Written evidence submitted by OVO Energy (CGE0007)
1.Introduction to OVO
1.1 OVO is the UK’s largest independent energy technology company and supplier. Founded in 2009 by Stephen Fitzpatrick, OVO redesigned the energy experience to be fairer, greener and simpler for all. Today OVO is no longer simply an energy retail business: it is a group of innovative, dynamic companies, all striving to harness technological advances with great consumer propositions to deliver affordable, clean energy to everyone. Across the group, we serve nearly one million customers with intelligent energy services and other home services.
1.2 OVO supports the Science and Technology Committee's inquiry into Technologies and Clean Growth emissions targets and believe this comes at a particularly critical time given the Government’s recent request to the Committee on Climate Change for advice on achieving net net-zero emissions by 2050.
1.3 OVO firmly believes in the opportunities that emerging energy technologies present for addressing the complex challenge of providing reliable, affordable, and renewable energy at scale, necessary to meet carbon targets.
1.4 In recent years, OVO has made a series of acquisitions, investments and partnerships that have allowed us to offer diversified energy services from heating, to electric vehicle (EV) charging and home batteries.
1.5 We are well positioned to manage the complexity of the energy transition for our customers, as such we think OVO is particularly well suited to answer this inquiry given our investment in the following innovative technology products:
1.6 In 2017, we acquired VCharge, an intelligent energy platform, which automates and orchestrates how smart devices are used. It is the first platform to deliver ancillary services and energy arbitrage. This technology will be critical in changing demand flows, balancing the system and preventing under-utilisation and over reinforcement of the grid. Crucially, it will enable millions of EVs to be connected to the grid without the need for expensive upgrades.
1.7 We invested in EV technology specialists and launched a number of EV hardware products like the OVO Smart Charger and V2G Charger.
1.8 We launched a Home Energy Storage solution and acquired CORGI and its network of 5,000 engineers, offering boiler installations, smart heating systems, maintenance and insurance plans.
1.9 While this consultation appears geared towards generation-based technologies, OVO would like to emphasise that there are other ways the UK can tackle climate change beyond generation, that can also be applied at a domestic/residential level.
OVO response
2. QUESTION: Address the following, The Clean Growth Strategy: The relative importance of the four main areas identified in the Strategy, and whether the Strategy places the right weight on each of those sectors to deliver emissions reductions.
2.1 The four areas outlined in the strategy: ‘Improving Our Homes’; ‘Accelerating the Shift to Low Carbon Transport’; ‘Delivering, Clean, Smart and Flexible Power’; and ‘Enhancing the Benefits and Value of Our Natural Resources’ are all significant and there must be steps taken in all of these areas if overall emissions are to be reduced.
2.2 However, particular focus should be given to “Delivering, Clean, Smart, Flexible Power” and “Accelerating the Shift to Low Carbon Transport”. There is much to be gained by prioritising action in these areas. Progress is needed in the fields of transport and heat if we are going to meet our carbon targets, but the UK also has an opportunity to build on the innovations made in this country. It can take a leading position in the field of flexibility and the smart energy system of the future by building on its forward looking approach to energy system reform.
2.3 To Deliver, Clean, Smart, Flexible Power the focus must be on accelerating change in the energy system. In line with OVO’s Flexibility First proposals (https://www.ovoenergy.com/binaries/content/assets/documents/pdfs/blog/ovo-riio-2-consultation-response-flexibility-first-2pdf) we believe that the energy networks, and in particular the electricity transmission and distribution companies, are central to facilitating this change to a smart, flexible energy system of the future. They are integral to both enabling timely transition to a secure low carbon energy supply, and via the establishment of robust and competitive markets for flexibility - creating an intelligent energy system that achieves whole system outcomes for consumers. We believe that current incentive structures ought to do much more to accelerate change in the energy system and fail to recognise and prioritise the procurement of flexibility services over alternative options such as investment in new network infrastructure.
2.4 Accelerating the Shift to Low Carbon Transport, can be achieved by electrification of the road transport sector combined with the continued decarbonisation of power. OVO’s analysis (Blueprint for a post-carbon society), in partnership with Imperial College London[1] highlights that Smart Charging and Vehicle-to-Grid (V2G) technologies like those offered by OVO can help lower the cost of this transition. In fact, the research found that the use of residential flexible technologies, like smart EV charging, smart electric heating and in-home batteries can help to make whole energy system savings of £6.9bn, the equivalent to £256 per household.
