I just love the way you boys write, I guess that's partly you and partly the joys of a university education. Keep these interesting analogies coming, I'm loving it!
I’m excellent David, how are you mate? Indeed it has been some time since we last spoke. I’ll do my best to look you up when I’m in Sydney next. Cheers
I've already got a smart home automation system that puts the EV onto charge when the suns out, flips the dishwasher on, puts a load of washing on, and then pauses it all when the clouds come over. It's called "Dylan".
Interesting article. Wholesale spot prices are very dynamic, network prices not so much. A barrier with the latter is that the prevailing paradigm is that networks are pricing to end customers. Networks actually bill retailers who have no obligation to pass on a tariff “shape” to the customer. My reading of the rules is that they are ambiguous as to who the network is supposed to be pricing to. another element is that a criterion for acceptable network pricing is that customers can respond to it, implicitly manually. And of course it has to be opt in in case the customer can’t/doesn’t want to respond. But then few customers are even aware that they can opt in. this then makes the addressable market for automators pretty small. Even with wholesale prices, most retailers take the view that they have a tried and tested risk management tool - hedging contracts. Once hedged there’s limited incentive to encourage customers to respond to the underlying wholesale price volatility. At least there are retail models such as amber that offer spot exposed retail tariffs. But again, I’m not sure how big their addressable market really is in practice, even if there were better automation tools out there for customers.
My understanding of the rules is certainly that retails are not obliged to pass on a tariff 'shape' to the end customer, but in practice they almost exclusively do, mostly for risk mitigation reasons. The inherent business model of retailing is around risk aversion.
Network tariff designs are becoming increasing complex (there's an article in this alone) shifting away from flat or even time of use volumetric energy charges towards tariffs that include demand and capacity elements (or even peak contribution items). These more complex tariffs lend themselves better to optimisation, either through manual actions, or automation.
The hedging thing is an interesting one, and another space to explore in a future post. Hedging is a useful risk management tool for both the retailer and their customers. Retailers can use hedging to avoid customers being exposed to the vagaries of the NEM volatility, but also to manage their own shape, volume and price risks - you never quite know what your retail book looks like at any given moment.
Interesting article Declan. Optimisation and automation seems to be one of these "white knights" we look to to make everything better. It'll be interesting to see how it develops. From a market perspective I guess we will see occasional bouts of chaos as automated systems interact in ways we don't expect.
From a consumer perspective the realities of dynamic pricing could be interesting. It’s hard to shift practices to optimise consumption against chaos. Today at least the realities of home energy management systems don’t seem to match the expectations (apart from some large devices such as EVs and home batteries). So, a lot of discretionary load like dryers and dishwashers and the like are probably still going to be controlled by people pressing buttons on them. Maybe some of these “meter unbundling” reforms will help that as most consumption could be with a less chaotic price signal.
To take your robin hood analogy – benefit that has a high “cost to enter” like most easily optimisable assets of today is a bit exclusive. So, we have moderately wealthy people taking money from very wealthy ones. But very wealthy ones that can simply raise prices for not wealthy people to make up the shortfall. Not wealthy people then have the empowering choice of freezing/baking to death or starving. Sadly, today costs always seem to end up on the least fortunate. I’m not sure batteries/EVs/whatever for all is a good solution either. You still need to get them into houses, maintain them, operate them. And in the end, you can’t eat a battery. Surely it’s better to simply build a just energy system? Optimisation probably exists in a just energy system but need to make sure we do it right.
Great comment Laura! I 100% agree there are limits to what automation can do, and in a direct sense, most of those benefits will accrue those who can afford to install and use automation. This already happens with solar - generous feed-in tariffs + recovering network costs mostly through volumetric charges shifts the costs to those who don't have solar.
I think if I ran it past Nollsy, he'd say a fairer system for recovering fixed costs and the option of more cost reflective prices signals for customers to opt into can more fairly redistribute costs and also allow prices to create a more efficient system. There's also a limit to what we can do through energy prices specifically - there's a role for governments in improving residential energy efficiency for both reducing their costs but also increasing comfort!
I just love the way you boys write, I guess that's partly you and partly the joys of a university education. Keep these interesting analogies coming, I'm loving it!
Thanks mate! Glad you like em!
