Tempus Energy Supply Ltd.
31 Oval Road
Camden
NW1 7EA
29 February 2016
About Tempus
Tempus is an innovative, new electricity retail supplier. Tempus was established to make energy
systems more efficient through capturing the value of under-utilised assets using demand-side
flexibility technology. Tempus has developed technology to shift real-time consumption patterns
to optimise trading on the electricity market within each half-hour, leading to cheaper electricity
prices for the company and its customers, while also helping to balance the overall electricity
system. Importantly Tempus is demonstrating that through the use of demand-flexibility in
liquid, transparent and competitive wholesale markets, where prices reflect actual scarcity and
network stress, we can create a market-based approach to integrating more intermittent
renewable energy onto the grid and therefore combat climate change through market-based
solutions.
What nationally significant investments in capacity or changes in policy & regulation should
we prioritise to deliver these outcomes and deal with these drivers of demand?
Investment
Before considering what level of investment is required in our energy system, we should first
ensure we are using our existing assets as efficiently as possible. The grid infrastructure needs to
be built out to peak demand. Building generation, transmission and distribution to a peak that is
occasionally reached without taking any measures to manage that peak means that we are
paying for assets that are under-used for the majority of the time. Achieving security of supply
whilst minimising costs to consumers requires a paradigm shift in how we view and use the
electricity system. The need to decarbonise the system, and the introduction of intermittent
renewable generation technologies in particular creates new risks and opportunities. Our
current system is not fit for purpose in a new world of smart infrastructure design, it does not
mitigate those risks and maximise the opportunities.
A low-cost, flexible, and intermittent supply side requires a smart, flexible demand side. In order
for decarbonisation and security of energy supply to be delivered in a manner that does not see
energy costs spiral out of control, we need to find new ways of managing system imbalance. In
essence demand flexibility is a way of managing imbalance risk by moving demand away from
peak times into cheaper price periods where renewable generation is plentiful and prices are
therefore lower. Building a flexible demand side that is able to utilise off-peak surplus renewable
generation on the system also ensures better value for money for customers, and reduces the
cost of capital for renewable generators. This allows us to make the most of our existing
renewable generation and network infrastructure.
TEMPUS ENERGY SUPPLY LTD
Registered address: c/o Harrison Clark Rickerbys Limited, 5 Deansway, Worcester, UK, Company No. 08500923
Office address: 31 Oval Road, London, NW1 7 EA
www.tempusenergy.com
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The alternative is to build a new fleet of fossil fuel peaking plant, which sits idle until called upon
to balance the system when renewables are not generating and demand is high, which in reality
will occur for limited periods. The latter option also requires continuous building out of
transmission and distribution infrastructure to avoid grid constraints, at vast cost to consumers.
This is more expensive, carbon intensive and inefficient.
Changes in Policy and Regulation
In order to direct legislation, regulation and enforcement framework design we must first
establish what the intended aims are, taking a holistic system-wide view. It has been widely
agreed that our energy system must be 1) cost-effective, 2) resilient and 3), low-carbon.
Legislation, regulation and the enforcement framework must be designed in a way that
incentivises the innovation needed to achieve those principles. Tempus is firmly of the view that
the solutions to the above mentioned ‘trilemma’ will come forward from a truly competitive
wholesale market.
True competition in the wholesale market is established through 1) market liquidity, 2)
transparent, sharp price signals, and 3) the avoidance of vertical integration.
Currently, the GB wholesale market is highly illiquid. Most power is traded through private
bilateral contracts between generation and supply entities within large vertically integrated
utilities. Tempus would be in favour of all generation capacity over 1MW being required to trade
in an open, fair market place. This would provide full price transparency, reflective of scarcity
and therefore ultimately ensure a more efficient use of our existing assets.
Pricing must also be fully reflective. Price signals are required in energy and balancing markets to
attract technologies that are most able to unlock value in the system, such as storage and
demand response to lower demand in high price periods and shift it to low or even negative
price periods. Network tariffs should be cost-reflective in both time and location to encourage
demand shifting to cheaper price periods. Price differences will also ensure market players
operate as efficiently as possible, these price differences should also be reflected on end-users
final bill to force the market to help customers move their consumption to cheaper periods
through an enabled demand side.