2.5 Regarding the Clean Growth Strategy’s section, Improving Homes, we want to highlight that technologies currently exist that can help cut emissions in this area. Electric storage heaters can store large amounts of thermal energy and, with a combined peak capacity of 12GW, they represent the largest grid-connected storage asset in the UK.
2.6 Using new controls, software, and a ‘smart tariff,’ storage heaters can be aggregated to form a virtual battery, delivering dramatically improved control, comfort, and savings for consumers. This solution brings major social benefits and can be implemented at significantly reduced costs compared to other technologies, such as district heating. The technology is quick and easy to install and can be readily scaled up in both the home owner and social housing markets.
3. QUESTION: Address the following: Progress on meeting carbon budget targets to date and areas where more progress is needed going forward.
3.1 As stated in the Committee on Climate Change (CCC) report, the next two ‘carbon budget’ targets will be missed and in some areas the “policy to deliver [on the reductions targets] has not yet been worked up” which illustrates that more action needs to be taken if future carbon budget targets are met.
3.2 Further to this, the Intergovernmental Panel on Climate Change (IPCC) has outlined in their special report on keeping the rise of global warming under 1.5 degrees C, that we are currently completely off track, heading instead towards 3C. One of their primary conclusions notes that an unprecedented number of changes will be needed, if we are to limit global warming to 1.5C , with changes to energy systems, changes to the way we manage land, and changes to the way we move around with transportation needed.
3.3 In light of these findings and the current outlined policy path, OVO believe it's important that progress is accelerated by using new innovative, clean technologies and that flexibility is supported to create an energy system focused on decarbonised electricity.
3.4 OVO’s research in partnership with Imperial College London has set out how it is possible to design an enlarged and decarbonised power system capable of supporting an electrified heating and transport sector. Our modelling would allow for near complete decarbonisation of transport and an examination of how electric heating interacts with residential demand side flexibility. We think it's important attention is paid to this area, as heating represents 30% of total UK carbon emissions and is often cited as the most challenging aspect of decarbonisation.
4. QUESTION: Address the following: The extent to which current and future technologies can help to meet the carbon budgets.
4.1 While this question appears geared towards generation-based technologies, OVO would like to highlight that there are other ways the UK can tackle climate change beyond generation, that can also be applied at a domestic/residential level.
4.2 OVO has developed technologies focused on solving the complex challenges presented by climate change, providing hardware and software solutions that can help meet the next carbon targets and beyond. In this way, a distributed energy system with intelligent technologies in the home, can enable customers up and down the country to meet the UK’s carbon targets.
4.4 An intelligent platform for the future electric grid, VCharge is a highly scalable system that captures the value of flexibility present in all energy resources. It remotely connects distributed flexible electrical devices and aggregates them into a virtual power plant. This connected system reacts as a whole to changes in demand and supply, recognising strain and reacting within a second. By intelligently managing both generation and demand in this way, using VCharge could facilitate more renewable energy generation and supply without the need for costly infrastructure investment.
4.5 The added benefit of VCharge software is that it will typically prompt customers to charge their cars when electricity is at its cheapest because of abundant levels of renewable generation entering the grid. This way VCharge will not only help balance the grid, but also help the UK meet its carbon targets by helping to shift EV charging to times when green electricity is at its highest.
4.6 V2G Charger and Smart Charger
4.7 The OVO V2G Charger is the world’s first widely available domestic bi-directional charger. Using VCharge, this charger will give drivers the option to discharge and sell surplus electricity from their EV batteries back to the electricity grid, helping to supply energy at times of peak demand.
4.8 The Smart Charger like the V2G Charger, will enable EVs to be charged during off-peak hours, thereby easing pressure on the electricity grid as well as allowing drivers to take advantage of cheaper off-peak electricity.
4.9 Smart Electric Heat
4.10 The smart electrification of heating is an essential component of decarbonising our energy system. The technology uses an internet connected smart switch which allows users to control the level of heat they want, when they want it via OVO’s Smart Heat Customer App. This can reduce their electricity bills by as much as 30% and provide balancing services to the electricity grid.
