No Hot Air

LED < Incandescent

Lighting is a core use of energy, taking up 20% or so of home energy and 30/40 % of business energy use. We've been pointing out that LED is on the horizon for a long time. LED technology has always had the potential to do something to shift the entire energy paradigm in an easy, achievable way.

Now news of not only a revolution in (yet another way of ) producing LED's but a revolution in the cost of them.  Not only will LED's be efficient, beautiful and non polluting, a new method of production will make them cheaper than incandescents.

Why build nuclear power stations if 20% of electric demand disappears over five years?  Will we run out of gas (and pay more now for it), if 20% less gas will be needed for generation? We don't think so.  Will carbon be less expensive as a result?  If our power bill goes down 20%, perhaps we should invest those negawatt savings in renewables? This could cut 15% off Europe's total gas imports. What impact will that have on Russia and Ukraine?  Won't prices paid in Japan and Korea for LNG drop?  And if we know Japan, this will happen in two to three years, not five. That will cut gas prices world wide.  And LEDs could cut, on a back of the envelope  prediction £15 billion of spend on electricity.  That's equivalent of 3 pence in the pound tax cut being taken away from energy companies and given back to consumers.

A 15-centimetre silicon wafer costs just $15 and can accommodate 150,000 LEDs making the cost per unit tiny. That levels the playing field with CFLs, which many people only ever saw as a stopgap solution....Humphreys reckons that the UK government encouraged consumers to drop tungsten bulbs too soon. "We should have stayed with tungsten for another five years and then switched to LEDs," he says.

Hindsight is a wonderul thing as they say, and low energy bulbs have saved a lot of carbon already.  We could also say lets use all the oil we can, hydrogen power will save us. But lets not for now.  CFLs also have played an important part in annoying Daily Mail readers, which serves a valuable social purpose in itself.

Thinking outside the box on Smart Metering.

Maybe there is no box.

What's needed in Smart Metering, for most people, is simple metering information. How it gets there is irrelevant. Just as we can operate computers without knowing what goes on in them, one doesn't need the recipe for a kebab. And most people don't want to know anyway. They just want a kebab.

Present meters, and the technology is essentially the same from 1888, are dumb meters. They measure, via varying methods the kWhs an energy consumer uses. What they don't measure is when energy is used. Combine amount, multiply by price and set up by time period. That's all most people need.

The need is to transmit the digitized pulse from the meter to a location where it can be used. That simple. We don't need a gadget to do that - we need a widget.

Which is a long way of saying that the stress on Smart Meters, as opposed to Smart Measurement, is getting confused. People want to manufacture a box. And naturally enough, people want sell boxes. And the box can be used, among other things, to offer a service: energy measurement and after we get used to that after a short while, dynamic pricing according to Time Of Use.

But is replacing the entire meter infrastructure with a new smart network of them the quickest or easiest solution? It takes time. The  quickest smart meter roll-out measured by number of meters was the Italian experience which took four to five years at 5 million meters per year. Slower time scales, of about 750,000  per year are being achieved in Ontario by next year or Ireland by 2012. 

We've pointed out here from day one the glacial changes proposed for UK Smart Metering. Ten years is the most optimistic plan BERR or Ofgem could come up with. That time scale may actually be speeded up  - it's now clear that other countries will beat us by five years or more, which contradicts the old energy mantra of the UK leading the world in energy innovation via the increasingly dubious vector of competitive markets alone. The Department of Energy and Climate Change as BERR now is, can be anticipated to offer something quite different from a few months ago. The world has changed very quickly even since the original consultations from BERR and Ofgem of last autumn. Firstly, markets are now proven to be not all they were cracked up to be. They are in fact proven to be cracked, and utilities can't write the energy agenda for light touch regulation ( i.e. nothing changes), in an age of nationalised banks. Secondly, at least in the US, the crisis is seen as an opportunity not to be wasted. One important strand is to use smart metering to lower use, carbon and costs while delivering employment, investment and energy independence.

So, we may be surprised, if the delay in the current consultation actually delivers something sooner rather than later, especially for SME customers. Our preferred option is for the current SM technology to be rolled out to SME customers first. The logic here is that they use more and savings of both money and carbon show up sooner. That was the logic for the rollout of SM to larger energy users from April 2009,  already somewhat problematic. What if the government sticks to it original plan to lump 400,000 SME energy meters in with 46 million domestic ones?  Really dumb move, but one can never underestimate the capability of Ofgem to do something either counter-intuitive or downright stupid on solely dogmatic grounds. 

