Words by Hollie Nicholls, Governance Services Advisor
Innovation is the lifeblood of the economy; fuelling greater choice, enhancing services and driving competitive prices. In the energy market, innovation has a number of roles to play including modernising the energy system and enabling Net Zero but, when it comes to Ofgem, the focus is on encouraging innovation to achieve positive consumer outcomes, particularly for those in vulnerable situations.
In June 2019, Ofgem published their Consumer Vulnerability Strategy that sets out their priorities to protect gas and electricity consumers in vulnerable situations until 2025. In the strategy, Ofgem states that it wants to see consumers having access to affordable energy and suitable services, with a significant focus on supporting and prioritising vulnerable consumers.
This means that considering customers in vulnerable situations is not a ‘nice to have’ but instead, when innovators are developing new products and services, they ought to be designed in a way that are cognisant of the specific needs of vulnerable consumers. By taking this approach, innovators will not only receive a more favourable response from the regulator but are more likely to be able to access funding, especially if the innovation project is customer-facing.
The innovation opportunity
So what does that look like in reality? To encourage innovation that focuses on supporting vulnerable consumers, Ofgem has agreed to set out clear governance around what can be funded but will not set out explicitly what the initiatives need to be. This allows creativity, ambition and initiatives to be developed with innovative partners.
Examples of what could be funded are the development of partnership networks and initiatives that identify vulnerable consumers in order to provide energy advice, such as gas networks educating on the dangers of carbon monoxide. One electricity distribution network is also trialling new fault location sensors on overhead networks, which will allow earlier detection and response to broken or damaged conductors. The project will improve the quality of supply for customers who experience weather-related outages and improve the safety of the electricity distribution system. This will also provide further protection for vulnerable customers, as the distribution network will be able to act before any outages happen.
The innovation challenge
While innovation offers many opportunities for people in vulnerable situations to be better supported and also offers potential financial incentives that make the prospect of developing innovative solutions for those in vulnerable situations more appealing to innovators, that doesn’t mean it is easy to achieve.
In the supplier market, being B2C has the advantage that there is a direct line between the company and their customers. However, in the case of the network companies, that link to the customer is not as direct.
The network companies have already made inroads into tackling this challenge by working with community and local energy groups. However, there is always more that can be done. Building on their networks and communicating through community channels will be vital in helping the network companies to understand how they can best support their vulnerable customers and adapt their innovation projects to find more ways of supporting communities and vulnerable customers.
Beyond the mainstay of suppliers and network companies, there is a growing role for third party intermediaries (TPIs) which are currently unregulated but can be source of innovation in the market. Price comparison websites (PCWs) are the most established kind of TPI in the domestic market and are the most popular tools for consumers to engage with the market. Due to that direct contact with customers, TPIs could play a significant part in increasing engagement with those in vulnerable situations but this, again, is not without challenge. For example, most TPIs rely on internet-based services which can lead to a digital divide and thereby negatively impact those in vulnerable situations.
Beyond the challenge of engaging with customers in vulnerable situations, there are other considerations and challenges associated with ensuring the benefit of innovation is inclusive of all. For example:
- Some innovation products are complex and can require significant active engagement to bring about benefit;
- Technologies that might financially benefit vulnerable consumers could be out of reach due to high initial investment costs (such as solar panels and electric vehicles);
- Some innovations, like self-generation, fall outside of Ofgem’s current remit, which means Ofgem’s protections might not be able to reach some consumers; and
- Certain innovations require customers to adjust their usage in order to benefit, which can be less of an option for people in vulnerable situations.
In addition to these challenges, there can also be unforeseen consequences to innovations. For example, the introduction of smart meters has brought about a lot of good for the energy market, but in-house displays have also resulted instances of people in vulnerable situations self-rationing energy to avoid the costs, which can be dangerous.
To ensure innovation projects support vulnerable consumers, it is essential that governance, regulation and stakeholder engagement is built into the roadmap. Taking this approach will not only support quicker roll outs and implementations of innovative solutions, but will also ensure that governance and regulation do not become blockers to delivery further done the line.
Innovation sandboxes, such as the Innovation Link programme run by Ofgem, provide an opportunity for business models and offerings to undergo regulatory testing and governance assessments. This also provides an opportunity for innovation teams to gain an inside view of the main requirements that may be expected of their offerings to meet the needs of vulnerable groups.
At ElectraLink, we offer an innovation brokerage advisory service, using our subject matter experts to support innovators through this difficult balancing act, including providing resources to review and plan regulatory and governance roadmaps for projects. This means innovators, who are trying to make the energy industry more accessible for those in vulnerable situations, are able to progress their projects more quickly, ensuring that they are protected.
Please feel free to reach out to me at [email protected] if you would like to find out more about innovation in GB energy or if you have any questions regarding the services ElectraLink offers to help support innovation projects and vulnerable customers.