OPINION: Would an index help users understand their bill and take on flexibility?

Stuart Lloyd-Evans, managing director at Cielo Energy, argued in November’s New Power Report that consumers need a common framework to help them compare prices

Politicians occasionally get asked how much a loaf of bread costs, and get chastised for being out of touch when they don’t know; but I wonder how many seasoned energy industry professionals would know the answer to how much a domestic customer pays for their energy? It seems bizarre that we are collectively heading towards a world where we have smart metering systems capable of recording over 17,000 readings a year, with a regulator keen for more complex tariff structures, but the market cost for even the simple products available today are not familiar.

Pricing an end customer involves multiple different items which vary at different times of the day and across the year, making it highly complex; but does that complexity need to cloud how prices are understood across the market at large? We could start by making it simple for customers to understand the market price, and at the same time give politicians, regulators and wider stakeholders a common benchmark. Price indices are a familiar tool for products and services. They allow common pricing and standardisation of products, rather than each slight variant being traded independently. In the wholesale energy market, publications take the view from the market to produce indexes that companies use, but until now nothing similar has been available in the retail market.

We have developed an index that takes all the detail included in prices published by suppliers, and distils it into a simple, consistent and independent national average price index.

The Cielo Index publishes prices for the most liquid products sold in the market to domestic end users – fixed price contracts for one or two years. Most suppliers have these products, some of which are 100% renewable and some of which are not. We track these prices to provide simple insight, to help customers and the wider industry understand where the ‘market’ price for such products is at any point in time.

 

Something to measure against

An average domestic customer spends around £500/year on electricity (under a one-year contract) and a little less on gas. For the majority, the gains from offering flexibility are unlikely to warrant the effort to deliver it, so there has to be a price message against a ‘do nothing’. We want to facilitate this, allowing energy or technology companies to prove the value being added, rather than hoping customers that don’t engage today will somehow be excited by ever more complex price structures. Remember when mobile phone calls were priced by the second?

Full half-hourly settlement will be an opportunity for the value of flexibility to be available to all customers, but that doesn’t mean customers need complex tariffs to see the benefits. By offering a price tariff that is a discount to the index, a flexibility service provider could demonstrate the value-add to the customer and put the risk where it can best be managed – critical for successful long-term products and flexibility uptake.

More than 20 years since full retail market opening, the opportunities for new technology and innovation to help customers reduce their usage and carbon footprint have never been higher. However, for these opportunities to be realised, things need to be simple for the end user. Expecting domestic customers to take on complex tariffs – more complex than even energy intensive businesses taken on despite years of half hourly settlement – appears at best ambitious. High tech solutions with simple customer products and engagement are surely a win for everybody.

Look out for Cielo’s Index each month in New Power’s monthly  Report

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