So we may be in a situation where by 2012, less than 20% of people have access to the energy information that is the first step towards saving it.

Smart Metering isn't only about information, and SM has a key requirement of bi-directionality that can't be delivered through usage information alone. The original driver in Italy was load management, in that ENEL could shed load through voltage reductions or shutting down individual appliances such as AC or of course cutting the entire load off in peak periods. But the view was better to dim the lights or switch off AC first to cut peak loads.  Cutting the peak is  critical. The UK is no different from anyone else in that peak power is generated by power plants that often are literally used only for hours, not days or weeks over the course of a year.  But a power plant costs the same to  construct and keep on line as one used to provide baseload, apart from the cost of fuel itself. The bi-directional requirement is also critical in California and other US markets where air conditioning is widespread: A utility can turn down the thermostat and literally save the cost of a nuclear power station. The actual disruption, despite what the grumpy old men will say, is negligible and cost effective.

Another key advantage of bi-direction is to allow smaller generators to put power into the grid as well as take it out. But is that energy fantasy actually going to be delivered?  It's a chicken and egg situation in that distributed generation wont' be around without a Smart Grid. But if Ofgem wants, we can deal with a ten year roll-out for that.

Bi-directional SM is nice to have. We can wait ten years for that if Ofgem is that desperate to keep National Grid sweet.  But Automated Meter Reading is a must have and the sooner the better.  What we need is the information already there in every meter simply delivered. That is now conceivable and quite soon it will be deliverable. 

The nextgen telecoms network, whether it's called 4G, LTE (Long Term Evolution) or ubiquity, is coming to airwaves near you within 18 months to four years to create in the domestic space an always on, high speed and completely robust Home Area Network. Reliablity as an issue will be as dead as a discussion over Y2K.  Although the speeds for simple bursts of data will need minimal speeds, network speeds will allow instantaneous HD movie downloads for example. The applications will be endless, but the one that we want, Smart Metering or to be exact Automated Metering, will be just one simple, easily achieved icon on the desktop. A widget on the (Computer/TV/Handheld/Hybrid) screen delivering information from the gadget. Click here for weather. Click here to lock the door.Click here to watch a movie. Click there to play a game, click that to put on the washing machine (at a low cost time period). Click this go to the bank.Click the widget to see everything you ever wanted to know, and probably much more than many might care for, about real-time energy use and costs coming directly from the meter or via the utility billing engine. The gadget can, in most cases, be the Edisonian meters of today or the digital bi-directional smart meters of a few years from now. That can, and we're sure will, be delivered far sooner than the box itself. And it could well be that the energy may still be shipped by National Grid and supplied from international generators and gas shippers, but be billed at the customer face by Google or Sky or Virgin Media.

It's what outside the box that we need. And that includes thinking.

KISS Off

One reason why people don't understand energy, and then pay more for it, is that they want a simple narrative:  Keep It Simple, Stupid. But like most things energy isn't simple. 

It certainly isn't so simple that anyone can go to a web-site and get the best energy deal.  Energy is not like credit cards or mortgages.  It's not like telecoms, or broadband or current accounts. Neither is energy the same as car insurance or home insurance or insurance to keep Rover or Tiddles breathing.

In short energy is complicated. So many things impact the price of energy that even professionals can't keep up:  gas, oil, coal, nuclear, wind and hydro power for starters. Politics and economics play a large part of course, but anyone who thinks that UK politics or regulation plays any important role is deluding themselves. Decisions from countries as diverse and far away as Brazil,Canada, Korea, Nigeria, Qatar, Ukraine etc etc are going to have an impact on prices for UK energy consumers: We're all connected in one big network - Ofgem's views (even assuming they had one), don't amount to a hill of beans. In fact there are a lot of beans: small nuggets of information are like grains of sand: slipping, or adding one can create an avalanche.

Unfortunately, here in the UK, the idea that energy is like mortgages, CCs etc has been pushed by price comparison web sites who get commission, and by OFGEM, who have a vested interest in pushing the alleged benefits of competition.

