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Part 1: How did it come to this?
OK, I admit it. Nearly fourteen years ago, when Flexitricity was born in my spare bedroom, I didn’t think I was setting up an electricity and gas supply business. I’ve been resisting the idea for most of the company’s history.
Let’s be clear: I always knew there was opportunity in going directly into the electricity markets. Once we had our smart grid platform and our control room up and running, we could bring industrial and commercial (I&C) consumers and small generators into balancing services like short-term operating reserve and frequency response. Taking that flexibility into on-the-day opportunities like the Balancing Mechanism was the obvious next step. I just thought we would do it in partnership with incumbent electricity suppliers.
Perhaps I should have figured this out earlier. Many years ago, when we were headquartered above a sandwich shop, a couple of visitors from a well-known energy company (clue: they’re British and they sell a lot of Gas) explained the predicament they face when considering the flexibility inherent in their customer base. “What we’re good at is doing the same thing a million times.” That’s not demand response.
Large energy suppliers seek simplicity. The capability of a utility sales team is largely dictated by the number of feet on the street. That’s fine when all you’re trying to do is lock in a price and a volume for a couple of years. But I&C flexibility doesn’t work like that. As Einstein said: “Make things as simple as possible, but not simpler.”
Did you know that tomatoes get stressed if they see too much light? Do you know what keeps CHP operators awake at night? Can you shut down a cold store in such a way that it will switch back on without a tussle? Do you know when not to try phoning a retail Energy Manager? (Another clue: it’s not just at Christmas.) Our engineers traverse the nation, learning new things at every site they visit. They then encode the rules for each site into every outstation we install. If they didn’t, we wouldn’t keep our customers (and we do keep them). Flexibility is complexity. Those who haven’t the stomach for that shouldn’t waste their time – or their customers’ time – pretending they have.
But that’s not the only reason the Big Six (or Dwindling Five?) didn’t take up our challenge. The other is competition. Not with each other, but with themselves. If you own a power station, but your customers are capable of rendering that power station useless, why on earth would you let your customers into the market? And as vertical disintegration takes hold – the big names restructuring to offload generation portfolios that can never be profitable – their interest in customer-side flexibility is still not without conflict. The major energy companies are taking ownership positions in merchant power plant. The assets are different – they’re distributed, they start quickly, and some of them are batteries. But they’re not customer assets. They’re house assets.
Flexitricity is launching an energy supply business because we don’t see why the house should always win. We think the future should belong to the customers. After all, you’re paying the bills.
There is, of course a caveat. What we are doing is a bit specialist. We do not intend to displace Big Six suppliers from mainstream, commodity business. There are many I&C customers for whom energy purchasing should carry on as it has for years. They make an occasional foray into the market – perhaps flanked by consultants or brokers – and secure a long-term hedge. That largely settles the cost of doing business for the next few quarters, and they can get back to the day job of best practice energy management. Looking after the megawatt-hours, and letting the pounds look after themselves.
Perhaps half of Flexitricity’s customers are in this category. They trade their electricity and gas with every large supplier in the industry. But they trust us with their assets in balancing services, peak reduction and the Capacity Market, and specific innovations like the new frequency response technologies. This remains at the heart of what we do – after all, we’ve been doing it longer than anyone else, and we have a track record that no-one can touch.
Flexitricity’s entry into I&C energy and gas supply market is for the other half. These are customers who are at least half a step closer to the energy industry than the average. For them, there’s a new opportunity emerging, and it suits their business models to exploit it.
So where’s the detail? Some of it is in our FAQs. The rest is sitting on my desk, bending it into an unfamiliar new shape – which is what we’re planning to do to the industry. We’ll be releasing more information soon, including on this blog. I’d encourage you to contact us or call your account manager, the very second you think of a question you’d like to ask. On timing, we’re planning to complete all of our systems by June 2018, and will have customers on supply by October 2018. Meanwhile, I hope you enjoy the time off over Christmas, and I look forward to introducing you, in the new year, to a whole new approach to energy.
Written by Dr Alastair Martin, Founder and Chief Strategy Officer at Flexitricity