From the archive: Sara Bell, Tempus Energy chief executive, talks to New Power

When I ask Sara Bell, chief executive and founder of Tempus Energy, about entering the energy market as a new type of supplier, she is quick to tell me that was not the intention. “We are a technology company,” she says, that was forced to take on a supply role.

She explains that the heart of the company is an energy trading platform “that ensures people are using energy at the cheapest possible time.” The Tempus platform does that by disaggregating to the customer’s load and managing its components according to their characteristics. “We look at them, as customers, as flexible and inflexible consumers. Any flexible load should be used in the cheapest possible period, so the overall cost of the system is lower and the inflexible loads can also be supplied more cost-effectively.”

She says that has proved very disruptive: “Originally we wanted to market our software to other suppliers, but no-one wanted to use it because the underlying impact of our platform is to disaggregate fossil fuel generation. By driving away from peak we reduce the profitability of [a generator’s] fossil fuel assets.

“We came into the market as an electricity supplier not because that’s what we wanted to do, but to enable us to find a market to enable customers to benefit from lower energy bills.”

The key to offering that service is half-hourly settlement on real data, not on predetermined customer profiles that make assumptions on what time power is being used. Bell explains that customers are currently based on such profiles – “The only way you can extract the value from moving customers’ demand from one period to the other is by half-hourly settlement,” Bell says. Most suppliers do not yet have systems that could use real half-hourly data. And many, in practice, don’t have the financial incentive to do so.

Bell explains: “There’s a gap in the market. For suppliers who own fossil fuel generation it doesn’t make sense to do it. There’s a market failure there. As soon as you invest in a generation asset, quite naturally from a shareholder perspective you should be maximizing profit on that asset,” which would mean supplying power at a time when the wholesale price is highest. “The problem arises if you also have a business that’s selling to customers. What that business should be doing is delivering energy at the lowest possible cost.”

Bell identifies another disadvantage for customers: “Those businesses view the add-on costs of the delivery infrastructure just happening, and as ‘nothing to do with us’,” she says. Suppliers ‘pass through’ the costs of using the transmission and distribution networks, averaging the cost across the day, although it can increase tenfold at peak network times. Bell points out that “the time when commodity costs are highest just happens to be very expensive to use the network”.

“the time when commodity costs are highest just happens to be very expensive to use the network”

Tempus splits those costs apart. “We want to make sure you get your energy as cheaply as possible. We look at the costs of the commodity, of the transmission network and of the distribution network, and the cost of balancing, and make sure you are using energy at the time it’s as cheap as possible.”

To do that Tempus has been working with Utiligroup and Bell stops to praise the company: “[They have] a great platform and are really supportive in going through the back-end industry process, which al- though we know them from a different angle can be quite confusing, and their pricing structure is really helpful.” She goes further: “I think Utiligroup is doing more to ensue new market entrants than any single organisation at the moment.”

What’s the market?

Tempus needs flexible customers. Bell says that’s not a niche. In fact, “Anyone can be a flexible customer”. But the company is starting with three groups: buildings with storage, which tend to be owned by a local authority or social housing landlord (that could cover up to a tenth of British housing); SMEs, such as restaurants with chiller loads, small scale cold storage warehouses – most SMEs have some kind of load that can be managed, Bell says; and industrial and commercial users that have air conditioning and building management systems, and often CHP behind the meter. Bells adds, “We are supplying some [individual] domestic customers but they have come to us”.

How is customer usage managed? Tempus is “Actively managing them. We look at what customers are using in real time and actively manage in real time.

“We predict what our customers are going to use in total, we buy off that prediction and then in real time we use customers’ demand flexibility to miminise imbalance risk. We make sure that if the system is tight we are assisting the system, and when there is over-supply of renewable energy we make sure customers are able to take that extra supply.”

She says that for larger companies all the equipment is already in place to do that – Tempus just adds telecoms, and the customer does not see that: “All large buildings have quite sophisticated building management systems and not all are being used to the extent they could be. Those that are, are mainly using that functionality for energy efficiency. But as soon as you do that you have created a flexible building.

“Our platform talks to third party systems. We may precool to avoid peak periods or use excess renewables energy.” She says the company wants to sign up customers in Scotland to use excess wind power where there are export constraints, and customers in the southwest where there are fleets of PV arrays.

“There are lots of opportunities if you forget about revenue generation on your fossil fuel units and instead think how you optimise the system for the customer.”

At smaller sites Tempus has to find the flexibility. Bell notes one restaurant with fridges and chillers. “A third party puts in a ‘mini BMS’ into two chillers and aircon. It’s a very cost effective way of creating flexibility,” she says.

I ask whether that brings Tempus into competition with third party intermediaries who currently serve those customers. On the contrary, she says, they are partners: “by working with lots of third parties they can explain to their customers that this can be done. We are open to work with any third party.

“In the future demand flexibility will be just as valuable as energy efficiency and the two go hand in hand.”

Bell says most customers are very flexible and can respond to demand to some extent but need some help to unlock that. “Among I&C customers there is enormous response to be tapped, because in the flexible market there has only really been demand response in the service of National Grid, and not a lot of demand response used for other purpose. We are still very much in the infancy of how we can use demand response for other purposes.” That brings her back to the big picture, which is the opportunity to cut costs. “At the moment in the UK we are overpaying by £5-8 billion because the electricity system is so inefficient. The more we use flexibility now the more efficient our electricity industry will be. We’ll have created very flexible customers so we can cost-effectively manage renewables.

