state so the state of California. So I found it quite interesting because it actually gives the opportunity for lower income households to access these more energy efficient goods that they could not acquire if it was a capital purchase. And in many cases, also, customers actually don't even have the possibility to get a loan for several reasons. So that's definitely quite interesting. And that's the kind of model that could totally be replicated for other systems, insulation, heating systems, and not just in the US. I think in Europe there's a gap.

 

[00:13:56.640] - Alix

And I think the gap is that we need the different actors to work together to offer the type of system, not just the private sector, not just the public sector, but these two should come together to actually provide those kinds of offers.

 

[00:14:11.520] - Jon

Is that a range, Alix? So I can imagine for some parts of the market, relying on private finance loan probably wouldn't be enough. And you need that marriage that joining together of private finance and public finance or private finance and public support to make it work. But in other parts of the market, maybe private finance alone could provide a solution. Nigel, that might be a bit like the solar as a service type model.

 

[00:14:40.370] - Nigel

Yeah. Solar as a service is very powerful because the revenues are likely to endure for an awful long time. If you've got a solar system that lasts 25 years, that gives you 25 years to amortise those revenue flows. So it makes paybacks quite plausible, especially as solar systems become more powerful and components get cheaper and the gap between that and imported power gets bigger. Yes, the solar I think, as we said before, this self consumption model has got a very strong future in the near term.

 

[00:15:23.150] - Jon

Okay. So there's a whole host of models around finance based models where you provide a high capex item, like insulation, like a heat pump, like a solar panel. You provide that as a service or asset leasing or somewhere on the spectrum of as a service to customers. And that fits for me very much with the new energy paradigm, where we'll have lots of high capex, low opex assets in customers, homes that provide customers with what they want at a much lower cost. But finance have to be an integral part of that solution. I remember talking with someone who had a brilliant analogy for me. He was talking about government energy efficiency schemes. And I think most government energy efficiency schemes that I've seen stand out by their failure. So they might be very cleverly constructed. They might have carrots and sticks. The carrot might be that the energy efficiency will reduce your energy costs more than any repayments you make. The stick might be, well, we’ll tax energy a bit more to make the payback work. And what this person said, he says, yeah, you can have carrots and sticks, but what you really need as well is tambourines, because you need to excite people.

 

[00:16:55.390] - Jon

And a lot of energy efficiency is a little bit dull. So carrots, sticks and tambourines is always stuck in my head. And I'm interested, David, maybe from your side, what you think about can energy insights help to engage people and can engagement tip into excitement or Nigel and Alix, is there anything you've seen in the market where you think it's really. Yeah, there's a bit of tambourine in that.

 

[00:17:29.270] - David

I think the carrots and sticks, they're important levers, definitely. But I think there's actually a lot that can be done without using sort of blunt tools like that. And actually, if you learn from the world of behavioural science, there are actually some very simple, quick and inexpensive techniques that can be used to effectively change consumer behaviour. That's what we're trying to do in terms of reducing sort of energy consumption. There's a whole host of techniques that can be done. One of the most powerful things is using default settings. As consumers, we take the path of least resistance quite often in our general lives because we're busy and we've got lots of things to go on. We don't want to occupy our brain capacity thinking through decisions. So if there's a way to have a path of least resistance through to a solution through default settings, and that's the way to do it. We're surrounded by defaults, by a new phone. There's hundreds probably the default settings already on there, so you don't have to programme things. An analogy in the energy world is actually thinking about green energy as a default tariff. For instance, there's a study in Switzerland with 200,000 customers across two retailers, and also a load of business customers as well.

 

[00:18:55.680] - David

And they found that the default tariff being a green energy tariff, they found that people, 80% of consumers stayed on that default green electricity tariff, even though it's more expensive, and they stayed there for four years or more. So a simple technique like that can actually have a huge impact.

 

[00:19:17.030] - Jon

Could it be something as well, David, like if it's thinking of a smart thermostat, the smart thermostat says it learns your building physics. It knows how much energy you would save by turning your thermostat down by one degree. It knows your energy price, so it knows how much money you save. So almost the default of, hey, would you like us press this button to turn your thermostat settings back down by one degree? It will save you £11.33 a week. And it's not quite a default setting, but it's making it easy for customers. I guess?

 

[00:19:55.740] - David

That's it. It's taking that thinking, obviously, you've got to abide by GDPR rules, so there are some things that you need to navigate within that. If you can use some of those techniques, like default settings, just to make sure that customer journey is smooth and frictionless, but for the end goal of reducing carbon emissions, for instance, then, yeah, techniques like that would work very well. Any automation optimization, people then don't have to think about it on a daily basis. It's done for them.

 

[00:20:31.890] - Jon

Well, go on, Alix.