Alleged because as anyone with a car knows, petrol is just about the same at every filling station in an area.  Similarly, you won't get a discount for filling up every week, or for filling up more than a huge amount of tanks.  Supermarket chains get less than 1p a litre discount for example from refiners, and basically because they deliver it themselves: not an option with one energy network.

One thing many buyers can't get their heads around is the idea that the volume they buy is irrelevant.  In fact the same amount of energy for a multi site contract is higher than if you buy the same amount at the same place.  But that is basically due to transportation charges.  National Grid charges the same published tariff to every supplier, and the usual SME charges have pass through:  Total won't give a site a better price for transportation than Shell or BG would.

The variable cost is of energy itself derived from wholesale markets.  Get a price on the same day for one or two years ahead and there'll be minimal difference.  And because markets are volatile, that price could change up or down tomorrow or next week or next month, which could lead to SMEs stuck with high prices for the duration.  Key here is to understand that one gets the best price based on today's news.  Tomorrow the news changes.  Fixing an energy price is no different from trying  to predict the future - and that is very, very foolish.

Simplicity has a high price.  A long term price depends on the energy markets worse case scenario.  Buy gas in August and they assumed a high oil price, low temperatures for weeks on end and a Russia/Ukraine gas war. Two out of three still wasn't good enough:  Energy prices turned out at 40% less in January than predicted in August - or September or October. The only way to buy energy is to do so on an index. That is in reality, the short and simple method, all it needs is some self-education on the part of buyers.

There are plenty of Third Party Intermediaries out there who have a vested interest in pushing a fixed price, as that is how their commission is paid. Most, but not all, TPI self interest cancels out any long term gains. In fact, many have a vested interest in charging a higher price for as long as they can get away with. Simply put, a three year price will always be lower than a one year. On that day. Want to predict the future?  Stick to Lotto.

Keeping the simple complex, is stupid.

Fixed up/ Stitched up

British Gas' fix to 2011 tariff again. This is worse than we thought.

A British Gas spokesman said that customers whose energy prices are fixed until 2012 are paying an average of £1,427 a year for their gas and electricity, compared with £1,058 for those who are on a best-buy "Web Saver" tariff.
However, the company said that it was "not encouraging" customers on these expensive tariffs to pay a cancellation fee and switch to a cheaper rate, because of the possibility that prices may rise again before their contracts end

We underlined possibility.

The BG rate of £1427, which we assume is on average use of 15500 kWhs,  is at least £600 out of the money per year compared to other suppliers. In that case an average domestic bill currently is about £800 higher than with anyone else. Never has such a chasm between suppliers been evident: this is no different than back in August deciding that instead of paying the current £1.14 a litre it would be prudent and safe to avoid price rises by paying  £1.43 p per litre fixed for three years. And today: 84.9.

Paying BG £70 to get out sounds like a no-brainer. We are sure that BG has similar rates for SME's, which would be about 100% more than it should be.

But this was meant to be the prudent, risk-free, safe option. Some business people for some bizarre reason want certainty.  The cure of a fixed price is far worse than any disease of price volatility.

By the way, let's not blame BG.  Confused?  You are now.

The wholesale cost of energy keeps rising and utility companies are never slow to pass these increases onto consumers. Price hikes have been as high as 35%, and the volatility of the energy market means you can never be certain about when the next rise in your utility bills will happen.

So if you don’t want your gas and electricity bills to keep going up, now may be a good time to look at fixing your energy deal

Or on the other hand perhaps it's a crap time.  Especially as forward gas prices in early September when Confused.Com published the above had already dropped by 15%.

Global Energy Prices

You may recall that during the energy hikes of last year suppliers and Ofgem noted how the UK operates in a world energy market.

So..... UK gas is 74% higher for February than US gas. How does that work then? Apart from not very well.

Thanks for not very much

10% is 10% from BG but considering that we are as of today about 5% less forward pricing for one year and beyond than at this date last year, AND (the big and), we saw BG hikes of 49% in 2008, excuse us for feeling underwhelmed.

