Institutional governance reform – the essential ingredient for a sustainable, secure and affordable energy system
Catherine Mitchell, IGov Team, 4th April 2017
This is a re-blog of a Blog by Catherine Mitchell which originally appeared in the 3 April 2017 issue of Utility Week: Institutional governance reform – the essential ingredient for a sustainable, secure and affordable energy system.
GB currently has an energy governance framework – meaning policies, institutions, rules and incentives of markets and networks – which is not fit-for-the-purpose of transforming the current centralised, carbonised energy system into a decarbonised, flexible and secure energy system able to meet our greenhouse gas reductions by 2050.
The University of Exeter’s Innovation and Governance (IGov) project has spent the last four years trying to work out a coherent, fit-for-purpose institutional energy framework. All dimension of that framework – SO, TO, distribution utilities, code bodies, data bodies, market monitor, markets, people and customer roles, the regulator, consensus building, the secretary of state decision-making, the Committee on Climate Change (CCC) advice – have to fit together. IGov argues that GB has to rapidly transform its institutional energy arrangements, so that GB people, customers and society can manage the transition to a fit-for-purpose energy system as smoothly and cheaply as possible.
The government and regulator have to bite the bullet and take this issue seriously. At the moment – as a number of recent IGov blogs have argued – there is a sense of drift about what is happening to GB energy policy. It is as if all the incredibly exciting changes going on within the energy system have so buffeted government and the regulator that they have given up trying to work out what they should do, and have adopted the easy but complacent attitude that they should just sit back and see where it all goes.
Maybe the government and regulator find it comforting to think that the existence of so much ‘zippy’ new energy ‘stuff’ happening in GB is proof that they do not need to provide any more support for it: the energy system will simply transfer to being decarbonised, smart and flexible simply as a matter of course.
The reason why that would be the wrong attitude is because – whilst there are all sorts of really interesting, new things happening in the GB energy market – this is despite rather than because of government and regulator encouragement.
As the CCC’s 2016 Progress Report starkly showed, the only dimension of energy which has managed to reduce greenhouse gas (GHG) output, is the electricity sector – and this is still not on track to meet the carbon budgets and the 2050 targets. Not only is there almost no dent in GHG emissions from the other energy sectors, but there is a serious policy gap of getting there. Yes, GB has lots of fabulous, small new entrants – often lead by women – but they are not together creating a ‘new’ system which is materially bothering the incumbents of the current one, or creating a strong enough catalyst to nudge, never mind tip, the GB energy system on track towards a cost-effective, smart, flexible system or one that will produce the necessary GHG reductions.
Britain is genuinely fortunate in having a hungry, creative, entrepreneurial ‘new’ set of players in the energy world. And they are doing their best to survive and develop, make money and so on. But this is uncoordinated, and mainly electricity-based.
If we want to meet our GHG reduction targets; or, even if we do not care about them but want a smart and flexible energy system because we can see positive opportunities for GB’s industrial future – then we have to remove the ‘hard-wired’ barriers to the scaling up of these new practices and ideas to the mainstream. This requires fit-for-purpose institutional structures – i.e. sorting out our codes; makings sure data is easily available; enabling local balancing and markets; making our distribution utilities active; enabling a genuine ‘whole’ system operation via an integrated and independent system operator across vectors (electricity and heat) and across scales (transmission and distribution).
It requires reforming market design and network charging; new policies; and direction and legitimacy. It requires confronting the basic fact that the dimensions – and their relative proportions – which make up a consumer bill are changing. The energy component is becoming cheaper, and network charges are going to become more expensive. This has major implications for customer protection and public service obligations. Together, this sums up to a governance framework.
A confident country is able to envision the future it wants, and to put in place the means of getting there. This is the basis of innovation policy, or to use a more old-fashioned term, an industrial strategy. Going from ‘here’ to ‘there’ inevitably leads to ‘losers’. But a country that genuinely wants to look after its society knows that change has to happen, otherwise stagnation occurs to the detriment of citizens and customers. GB government and the regulator may be talking as if they care about innovation and the future of people and customers, but they are not walking the walk, at least with respect to energy. They are continuing to support the incumbent, private interests of the ‘old’ energy system.
At this time of Brexit turmoil, it is understandable that government and the regulator are worried about risking the economic strength of its incumbents. But to not push for change is the reaction of a country which has lost confidence in itself. Leadership is what turns this around, and GB’s energy system is sorely in need of that leadership. Sorting out GB energy governance is the first step towards a thriving, cost-effective energy system.