“At the moment in the UK we are overpaying by £5-8 billion because the electricity system is so inefficient. The more we use flexibility now the more efficient our electricity industry will be.”

“We are here to manage the built-out of flexibility so the UK as a whole is as competitive as possible as an economy because the energy costs are low.” Demand flexibility changes “what has been an incredibly inefficient system. When it was built we didn’t have comms or IT – now we are in an innovation curve that’s so steep and we haven’t even begun to take this innovation on.”

I ask whether Tempus can move forward, given that Ofgem is considering allowing a delay in switching the next tranche of business customers (Classes 5-8) from profile to half hourly settlement.

She says so long as they have a half hourly meter “we can go through a change of meter class process. It’s a bit laborious … but we do that for every customer. There is nothing to stop you switching people.” But she is exasperated by delays to a wholesale shift. “The metering information is there. It’s a secondary market for demand response and that’s why I want half hourly settlement to happen.”

Bell says that as well as network “use of system” costs there are parts of the bill that can be better managed, such as triad avoidance – even a domestic customer can get the benefits of so-called triad avoidance (an incentive to move use out of peak periods) if they are half-hourly settled, she says.

In addition “we have a bid in [to provide] short term operating reserve, a bid for demand side balancing reserve – because all those balancing services are completely in line with everything we are doing. We’ll be doing Capacity Market transitional arrangements; we’ll be in that auction.”

“I believe very strongly the parcel sizes are too big in all the programmes. They should be 100kW.”

Given Tempus Energy’s objection to the Capacity Market (see box), I ask whether those measures work in their current form. Bell says: “I believe very strongly the parcel sizes are too big in all the programmes. They should be 100kW. I think the parcel sizes will do more than anything else to get customers in. But DSBR is 1MW, the Capacity Market is 2MW. STOR is 3MW”. That means in practice the programmes are benefitting customer with a generation unit behind the meter; “there are not that many companies with that much demand they can flex.” The question she says, is whether National Grid is trying to build out demand flexibility or something else (ie self generation). But she says “They are very open and they have been listening strongly. National Grid is very keen to move forward and adapt. I would be very positive about what they have done, it’s not easy to change a large organisation but there is a genuine commitment from Steve Holliday down to making some changes.”

In this case the length of contracts does not affect Tempus “because we are not just selling ancillary services. We are signing up customers on the basis of supply contracts.”

I ask about the practicalities of starting to trade in the GB market. Tempus has just started trading and is using Freepoint to do that. Bell says Tempus “put the usual capital with Elexon. Because we are minimising imbalance risk we can put less collateral with Elexon than a company that wasn’t actively managing imbalance risk. That’s a key part of our competitive advantage. There are some issues with the methodology there. If you only provide accurate data they still use five days of incorrect data on a rolling basis. That’s how it is. We have spoken to Ofgem about that, it acts as a disadvantage to us. The system assumes that no-one can manage.” She says that’s a change Ofgem could make.

“At the volumes we are coming in with there is obviously no problem with liquidity.”  But that’s in the short term, and Bell does see it as a persistent problem with the GB market and one that deters entrants. “I believe every energy trade over 1MW should be trad- ed on an exchange. In Scandinavia more than 80% of energy trades are on an exchange. I could enter that market and take market share. That is the definition of competition.” She is worried that “The CMA has an incomplete view of what a competitive market is. In a competitive market every entity is trying to take market share, not 20% here and there. No. Every single customer is a target in a competitive market.”

How does Bell see the Tempus addressing that market? The company, which is currently owned by Bell and the management team, (along with an option scheme for staff) has raised capital by crowdfundng through Crowdcube. Bell says that has brought in a mixture of high net worth investors and some traditional Crowdcube types. Now, “there will be a second fundraising in which we expect to raise £3-5 million to close before the end of the year. That will be more traditional – cleantech funds. Many will not invest if you are pre-revenue so now is an optimal time to do it.”

“There will be a second fundraising in which we expect to raise £3-5 million to close before the end of the year.”

The crowdfunding brought unexpected dividends. “One crowdfund investor brought in two friends and helped get to £1 million and will run the next round.”

Bell says the company’s first focus will be the UK supply business, and the company has just started signing up customers. But she plans to expand internationally very quickly. “It’s becoming increasingly clear that licensing the technology [will not work elsewhere]– and we need to acquire businesses. We are looking at two businesses, in Scandinavia and in the US.”

“Our customers are our imbalance hedge, so you can’t separate the trading from the customer acquisition or the IT.”

Bell has found that she had to rethink the company structure along with the business model. “It’s difficult for a traditional utility to do this because they have such silos. In this company … our customers are our imbalance hedge, so you can’t separate the trading from the customer acquisition or the IT. From a management point of view you have to have people who can handle fuzzy lines between the functions.

“We have to encourage a culture here of continuous encroachment and that needs very secure individuals. Designing the business model I hadn’t fully appreciated that we’d need a completely different corporate structure as well. It’s been very interesting. But it creates a competitive advantage because it’s very hard to emulate.”

First published in New Power in July 2015
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