• This only helps those on the standard tariff. Those who were suckered into a BG price fix until 2011 scam they pulled in August are out of luck, unless they want to pay to get out.
• A history lesson here. In late July, BG announced a 35% rise in it's rate (despite the market collapse that started two weeks earlier.  The 2011 tariff gave the reasonable impression that BG was trying to shelter the struggling masses from further hikes. But the 2011 tariff was a further 15% on top of that!  BG had a full TV and Ad blitz throughout August that pushed God knows how many saps into signing up for something they don't understand, even though it was clear at the time that prices were going south quick.
• Why the delay in implementing this until February 19?  Did they pick that date out of a hat, or is just simply to confuse people further. Or are they simply hoping for a further cold snap?  Remember that despite the collapse in prices recently there was an increase (of around 15%) in domestic demand thanks to the Christmas and January cold wave.  Maybe eon and EDF who hiked prices on as little as one day's notice will cut their prices with immediate effect.  Or Maybe not.

Domestic Prices

What happened on July 30?  British Gas raised prices 35%  EDF raised them by 22% a few days earlier and eon raised them by 29% in August.

Wholesale gas prices dropped by up to 50% from October, and at today's prices are an average of 41% less than on July 24. That's for all months, all periods, backwards, forwards, day ahead, winter 2012, everything. But not a word from suppliers.

A forty per cent drop is not peanuts. The poor saps who fell for BG's TV and print campaign "Fix your price" which ran all of August fixed prices higher than that until 2011.  If they want out, they have to pay a penalty charge for the privilege.

Yet, despite noises in November, now the noise is off.  Why?  Because the pressure is off.  Ofgem is a waste of space for domestic consumers, and the rest of the government has other fish to fry.

Suppliers are rolling in it. They didn't buy gas forward in August at 40% higher than today, they buy it within day and save even more. And to add insult to injury for consumers, Degree Days or the amount of gas to get the same heat based on ambient temperature point out to a gas bill going up 14% in volume terms anyway.  Each kilowatt hour brings a margin. That went up 14% too.  But as long as the government won't say boo, suppliers won't lower prices. They hear no objections when they go up, and no pressure to push them down.

Don't get fixed, or stitched, up.

Some still call it the credit crunch (so 2007!) and others the economic crisis, we prefer the fiscal fiasco.  Whatever it is, some people do look at the FF's impact on  gas and power prices and still feel the compulsion to consider a fixed price.

Stop! Don't go back to outdated concepts of energy pricing.  Today's prices only look good looking back to six months ago.  How will they look in six months?  No one knows, and if they are in possession of second sight over the outcome of random sets of numbers,  ask them to buy a Lotto ticket.

Fixed prices at their absolute best, can give only today's best price on today's news.  Tomorrow, who knows? Tomorrow's news will be slightly different, and so will prices.

Lately we've been seeing year prices that are close to December and January day ahead prices.  That's weird, because usually curve prices are higher than near prices.  Oil markets still hope for a quick recovery, which is why traders are storing oil on tankers that will miraculously appear out of the mist once prices rise.  Or not as the news may foretell as well.  

So does a one year gas price of 54 pence per therm make sense? Last summer it would have looked a great price.  But today? We doubt it and today summer gas dropped 8% to 42 which tells you something.  Although the fact that Nissan UK, Toyota Japan, VW  and US Ford are all shutting down for up to two months tells us that recovery isn't around any corner in sight.  Keep your fingers crossed you'll still be in business.  Worry about gas when it comes around, but don't fix yourself up to fail as the poor saps who bought up to three years of gas at over 100 did last summer.

Smart Meter, Stupid Tariffs.

A new UK domestic and I+C supplier, First Utility has what at first appears to be a USP, despite the hindrance of one of the least customer friendly acronyms in corporate history.

FU are the first UK supplier to offer smart meters to all customers at all levels, and for dual fuel to boot. They also make an initial stab at offering tariffs, at least for electricity customers that reflect Time of Use. Smart Meters without TOU pricing is like a 50 inch plasma screen connected to a VCR - not living up to full potential and not really worth the effort. FU's electricity tariffs are the first UK ones we've seen that provide the choice of Day, Day/Night or Day/Night/Peak tariffs to domestic users. We assume that they are also available to business users at all levels.

But they make some key mistakes, that will either sink the company or at the very least keep it a small company. And if FU want a small company for small effort maybe they should buy a laundromat or something.

