Colin Prestwich (Smartest Energy)

Creating the Conditions for New Market
Entry
SmartestEnergy’s Experience and Views
3 rd March 2011
Colin Prestwich

Agenda
• Introduction to SmartestEnergy
• The NETA environment
• Setting up as a supplier and issues
• Engaging with the demand-side
• Looking forward

UK’s leading purchaser and supplier of electricity generated by the
independent generation sector
3

Introduction to SmartestEnergy
• Wholly-owned subsidiary of Marubeni Corporation of Japan
• Established in 2001 on the back of deregulation
• Licensed Electricity Supplier, and Gas Shipper and Gas Supplier
• Annual turnover £841 million*
• Profit after tax £8.6 million
• Physical and financial trader in UK power, gas, carbon, and renewables in both
forward and spot markets
• Retail business launched in Summer 2008
*Financial figures 2009/10 audited accounts
3

SmartestEnergy Overview
• Largest purchaser of electricity from embedded independent generators
– 1700 MW installed capacity¹
– 150+ customers
– 500+ generation sites
• Launched Retail business in Summer 2008 with focus to supply renewable power to
industrial and commercial
business customers
– 6TWh contracted volume²
– 300 customers
– 1500 sites*
¹Figures quoted as of 31 st October 2010
²Figures quoted as of 31st January 2011
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• Founded in May 1858 and incorporated in December 1949
• One of the leading Sogo Shosha or general trading house
• Gross Trading Profit: JPY 491.7 Billion (£3.5 billion ¹)
• Net Income: JPY 95.3 Billion (£681 million)
• Total Assets: JPY 4,586.6 Billion (£32.8 billion)
• Total Capacity (MW) of overseas Independent Power Producer Projects Power
Assets: 25,725
• Operations
– 118 Offices in 71 Countries
– Over 32,300 Marubeni employees Worldwide ²
• 12 divisions ranging from Energy to Food, from Metals & Minerals Resources to
Forest Products
• SmartestEnergy sits within the Power Project and Infrastructure Division
Marubeni’s Company
Creed
Fairness
Innovation
Harmony
¹Financial figures from 2009/10 audited accounts ,converted into
£ using the exchange rate as of Mar 2010
² As of September 2010
6

SmartestEnergy Operations
• 77 employees across two offices within the UK
• 6 regional Account Managers across the UK
• London Office (registered head office)
– Executive Committee & Board
– PP Sales and Customer Service Teams
– Marketing
– Trading and Transaction Team
– Credit and Risk Management Teams
– Finance
• Ipswich Office
– Retail Sales Team and Customer Service Teams
– Business Operations and Analysts
7

NETA
• NETA created:
– Bi-lateral trading
– Balancing incentive
• Further extension of free-markets after the Pool
• Freedom (to trade) brings with it responsibility (to pay your way)

Setting Up as an Electricity Supplier
• Licence
• Accreditation
• Trading, risk and billing systems
• Front, middle, back office staff
• Credit for bi-lateral agreements, Elexon, exchanges

Main Risks
• Wholesale market movement
• Imbalance costs
• Distribution costs
• Transmission costs
• Market rule changes

Other issues facing suppliers/wholesale players
• Liquidity
• Ofgem/Elexon reporting
• Other obligations
– RO
– Metering and Data Collection
– Distributors
– etc

Engaging with demand side
• Lack of pricing granularity
– Brokers want to compare identical products
– Customers want easy to understand bills
• Demand management
• Trust
– Technology cost effectiveness (over and above SmartMeters)
– Scale, aggregation of many customers is required
– Difficult for pricing to be both granular and transparent
– Demand control

Looking forward
• SmartGrids or Smart Energy
• SmartMeters will allow stronger price signals
• Price should incentivise
• Suppliers may or may not develop technology
• Other types of entrant (aggregators, meter operators)

EMR
• FiTs with CfD
– Additional bidding process
– Price setting will affect the wholesale market
• The market should operate as a level playing field for all players and where
necessary incentives should be built around those arrangements, not as a
part of them.
• We prefer to see incentives, not taxes.

Other things that could help
• Level the playing field on the other side of the fence
– Locational transmission losses
– Costs of reserve
– Etc
• No need to question the embedded benefit at this stage
• Less regulatory uncertainty eg FiTs
• Half hourly settlement for all customers

Conclusions
• Consolidation and technology will evolve further, but the basic market
structure is right
• Risk and set-up costs
• Customers need to be engaged through technology and price
• NGT have ultimate responsibility for balancing the system