NEWS

With energy suppliers being squeezed from multiple directions at the moment, how can they be expected to devote resources to the smart meter rollout?

Who would want to run an energy supplier right now? The market has never been more volatile, while numerous other factors (not just the Coronavirus pandemic) are causing stress within their operations. What’s more, when the market is volatile like this, it’s terrible for consumers too.

So what are the factors affecting the energy industry at the moment? Given these stresses, should energy suppliers be given some more leeway with the smart meter rollout? Perhaps there is a better approach?

Price rises

Before we look at the factors contributing to the volatility in the energy market, we need to understand that the result of all these effects is price rises. With record-high prices, everything is exacerbated.

Earlier in January 2021, electricity market prices rose to a record price of £1000 per megawatt-hour. This was the highest price since the auction market began in 2014. It was a staggering ten times higher than the price at the corresponding time on the previous day.

Because energy prices rise and fall due to supply and demand, the current situation where demand is high and supply is low create a perfect storm. What factors force up demand and contract supply, leading to these eye-watering energy prices?

Weather

You’ve probably noticed (if you’re reading this in the UK in January) that it’s pretty chilly out there. As I look out of my window in London, there is snow on the ground – that hasn’t happened for years. Many parts of the UK have been under snow for a lot longer. There has also been Storm Christoph, floods and other examples of extreme weather. Of course, when there is a cold snap like this, people use more energy to heat their homes. Demand for energy rises.

In many cases where demand goes up, energy companies can quickly raise their supply to meet it without too much difficulty. However, this time, there is a difference. The current weather situation does not provide the wind speeds to turn the wind turbines and generate electricity. The National Grid has issued warnings to the market that electricity supplies will be tight and have asked suppliers to extend their electricity capacity. While there have been no warnings about blackouts so far, some observers believe it’s only a matter of time.

With consumers using more energy to heat their homes at a time when prices are high, there is a significant worry that when the bills come in, some customers will not be able to pay them.

Brexit

At the turn of the year, the transition period ended and the UK left the EU, moving to its new trade deal.

One of the many European bodies that the UK chose not to be a part of anymore is the energy auctions algorithm, known as EUphemia. While it still participates in the European energy auction, it also runs two separate ones, but the prices in the UK auctions do not link with the European ones. This creates more liquidity in the market which leads to price volatility. Experts believe this volatility will lead to higher prices for the UK market, not less.

Aside from supply and demand, the very nature of the energy market is forcing prices higher. This is not a good situation for energy companies and consumers.

Coronavirus

Of course, we can’t talk about anything at the moment without bringing the COVID-19 pandemic into it. It has affected every aspect of our lives, and our energy consumption is no exception.

The UK is currently in its third lockdown with no end in sight, although vaccination numbers are rising gradually. Everybody is at home all day long. They are not going to work during the day or out at night. So, because it’s January and it’s cold, they need to heat their homes all day too.

This rise in demand, especially compared to the first lockdown, when it was spring and summer and generally hot weather, will push prices higher. Energy companies must deal with this surge in demand, while consumers worry about higher bills.

Regulations

If all this was not enough, 2021 will see some regulatory changes that the industry will have to deal with:

• The energy price cap is up for review in March 2021. Experts predict it will need to be raised, which will, in turn, lift prices for consumers
• Regulations on suppliers’ finances will be tighter, to try to stop suppliers going bust. OFGEM will be able to request to see existing suppliers’ financial status and customer service reports
• A new Government white paper plans to make it easier for consumers to switch suppliers, as well as make energy supply more eco-friendly and more affordable

Smart meter rollout

As you can see, energy suppliers have a lot to deal with right now. They have tools to balance supply and demand, while their forecasting methods get smarter, which should see them through this tricky time.

However, the question is, should they be that concerned with the smart meter rollout while all this is going on?

The rollout has seen financial problems, multiple delays and now, as a new framework is being introduced, a new lockdown to cause more problems.

Whilst the smart meter transition is important for consumers and the industry as we move into the future, right now it is adding to the strains within the market, but there is a simple way to spread the cost and lift the strain on energy suppliers. Traditional energy meters should only be replaced with smart meters when the customers request them or they actually stop working. When a legacy energy meter comes to the end of its life, that’s when it’s time to get a smart meter.

This would be better for energy companies, who could concentrate on things that matter to the environment and their customers. On the other hand, consumers who were never that concerned about smart meters anyway wouldn’t even notice.

Times have rarely been harder for energy companies – and when they lose, consumers lose too. Perhaps it’s time to give them a slight break.