No one has to sell smart metering to us, but having smart metering while keeping dumb tariffs opens the company up to failure, which, again we stress, would be unfortunate: the UK utility scene needs companies like FU, but all old concepts have to change, and if they don't, why should FU, or potential customers bother? Solo SM, means selling Smart Metering technology, not First Utility.  Opus Energy, Corona, Gazprom etc all offer various flavours of SM to I+C customers for example. But where they all fail so far is to offer most customers anything but existing tariffs based on very narrow existing customer profiles: 46 million meters tell a unique story, but get assigned to one of a dozen or so arbitrary shapes in each area, and customers have no choice but to accept a price based on the old way of profiling. We think SM is one of the best things since sliced bread.  But now it's been invented, the customer should be able to make any kind of sandwich they want. What FU, and other UK SM options currently offer, is the same old one flavour fixed term tariffs that people are suckered into by suppliers or TPIs who think their customers know nothing about energy. SM will allow end users to see why when they use energy is more important in price discovery than how many units there are. It's often been said that this one reason why energy is unique, but in reality how unique is it?  Buy a million paper clips and the price is better than for 100,000.  But buy a ski holiday at Christmas or February half term and the price goes up because everyone wants it. Want to keep the house warm?  So does everyone else, so the price goes up in January.  But if a homeowner spent money on a ground source heat pump,a whole bunch of cardigans or a month in Barbados, why should they, or a business owner, have to pay a one year fixed rate based on expensive January use? Basically because it suits suppliers and they don't have an alternative. SM allows each customer to see how unique they are- or more importantly could be. An FU customer with SM will be immediately open to competitors who can now, or soon will, offer dynamic pricing.

SM says each customer is unique, but fixed price tariffs are the one size fits. Each energy profile is unique but the prices are the same old fixed term rubbish,(or worse) that everybody in the UK, (no one internationally) is steered to by the carnival shills known as TPIs.

It doesn't help either FU's case or smart metering in general that the domestic tariff prices are simply not very good. Domestic rates for London for example are 3.62 ppkWh for gas where eon charges 2.82, and in electricity it's 11.47 v 8.97.  We admit the situation is slighly muddled by standing charges from FU and a higher initial rate for some use from eon, but we compared Guru Manor's recent bill and figured FU would have been 12.8 % higher for power and 24.8% up for gas. So even with SM, we would have to do all the work to use less power and still end up paying at least the same and possibly more. Especially when the cost of £99 smart meter is included. If you move to another supplier before two years, you have to pay even more to cancel. Tariffs like these guarantee FU will remain small, although the SM proposition would help the small amount of end users who see a benefit in using less energy even though they pay more to do so.  FU's tariffs appear to be very near to British Gas for both commodities. Once BG gives away smart meters (no if about it), any point of being with FU evaporates.

FU can measure every customer's use completely.  If they offered default prices based on average day ahead wholesale costs plus margin, they would be more than big - they would  be huge.

Another obstacle to that is the section of the FU web site about the role of partners.  

If end-users could buy gas and power on a transparent index, what possible point is there to pay an introducer commission?  But with partners so important to FU, why would they ever be offered dynamic pricing?  FU is allegedly thinking about a new print and even TV campaign. To do this, they need to divert the budget from partners, who will not help in the long run and  only jump ship once another supplier pays higher commission or cheaper SM or both.

Think old or think different.  Old thinking, about dumb metering won't work. But SM patched together with  old thinking on simply matching BG prices and paying partners to attract customers won't work either.

Conservatives and smart meters

The Tory conversion to smart metering is praiseworthy, especially as it includes updating the electricity grid in preparation for high electric vehicle use.

The rest isn't too different from the government's current approach, in that we are promised smart meters far off in the future, ten years say the Tories.  That will put the UK behind most other jurisdictions, who have ranges from next year (Ontario), 2012 (Ireland) or 2016 (France).  Why the slowdown, especially in the current climate? The US will be pressing ahead with this, and certainly will deliver it before ten years.  Silicon Valley is getting on board as well.  We predict self-install plug and play SM as part of the next generation of 4G telephony, leaving today's technology in the dust, and consigning present metering to the museum. This is government investment that will make a difference to jobs, climate and energy costs. We can't leave this to the private sector to deliver without incentives.  Suppliers make enough money currently with no changes.  A mandated, and quick, rollout is the only way.

Our only doubt is that we may gain from a couple more years of delay so we can get the 4G telecom technology to deliver smart metering along with a host of other applications in a further couple of years.  Otherwise we may end up with out of date technology in a longer time frame for more money. We've waited a long time for SM,  a couple of years delay that ends up delivering sooner may be the best way.