The vertical integration of the majority of market players acts as a barrier to both limbs of a
competitive wholesale market. As discussed above, through trading through opaque bi-lateral
contracts with inter-company partners, vertically integrated incumbents are able to distort the
market by favouring their associated entities in both utilisation and costing. Virtual integration
not only creates actual or direct discrimination but can also lead to what is known as ‘passive’
discrimination: conscious inertia over policy progress. This inertia effectively slows down the
pace of change of progressive policies such as energy efficiency, smart meter rollouts and
demand response especially in situations where vertically integrated companies have such a
large concentration in a given market. The costs of vertical integration are ultimately passed
onto all consumers through rising energy bills and delayed efficiency measures.
TEMPUS ENERGY SUPPLY LTD
Registered address: c/o Harrison Clark Rickerbys Limited, 5 Deansway, Worcester, UK, Company No. 08500923
Office address: 31 Oval Road, London, NW1 7 EA
www.tempusenergy.com
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Demand side participation is restricted by unequal access to the energy, balancing and capacity
markets. Current access thresholds (in terms of financial, regulatory and volume requirements)
are unnecessarily high, creating a barrier to real customer turn-down and turn-up and ensuring
that only behind the meter generation participates. An unintended consequence of this market
design is the increase in small-scale diesel generation that is not required to meet particulate
emissions standards putting both human health and the environment at risk. Tempus believes
that the entry level for the demand side in balancing schemes and the capacity market should be
lowered to 100KW, allowing the use of vast, under-utilised and existing assets which represent
genuinely innovative and low-carbon demand flexibility.
Principles-based regulation must be flexible to allow for non-traditional business models and
new technologies that can deliver value and save customers money to come forward and deliver
that value. This would cover for example relatively quick changes to licences, provided they
benefit the final consumer to accommodate new and niche business models, which is currently
not the case.
It is imperative that regulators have the independence, the legal mandate and the confidence
(brought about by genuine political backing and investment in expertise) of using such powers to
enact changes that will improve competition in the energy market on both the wholesale or
retail side. Ofgem, as the energy industry regulator (and the designated National Regulatory
Authority for energy under the Third Energy Package) is in the best position to make judgements
as to whether the market needs changes or enforcement, and it is wise to empower Ofgem to
make them.
Conclusion
Legislation, regulation and enforcement should place paramount importance on ensuring the
wholesale market is truly competitive. It is absolutely vital that consumer data protection and
environmental considerations are not compromised in the establishment of such a market, but
only with competition will cost-competitive innovation come forward. Customers will not be
motivated to switch until competition is at a level where meaningfully different products are
offered in a transparent manner.
In what areas can demand management or other forms of behavioural change make a
significant impact? What are the blockers and enablers for realising these opportunities?
What new and emerging technologies and disruptive trends should we consider in producing
this assessment?
Both questions answered as one.
TEMPUS ENERGY SUPPLY LTD
Registered address: c/o Harrison Clark Rickerbys Limited, 5 Deansway, Worcester, UK, Company No. 08500923
Office address: 31 Oval Road, London, NW1 7 EA
www.tempusenergy.com
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The benefits of technologies such as demand response and storage are well understood, and the
technology operational in other markets around the world. In the PJM market, a market with
three times the electricity demand of the UK, 15GW or 9% of total capacity in 2015-16 will be
provided by demand side response.1 The technology is working, creating savings and improving
security of supply. Technologies such as demand response and storage optimise the use of our
existing infrastructure and assets meaning that we are using our system in a smarter, more
efficient way.
Tempus does not believe in picking specific technology winners through market interventions in
the form of pre-determined subsidy regimes. However, there must be the right market
incentives to allow these technologies to compete. This requires a cost-reflective system, with
clear price signals to make efficiency savings and easy market access for new entrants.
Innovation does not happen in a vacuum, it must be incentivised to come forward. If the right
incentives are created, technology and innovation companies will come forward particularly on
the demand side to enable a more cost-efficient matching of supply and demand, ensuring we
have a cheap, low carbon and resilient system that better incorporates renewable energy.
Government should not concern itself with trying to anticipate which specific technologies will
provide tomorrow’s power and fast track them at inevitable costs to consumers. A competitive
wholesale market will provide the solutions provided the correct incentives are put in place.
However a market-based approach such as this requires tough action to address the inertia and
“smoke and mirrors” pricing created by vertical integration, high market concentration of power
and poor wholesale market liquidity.
End.
1
Getting more from less: realising the potential of negawatts in the UK electricity market’, Green Alliance, A. Mount & D. Benton,
Oct. 2015
TEMPUS ENERGY SUPPLY LTD
Registered address: c/o Harrison Clark Rickerbys Limited, 5 Deansway, Worcester, UK, Company No. 08500923
Office address: 31 Oval Road, London, NW1 7 EA
www.tempusenergy.com
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