 

[00:20:35.310] - Alix

I just, listening to you. There's something that comes up quite often. What you're saying. It's the word easy, actually. And I think easiness is also something really important to enable customers to navigate the energy transition. And it's not just easiness having the default option. I think it's also easiness on getting the right item, the right smart thermostat, and most of the right installation. And I think customers need advice. They need the right marketplace to actually acquire the right systems. And we've seen some offers appearing in Europe that are quite interesting. So you cited Otovo Nigel, which is the marketplace, and it makes really easy for customers to get the right system. But I think we need more of that because the energy user remains quite unengaged with energy. They don't know what kilowatt hours are. So, yeah, they need energy suppliers or other actors to help them, to advise them to make the right choices. I think.

 

[00:21:35.910] - Jon

Coming back to your puzzledness, Nigel. The word used to be in, which is puzzled and putting myself in a policy maker shoes. Maybe they see that the lack of ease in energy efficiency, Alix, I'm sure they do see the lack of ease in energy efficiency on demand side that you've just mentioned. And what they don't see is the scalable business models from the industry that will deliver these demand side solutions or be a big part in delivering those demand side solutions, whereas what they do see is scalable business models for onshore wind, offshore wind, nuclear and so on. So, Nigel and Alix, I know you both look, your research is focused on new business models. You mentioned a few companies, but do you have confidence that there are those scalable business models out there that can support customers with meeting their needs in the most efficient way?

 

[00:22:43.090] - Nigel

It's a really tough question. I would say there's still some reticence, particularly in B2C. B2B, we're seeing a lot of really innovative models around provision of. We've talked about energy as a service, but that's kind of the end game for this, removing capital barriers and providing outcome based services. And we could talk all day about what's going on in B2B, but that's not really where the crisis predominantly is at. Then for me, becomes why the reticence to do the same in the B2C space. And I think that the innovators maybe sometimes have the same reticence that the policymakers have. The mystery of the customer introduces risk, the capricious residential customer who is so hard to understand. Whereas a business tends to be more predictable, more rational, their demand profiles are often a lot more predictable because they have a fixed operational profile. It's easier to work with that. But also, there's this feeling that finance. I had an interesting conversation with a senior asset leasing manager at HSBC, and he talked to me about collateral. He's saying that basically solar PV in the home or smart meters or any of these new bits of kits that were putting in homes.

 

[00:24:15.120] - Nigel

He said they're useless. It will cost me more to repossess them than they're worth when I do so they're useless as collateral. But he said there is one thing I could use as collateral, and that's the near certainty of future energy demand. I could securitize future energy demand and use that as a form of collateral. And in fact, he'd done that. He'd actually done that with a company that was putting in smart meters and had a right to claim a stake in those future revenues. And it amazes me that nobody has done this, that nobody's thinking that creatively in the B2C space.

 

[00:24:53.970] - Jon

Isn't that what, in a way, what network operators do, what DSOs do? They build a substation. They know that they're going to be able to recover use of network charges for 30, 40 years. They finance it, they depreciate it over a very long time period indeed.

 

[00:25:13.450] - Nigel

Indeed, but the difference is their incomes are regulated. They know they're going to get it because it's guaranteed by government. What I'm saying is you don't really need the government guarantee because the demand will be there anyway. And those finance posts, we are seeing the emergence of green mortgages, which are like a long term amortised loan product that reduces capital barriers and therefore looks like one of these sort of long term products I'm talking about. But I feel that level of creativity isn't there, and that is frustrating because there's an immense opportunity for innovators there and we're just not hearing that much about it.

 

[00:26:02.570] - Jon

It seems to me. I'm trying to distil the different parts of the jigsaw here. There's a finance part of the jigsaw we talked about, and in principle, there's no shortage of finance looking to finance energy efficiency solutions. It may be hard to structure that right. There will be. Some of the things you've talked about might help with that. Nigel and Alix, you both gave examples, but there's finance, there's insight into customers and understanding where there's the opportunity for insulation or heat pumps or solar PV. David, there's no shortage of data emerging that can give people insight into customers. I think some data protection rules that might make that hard around the edges, but essentially there's going to be more and more data available to help tailor a solution for a customer.

 

[00:26:56.490] - David

That exists today. And I think that is almost the building blocks to work with as well. People are using this at scale already. It is a scalable solution, solar energy insights. There's commercial value for people that supply it not just the solution providers, but the retailers that own that customer relationship as well. We've got evidence to support that. So you make money from it now. It's good for consumers, it's good for the energy system, and I think it allows that bridge as well between what the picture is today and how to reduce your energy bill through simple techniques through to actually building that trust and then enabling the big ticket items of the future that really will help the energy transition in terms of the energy efficiency products and the EV charge points and the heat pumps and all those big ticket items to come through as well. Because you've got that understanding of what that impact on that particular home and that particular behaviour in the home would have with those new energy technology in the home.

 

[00:27:59.790] - Jon

So we've got the data that can guide the energy engagement drive, the energy engagement guide, the right solution for the right customer at the right time for the right channel, and so on. I can see how we can have tambourines. We haven't maybe explored tambourines as much as we could today, but with interest in energy at the moment, surely there's an opportunity for tambourine?

