Bricolage – the way to speed up energy system change
Catherine Mitchell, IGov Team, 31st March, 2014
The second Working Group (WG2) report of the International Panel on Climate Change Fifth Assessment Review (IPCC AR5) has been published and says we, as a world, have to do more to combat climate change if we are to maintain the comfort and fabric of our lives, and it will cost us less than if we do nothing. WG1 of the IPCC AR5 was published last year on the science of climate change and in a couple of weeks the third and final report (WG3) of this Assessment Review will be published on how to mitigate climate change. As a Lead Author in the WG3 policy chapter, and as someone working in the energy world since the 1980’s when climate change was just becoming known about as an issue, it is clear to me that the rate of change in the British energy system has to be speeded up significantly if we, as a country, is to do ‘our bit’ towards climate change mitigation.
How to undertake a transformation of our energy system is the focus of the IGov project. Transformation is complicated, and will be different for each country. However, a key factor in encouraging sufficient change in the energy system is having appropriate governance in place. Sadly, the current British governance system is one of stagnation rather than innovation.
No-one is saying transformation is easy but a central first step must be a clear decision to support the ‘new’ energy system rather than maintain, or soften the impact too much on, the ‘old’ system. A meaningful climate change policy which moves away from a fossil based energy system must leave the fossil fuel industry, and its supply chain, a ‘loser’ relative to the non-carbon ‘winners’. The rate at which the Government allows the ‘old’ system to ‘lose’, such as through unused assets or reduced market share, is a very useful indicator of the resolve of a Government to undertake a meaningful climate change policy. On this criteria, the British Government is doing very poorly.
The combination of the Government, the large energy companies and the Regulator have, over the last 25 or so years, chosen to support the short-term interests of the incumbent large companies and the energy status quo rather than the longer term interests of consumers (and society). The latter has been consigned to that useful role of paying for policy. As can be expected when something is taken for granted, this has meant that energy policy has neither moved forward sufficiently in the environmental and technical arena but has also not remained affordable.
Only very recently, and mainly subsequent to the Labour Reset Speech, has any real attention been given to the impact of governance on energy prices and affordability. In a very useful step last week, Ofgem has proposed that the Competition and Markets Authority (CMA) investigates ‘once and for all’ whether there is effective competition in the gas and electricity markets. As Ofgem announced its proposal, it also chose to publish a State of the Market assessment. Ofgem is required to consult on their proposal but given the market assessment conclusions, it seems most unlikely that the CMA investigation will not occur.
Understanding the degree to which the energy market in Britain is sewed up by the Big 6, and the degree to which customers pay for this pleasure is important. It is a first step towards implementing measures which might mean that there are fewer people in Britain struggling to pay bills to keep warm. It should also usefully shine a light on how the Big 6, the Governments (including in the past) and the Regulator have effectively colluded in softening the imperative for change within the energy system. This has led to an energy system (1) dominated by the Big 6, which are used to passing their costs on to customers; and which are not being forced to deal with the economic realities of technological change going on around them in the world; and (2) an energy system in no fit state to deal with the complexities of a low carbon energy system. And finally it may also help lead to an improved governance system which is able to speed up the rate of change within the British energy system in such a way that is able to meet its environmental needs in an affordable manner way to society. The latter can only occur with a move from the current big-kit, top down, centralised, gold-plated system to an active, efficient and integrated one. And this will only occur if the Government forces the grip of the incumbents on the old system to loosen.
The CMA investigation does not, unfortunately, provide any certainty that such an improved governance system will be put in place. Indeed, on past behaviour, the current Government, the Regulator and the incumbents would all like to carry on as before in a cosy cabal. However, that does not seem entirely possible any more. The Labour Party is keeping up its demands for change and the CMA investigation will move governance on to some degree.
The question is whether the triumvirate’s perspective is the negative ‘just how little change can they get away with’ or the more positive ‘how much change they decide to go for’. We can only hope that the newly elected Government after the next election decides to support the ‘new’ energy system and accepts that the ‘old’ energy system has to change quicker than they, the incumbents, would like. With this reality, the incumbents would have to recognise their choice is to change and be part of the future or suffer economic losses. And the Regulator, with its new CEO, could choose a more progressive interpretation of its Duties or risk being fundamentally restructured.
As the IPCC reports show, climate change is not a done deal. A huge amount of change can happen in an energy system in thirty years – as shown by Denmark and Germany. They are examples of bricolage – an energy system built brick by brick – slowly but surely. I would like to hope that the 2013 Reset speech and the 2014 CMA investigation, buttressed by the 2013 and 2014 IPCC reports, are the first bricks in a transformative energy policy in Britain.