4.11 We would also like to highlight the project that OVO is participating in that was recently awarded £1.6m of funding by BEIS, The Zero Carbon Home project. OVO is working with thermal storage innovator Sunamp, to demonstrate that using renewable electricity to power smart electrical heating systems is the most widely applicable, lowest cost and scalable route to complete decarbonisation of the residential heating sector.
4.12 Smart electric heating technology can be applied to any form of electric heating with storage, such as heat-pumps or hot water heaters. The growth of renewable energy in the power sector has already rendered electric heating less carbon intensive than gas central heating and, with the additional value from grid balancing, electric heating can also be cheaper. We see a pathway to complete electrification of the heating sector, following a transition similar to that forecast for the transportation sector.
4.13 Additionally, our research with Imperial College London, which looks at three different decarbonisation scenarios all with varying levels of residential flexibility concludes that in the most ambitious scenario, which includes a high uptake of both EV’s (25 million) and electric heating (21 million), in addition to a high penetration of low-cost renewable power generation (93 %) would see carbon emissions drop to 138 MtCO2e compared to today’s level of 379 Mt CO2e, a reduction of 64%. Not only this, but the inclusion of this level of smart heating would lead to savings of £3.9billion per year resulting from the displacement of CCS with other low-carbon generation.
4.14 We believe that Smart and V2G Charging and Smart Electric Heat will play a huge role in reducing our emissions and achieving our carbon budget targets.
5. The uncertainty in future technologies’ contribution to emissions reductions, and how that uncertainty can best be incorporated into the Government’s carbon budgets.
5.1In OVO’s modelling with Imperial College London, we've been able to project the total carbon emissions of the system under scenarios using each of the residential flexible technologies, alongside the impact on whole system costs. We have sent the Committee this report alongside this submission.
6. How the development and deployment of technology can best be supported, and the extent to which the Government should support specific technologies or pursue a ‘technology neutral’ approach.
6.1 There remain barriers that are impeding the transition to a smart, flexible energy system of the future. As mentioned previously and in line with OVO’s Flexibility First principles, the biggest challenge to propagation of residential flexibility is the lack of route to market to grid balancing revenue streams from these devices. It is currently not possible to access the £6.9bn full system value identified in the Imperial analysis.
6.2 Regulatory and market changes are required in order to facilitate the adoption of these technologies and these are detailed in our Flexibility First principles which are as follows:
- Flexibility services procured first: Network companies should be obligated to tackle network constraints by procuring flexibility services as a first measure, rather than by building expensive new network infrastructure.
- Targeting ‘whole-system’ outcomes: Rather than focussing on benefits to themselves, network companies should be incentivised to help us achieve our carbon reduction targets at the lowest possible costs for consumers (as set out in the Government’s Smart Systems and Flexibility Plan).
- Rewarding grid utilisation: Network companies should be rewarded for making better use of the existing network, rather than building new infrastructure. One mechanism to achieve this is to make the ratio between maximum capacity and the average load on a network (‘load factor’) a primary metric for adjusting network company revenues.
- Facilitating renewable energy adoption: The cost and availability of new connections for renewable generators should become important output categories for network companies, given their central role in supporting renewable energy adoption. Network companies should also be incentivised to prioritise flexibility from zero-carbon sources, rather than from fossil-fuel based thermal generators.
- Promoting entrepreneurialism: Network companies should be able to make genuine financial gains and losses based on their performance on whole-system outcomes. This will encourage companies to implement innovations into business as usual, rather than simply conduct pilot projects with no follow-on. We recommend that any returns above a base return of 2-3% should be based on achieving whole-system outcomes.
- Continue to separate network operators from users: Ofgem has rightly established that network operators may not own and operate energy storage. Similarly, Ofgem should clarify that network operators may not directly control other distributed energy resources such as EVs and instead use price signals to manage and encourage flexible resources.
6.3 In regards to VCharge and Smart Electric Heat, we have found that Energy Performance Certificates (EPCs) do not recognise the role of smart electric heat, and Government incentive schemes are based on EPC calculations, which address the performance of properties through measures like insulation, lighting, and boiler efficiency. In addition to this, current Government policy is focused on district heating, which is is only part of the solution. District heating projects are also removing the electric storage heaters in social housing that will enable VCharge and other smart electric heat programmes to flourish.