 

[00:28:23.520] - Nigel

Do we need the tambourines? Seriously? We did maybe two years ago. I get that. There's too many people talking about how energy doesn't engage people. My God, it engages them now.

 

[00:28:32.400] - Jon

Exactly.

 

[00:28:33.630] - Nigel

It's a lot of rubbish. We don't need tambourines anymore. We've got the best incentive going, which is people making terrible decisions, heat versus eat. This is crazy.

 

[00:28:44.040] - Jon

Well, maybe we've got the tambourines, but we've got to play the right tunes to get people really excited about it.

 

[00:28:50.110] - David

You really got enough mileage out of that.

 

[00:28:57.190] - Jon

We've got the technologies, we've got the products. That's not a problem with the heat pumps, be the solar PV, be it installation, be it smart heating controls. So I think a lot of the ingredients are there to focus on the demand side. Alix, I know we haven't talked about demand side response, which you were interested to talk about today, but ways in which you can share some of the value of flexibility with customers, and customers can play an even more active role. So I want to bring out the talking new energy crystal ball now and ask each of you in the next, let's set it to three years time, a really short setting. If you were talking with an energy retailer or energy industry CEO and said in three years time, you should be offering this, or you should have something like this on the market, or you are working for an energy retailer, what would you be focusing on that you think in three years time could make a big difference to the demand side? It could be a particular business model, a particular offering. It could be an example that you've talked about today that you've mentioned that you think would really help to show what can be done with the demand side, given everything we've talked about.

 

[00:30:23.330] - Jon

Nigel, I'll put you on the spot first and then Alix and then David.

 

[00:30:32.310] - Nigel

Well, it's all about electrification, and it's all about delivering those solutions as a service or with some sort of way of removing capital barriers. So in its simplest form, that's self consumption with PV or PV and storage, that's following the capital, the no money down model, whether as a service or whatever, that's proven model, it's working. Go look at a Otovo look at how their sales book has rocketed in the last six months. But more than that, I would also turn it into an end to end journey for customers. There are too many people just selling PV and then walking away as a service is about an ongoing conversation where you optimise that with other assets in the home to get the most out of it. And nobody is providing that end to end journey for customers where they get their PV that is then integrated and optimised and eventually integrated with not just the assets in the home but also with the grid. Anybody could do that full journey and provide an expert service, a trusted provider with the finance wrapper around it to lower the barriers to entry would have a killer product because that's what people are crying out for.

 

[00:31:55.740] - Nigel

And the maths now stack up better than they have done in years right across Europe.

 

[00:32:01.210] - Jon

Okay. Thanks, Nigel. Let's see what Alix you've got.

 

[00:32:08.770] - Alix

Well, I can't disagree with Nigel. I think the financing is part of the solution, whatever the solution is. But I would probably recommend governments and providers to actually offer something with whole house renovation and that would include just installation but also heating systems together with financing because first it makes sense on a financial perspective. But it's also, I think the easiest way to protect the end user and not to have the end user choosing between heating and eating, as Nigel is saying.

 

[00:32:42.490] - Jon

Okay, so whole house renovation financed over a longish period of time and that would reduce demand, reduced bills, reduce dependence on energy imports and more. David?

 

[00:32:57.670] - David

Yeah, I can't argue with those things, but I'll add another one to the mix. I'll focus on the energy insights products at the moment because we're looking ahead three years, I'd probably say some energy retailer. You should have been in the market for this for the past five years at least. You should be developing. We have developed really sophisticated energy insights products. So you're moving well beyond engaging to empowering customers to take action. So you move from information to actually influencing behaviour change and being that bridge from that sort of engagement and information through to not just empowering people to take action right now about their own energy consumption, but about the upsell potential then for new energy technology to really drive the energy transition.

 

[00:33:45.530] - Jon

Great. Well, three thoughts there. That hopefully will inspire thinking amongst everyone listening. And let's see where the demand side can get to create a more balanced response to the energy crisis than we have today. Nigel, Alix, David, thank you all very much for your time and sharing your thoughts.

 

[00:34:08.150]

Thanks.

 

[00:34:10.730] - Jon

Thanks to everyone listening. We hope that your role in the energy sector, whatever it is at the moment, is well in the spotlight. Maybe. We hope it's exciting and we hope that this episode has inspired some new ideas and some new thoughts for you to take back to your day jobs. Thanks for joining and look forward to welcoming you back to Talking New Energy in the next weeks. Thanks and goodbye.

 

[00:34:37.490] - Jon

If you're as passionate about the energy transition as we are, then please keep in touch. You can follow us and me on Twitter, LinkedIn or subscribe to the podcasts on your chosen podcast platform. If you like the podcast and like sharing, then please do to rate us and to listen to archived episodes to read transcripts and to see the latest Delta-EE insights, then please visit www.delta-ee.com.

 

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