Q&A with Co-Founder Amit on Wholesale Costs

Hi Community,

My name’s Amit, I’m the co-founder and Chief Energy Officer of Bulb and I look after our wholesale energy costs and purchasing.

Following the publication of our wholesale update I thought I’d answer a few questions in this week’s Q&A about how the market’s looking over the coming months and what to expect from us.

Coronavirus has had a big impact on the wholesale cost of energy, as you’d expect. I’d have a read of our update and then if you have questions off the back of that, hit me up!

If you have any account specific queries then we’ll have energy specialists on hand to deal with those too. (I’m going to be focused on the energy side of things).

Please fire away and I’ll get back to you as soon as I can.

Have a great day!

Amit

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Hi Amit. I have a question. I know that the price of electricity varies massively hour by hour. How does the national grid know what electricity your customers are using hour by hour. Is it just based on averages.
Secondly, I note that wind power dropped to 500MW last week for 12 hours and was low for the rest of the day. With so many power companies claiming to be green using just wind power, how was there enough power to go round, without resorting to Gas backup.
Sorry if these questions are stupid, but always wondered.

Hi @PaulMC12345,

These are great questions, and exactly what I like to talk about! So to break it down:

  1. The National Grid monitor the network as a whole on a real time basis, and are constantly taking actions (e.g. asking power plants to turn up or down) to ensure supply matches demand. National Grid does not have a real time view specifically on our customers’ usage, their view is of the aggregate supply and demand for the network.

Total demand for electricity is allocated amongst energy suppliers like Bulb through the settlement process, managed by a company called Elexon. Elexon will hold information on all the meters that Bulb supplies - including the type of meter (e.g. 1 rate, 2 rate), whether it is a business or home, which region of the country it is in, and what the annual consumption for that meter is. Elexon will use this information to allocate the aggregate demand in each region to each meter. This isn’t a process that is run in real time at present - the allocation or settlement process takes a few days.

As more smart meters are rolled out, the speed and accuracy of this process will improve. Elexon will no longer have to rely on grouping together certain types of meters - they will have real time actual consumption data from every meter that Bulb supplies.

Elexon have put together this useful guide if you want to read more - https://www.elexon.co.uk/article/elexon-launches-new-balancing-and-settlement-code-for-dummies/. [Not implying that you are a dummy!!!]

  1. Renewable electricity companies are required to purchase enough renewable electricity over a year to match their demand. Due to the intermittency of renewables there will be periods during the year when there isn’t enough renewable electricity to meet the demand of all customers of suppliers that have green tariffs, and periods when there is too much. However, over a year there will be enough renewable generation to meet this demand.

Hope these are the answers you’re looking for!

Thank you Amit. That’s a couple of unanswered questions in my life solved! Appreciate the quick and comprehensive response.

One last question from your blog. Does the National Grid take any hit for these extra balancing costs, or is it all just passed on to the consumer.

Hi @PaulMC12345,

No worries, glad to have cleared some things up for you - and sorry this reply has been a bit later.

Typically all of these additional balancing costs would be passed on to suppliers and generators and the costs are monitored by Ofgem before the customer sees the effect of this in their bill. Due to the size of the additional cost from Covid-19 SSE (Generation) are actually proposing that these payment are deferred to 2021. But this would just mean delaying the same cost. We think it’s best to be prepared for these costs now, in order for more stability further down the line.

Hope that helps!

Hi Amit, how will businesses be affected by these changes in demand? for many businesses the change in energy usage has been even more dramatic than domestic properties. Can we expect further costs to be added to the bills of businesses?

Hi Amit, with the fall in demand in energy there are forecasts that investment will also massively fall. Do you think that there will be a drive to invest in clean energy as we’ve been told, or do you think there are dark times ahead with there being less money in the energy industry altogether?

Hi @Ff1220,
Thanks for sharing your concerns but the impact on business unit rates (i.e the per kwh rate) will be similar to domestic unit rates. Overall the fall in wholesale costs will be offset by the increase in network costs - Balancing costs (‘BSUoS’), Feed in Tariff and Contracts for Difference. These costs on a per kwh basis are the same for businesses and domestic properties.

Hope that makes sense!

Hi @samgeorgevic,

This is a fantastic question.

Recent low demand has led to low gas and electricity prices (and much publicised low global oil prices)

That will lead to lower oil and gas production, particularly in the US as shale oil producers can’t produce at these low prices. However, the US government may continue to support the shale industry despite it not being economic to do so.

The low (and sometimes negative) electricity prices have in fact shown how good the investment case is for batteries / storage, which is key for unlocking the potential of renewables. This is a good thing, and we expect a lot more storage to be built over the coming years, which enables even more renewable generation to be built.

The EU have progressed with the Green New Deal despite Covid, and are considering some quite progressive measures (eg a contract for difference or ‘CFD’) for green hydrogen.

So while there are risks there are huge opportunities and this could be a turning point in terms of governments’ green investments for the future. Everyone needs to keep the pressure up!