6.4 For Smart Charging, we are concerned that allowing network companies to directly manage behind the meter assets will create a conflict of interest with the need for these same network operators to develop robust, competitive markets for smart charging solutions to provide flexibility.
6.5. We would also caution against heavy handed regulation in the monitoring and standards for charging. OVO urges that specifications and monitoring capability are set in a way that fulfils minimum criteria for safe operation (both in isolation and as one of many assets active across the UK), but allows the market to define final outputs.
6.6. In the case of EVs and smart charging we would also back the BEIS Select Committee call for the Government’s ban on new petrol and diesel cars to be brought forward to 2032 to give a clear signal of ambition and intention to industry and consumers to invest in EVs.
6.7 Creating flexibility markets at the distribution level requires new processes to be established, iterated and refined as necessary to best fulfil networks’ ability to balance demand and supply on the local network. Effectively coordinating the various stakeholder groups involved will no doubt be challenging, as will ensuring regulatory frameworks keep abreast of rapidly evolving technological capabilities. But, OVO firmly believes that creating a smart energy future, and harnessing the flexibility of behind the meter assets through intelligent platforms such as VCharge, can allow UK PLC to unlock greater long-term value and fulfil all three pillars of the energy trilemma; low carbon, affordable, and plentiful energy supply.
7. The relative priority that should be attached to developing new technologies compared to deploying existing technologies, including consideration of the costs and pollution involved in the decommissioning of technologies or infrastructure.
7.1 There are a number of technologies that OVO has developed which help to solve the challenges of bringing more renewables onto the grid and decarbonising the system. The Government should provide the right framework which allows for the widespread uptake of these technologies until the market reaches maturity. Our analysis with Imperial highlights that the use of residential flexible technologies, like Smart EV Charging, Smart Electric Heating and in-home batteries saves the UK energy system the equivalent of £256 per household.
7.2 The Government should also create structures where the incentives for developing new technologies are focussed on cutting emissions and reducing cost for the customer. We believe that there should be a greater focus on our Smart Electric Heat technology.
7.3 The savings that can be made with installing Smart Electric Heat are displayed below, these can be found in our VCharge Smart Electric Heat White paper, are displayed in the table below:
8. Examples of specific technologies whose development and deployment have been effectively supported so far, as well as those that show particular promise for meeting the Government’s carbon emissions targets or supporting the UK’s economy, or which would benefit from specific Government action, in the future.
8.1 We welcome the Government’s support for smart and V2G charging and encourage continued commitment to smart energy innovations, which could save the UK as much as £40 billion between now and 2050.
8.2 OVO has worked in partnership with the Government, Nissan and a number of other organisations for the Innovate UK V2G charger trial. This project deployed 1000 vehicle to grid chargers with OVO Energy customers who drive a Nissan LEAF and highlighted the technical and commercial potential for a domestic V2G charging solution capable of providing flexibility services to electricity networks.
8.3 We have also recently been awarded a grant from the Government’s Low Carbon Heating Technology Innovation Fund for The Zero Carbon Home (ZCH) project. Working in partnership with thermal storage innovator Sunamp, the aim is to demonstrate that using renewable electricity to power smart electrical heating systems is the most widely applicable, lowest cost and scalable route to complete decarbonisation of the residential heating sector.
8.4 The ZCH Project will specifically use a high powered heat battery from Sunamp’s UniQ product range, to store heat generated by a heat pump or direct electric heater, and will be controlled by OVO’s intelligent platform VCharge.
8.5 Alongside the support for creating route to market for residential flexible technologies, as outlined in previous questions. The Government should encourage a swift move to Half Hourly Settlement and the continued uptake of smart meters which will both help to ensure the transition to the smart, flexible energy system of the future.
9. The role of the Industrial Strategy ‘Clean Growth Grand Challenge’, and what the Government should do to ensure it contributes effectively to meeting emissions targets.
9.1 We are supportive of the Government’s intention to be a leader in clean growth and welcome the steps taken in this area to achieve this aim.
9.2 We think the Smart Systems and Flexibility Plan, published as part of the Industrial Strategy is critical in achieving this aim.
9.3 We welcome the emphasis placed on flexibility in the most recent update to this plan and are happy that the update correctly highlights that flexibility is central to transforming the system and balancing the grid. We look forward to working with the Government to ensure that flexibility is fairly rewarded for the value it can provide through new markets at a distribution network level.
October 2018