Retail electricity products – customer propositions – set out the price of power for each household and business in Aotearoa New Zealand.
These products are like sandwiches. What sandwich you get depends on your preferences and the available ingredients.
The ingredients are the cash signals provided by pricing mechanisms across the electricity supply chain – the spot price, hedging costs, transmission charges, distribution charges etc.
FlexForum thinks some ingredients are not being used or are missing due to holes in the value stack.
The holes are mostly due to a lack of cash signals designed to motivate a dependable flexible response to unpredictable network and system conditions.
This is why customer propositions have been plain and predictable fare…
No mustard. No pickles.
The key characteristic of most customer propositions available today is they offer a predictable price – whether flat or TOU rates – for a predictable response.
The overarching reason is the power system has been built and operated based on the predictability of aggregate household and business electricity use across days and seasons.
The holes in the value stack are not surprising. Pricing mechanisms were designed for an electricity system which was predictable and did not have much distributed flexibility.
Things are becoming less predictable as the energy transition changes how and when people use electricity, whilst also changing the generation fleet from highly controllable fossil fuels to more variable sources such as wind and solar.
A flexibility sandwich means getting extra ingredients
What we need are cash signals which specifically motivate and incentivise the dependable flexible responses to unpredictable conditions.
Going out to get the extra ingredients is easier said than done. Developing cash signals for unpredictable events requires the ecosystem to build experience and know-how, buy new communication and information exchange pathways and be willing to rely on flexible responses.
There are lots of solutions being floated. But solutions which do not lower these barriers means people will be stuck with plain, predictable sandwiches.
And also a less reliable, less resilient and more expensive power system.
AI is responsible for the Flexibility Sandwich metaphor
The flexibility sandwich metaphor was generated by NotebookLM, a Google-owned tool, which produces podcasts based on whatever source material you feed it.
Here is the podcast generated from the FlexForum advice to the Energy Competition Taskforce. It’s not 100% accurate, but is worth a listen.
You can also check out the advice and the FlexForum Insights to find out what ingredients are needed to make a piquant Flexibility Sandwich.
