Power of Choice is underpowered, and here’s why

blockchain

By Giovanni Polizzi, Energy Solutions Manager, Indra Australia

Outwardly, the government’s Power of Choice reforms presented as a great achievement for Australian energy customers; a chance to own their data and more easily switch providers.

In the making since 2012 and live – in some form – since the end of last year, it should have encouraged competition among retailers and a more efficient market, and resulted in more innovative and personalised energy products being brought to market. However, almost a year in, it is increasingly clear the reforms are falling short in their reach across the energy value chain.

In particular, participants are still experiencing significant information exchange problems, and that is stunting the success of the reforms and the benefits they should be realising.

How it should work

Under the reforms, information exchange for the purpose of billing or a provider switch should go something like this.

Having signed a contract with the customer, an energy retailer agrees with an energy metering agent for the supply of data from a customer’s premises. The agent quality-checks the data before sending it to the retailer to calculate the customer’s bill.

If the customer switches retailers, the new retailer communicates the change to all interested parties – the incumbent retailer, the metering agent and, eventually, the new metering agent as chosen by the retailer.

The incumbent retailer agrees with the existing metering agent on a final meter reading on the last day of contract to issue the final bill. The new retailer then starts to calculate consumption from this last reading.

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How it really works

In practice, however, this workflow is prone to errors and delays, taking from several days to weeks, and often with significant costs.

Additionally, numerous cases have been registered where customers were illegitimately assigned to a new retailer (either by mistake or by misconduct of marketers) and have had significant problems to restore their previous contract, not to mention the supply of energy.

This situation has resulted in a considerable limitation to organisations wishing to develop new energy services and products for energy customers, and therefore a loss of efficiency in the market.

Additionally, interval data (essentially data on how a customer uses energy) can be very valuable to improve customer service, the operation of the distribution networks and to generate energy more efficiently. Again, these potential benefits are withheld when the data is hard to get.

Thus, the entire system would benefit from a simpler and wider means of accessing data than that which exists today.

Fresh challenges exposed

There are clearly structural, workflow and trust issues at play in the current information exchange model.

One way to resolve them could be a permissioned blockchain platform in place of the centralised database, which currently is being studied as the solution to store all customer energy data collected under the recommendations of Power of Choice.

Though blockchain technology has been targeted at a range of different industries and applications, recent evidence indicates it is finding its feet in the core of critical infrastructure.

Blockchain technology is on track to underpin registry, settlement and clearing of funds by the Australian Securities Exchange (ASX), a project considered a breakthrough that shows the technology’s credentials and potential.

There is no reason why it could not similarly underpin and transform the way all parties in the energy market communicate and exchange data.

Arguably, a permissioned blockchain platform to store and share energy consumption data of electricity customers in the Australian National Electricity Market (NEM) would bring about benefits for customers, the regulator and the entire energy sector.

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Blockchain, not B2B eHub

Through the blockchain, customers would be responsible for their own data and for granting access to third parties, without any centralised authority accountable to route these requests.

This is a change in the strategy that the Australian Energy Market Operator (AEMO) has pursued with its B2B eHub centralised database, but not one that is likely to stray too far from comfort.

The participants would initially be the energy retailers and the metering agents, and their participation would most probably have to be mandated – which is not any different from mandating the use of the centralised database.

Therefore, initially a blockchain could exclusively allow the upload of metering data and data exchange among retailers. The regulator could additionally instruct for free access to an anonymised subset of customer data, for market and statistical analysis to show the potential of the platform and to test and improve the smart contracts.

However, the platform would release its full potential once customers and Energy Services Providers (ESPs) voluntarily subscribed to it.

With easier access to the data, retailers can compete by offering better and more importantly, personalised deals. That would encourage customers to sign up. Additionally, the market will start to see new players, the ESPs, defining new services and products thanks to the capacity to analyse significant amounts of customer data.

A permissioned blockchain allows the regulator to certify the retailers and the metering agents before they can operate with customers. Additionally, the regulator can implement further controls to protect low-income customers or customers in special subsidised areas.

An energy blockchain would create the conditions for a much more liberalised energy retail market and create a healthier competition thus ultimately benefiting all participants.

It could also enable the thorough implementation of the transparency policy that the government and regulators have been chasing for some years, allowing Power of Choice to be the tremendous success it set out to be.