Hey Nick, how are you? Been awhile....
I’m excellent David, how are you mate? Indeed it has been some time since we last spoke. I’ll do my best to look you up when I’m in Sydney next. Cheers
I've already got a smart home automation system that puts the EV onto charge when the suns out, flips the dishwasher on, puts a load of washing on, and then pauses it all when the clouds come over. It's called "Dylan".
Amazing. Get everyone a Dylan and it's problem solved!
Very interesting and relevant analogy Declan. We are entering very interesting times and the look back in 10 years will be "wow" I suspect.
Interesting article. Wholesale spot prices are very dynamic, network prices not so much. A barrier with the latter is that the prevailing paradigm is that networks are pricing to end customers. Networks actually bill retailers who have no obligation to pass on a tariff “shape” to the customer. My reading of the rules is that they are ambiguous as to who the network is supposed to be pricing to. another element is that a criterion for acceptable network pricing is that customers can respond to it, implicitly manually. And of course it has to be opt in in case the customer can’t/doesn’t want to respond. But then few customers are even aware that they can opt in. this then makes the addressable market for automators pretty small. Even with wholesale prices, most retailers take the view that they have a tried and tested risk management tool - hedging contracts. Once hedged there’s limited incentive to encourage customers to respond to the underlying wholesale price volatility. At least there are retail models such as amber that offer spot exposed retail tariffs. But again, I’m not sure how big their addressable market really is in practice, even if there were better automation tools out there for customers.
My understanding of the rules is certainly that retails are not obliged to pass on a tariff 'shape' to the end customer, but in practice they almost exclusively do, mostly for risk mitigation reasons. The inherent business model of retailing is around risk aversion.
Network tariff designs are becoming increasing complex (there's an article in this alone) shifting away from flat or even time of use volumetric energy charges towards tariffs that include demand and capacity elements (or even peak contribution items). These more complex tariffs lend themselves better to optimisation, either through manual actions, or automation.
The hedging thing is an interesting one, and another space to explore in a future post. Hedging is a useful risk management tool for both the retailer and their customers. Retailers can use hedging to avoid customers being exposed to the vagaries of the NEM volatility, but also to manage their own shape, volume and price risks - you never quite know what your retail book looks like at any given moment.
Interesting article Declan. Optimisation and automation seems to be one of these "white knights" we look to to make everything better. It'll be interesting to see how it develops. From a market perspective I guess we will see occasional bouts of chaos as automated systems interact in ways we don't expect.
From a consumer perspective the realities of dynamic pricing could be interesting. It’s hard to shift practices to optimise consumption against chaos. Today at least the realities of home energy management systems don’t seem to match the expectations (apart from some large devices such as EVs and home batteries). So, a lot of discretionary load like dryers and dishwashers and the like are probably still going to be controlled by people pressing buttons on them. Maybe some of these “meter unbundling” reforms will help that as most consumption could be with a less chaotic price signal.
To take your robin hood analogy – benefit that has a high “cost to enter” like most easily optimisable assets of today is a bit exclusive. So, we have moderately wealthy people taking money from very wealthy ones. But very wealthy ones that can simply raise prices for not wealthy people to make up the shortfall. Not wealthy people then have the empowering choice of freezing/baking to death or starving. Sadly, today costs always seem to end up on the least fortunate. I’m not sure batteries/EVs/whatever for all is a good solution either. You still need to get them into houses, maintain them, operate them. And in the end, you can’t eat a battery. Surely it’s better to simply build a just energy system? Optimisation probably exists in a just energy system but need to make sure we do it right.
Maybe it's a good application of the Nollsy test?
Great comment Laura! I 100% agree there are limits to what automation can do, and in a direct sense, most of those benefits will accrue those who can afford to install and use automation. This already happens with solar - generous feed-in tariffs + recovering network costs mostly through volumetric charges shifts the costs to those who don't have solar.
I think if I ran it past Nollsy, he'd say a fairer system for recovering fixed costs and the option of more cost reflective prices signals for customers to opt into can more fairly redistribute costs and also allow prices to create a more efficient system. There's also a limit to what we can do through energy prices specifically - there's a role for governments in improving residential energy efficiency for both reducing their costs but also increasing comfort!