Multi-level Coordination and Governance in the Energy Revolution
Richard Hoggett, IGov Team, 27th June 2018
Early this week I blogged on local energy, multi-level change, and governance reflecting on some thinking from a recent event from the Westminster Energy, Environment and Transport Forum. This second blog builds on these ideas to put forward the clear case for multi-level coordination and governance in the energy revolution. Its reflects some of my thoughts from an event last week at the Energy Systems Catapult on Transforming places through clean growth.
In common with many other countries, the UK is seeing a period of rapid and fundamental change in its energy system, a revolution based on efficiently and intelligently linking supply, demand, heating and transport. The Government’s hope is that these transformations will lead to cleaner and cheaper energy for end users and the economy as a whole, help to meet targets for clean air and the Climate Change Act, whilst supporting job creation and economic growth.
The drivers of this change are well recognised, if not fully understood in terms of the implications and interactions they will bring across heat, power and transport. They include the digital revolution within the energy sector, along with rapidly falling costs for renewable energy generating technologies, as well as storage and electric vehicles, and new technologies at the grid edge. At the moment at least, these drivers are pushing in the same direction to open up a wide range of new opportunities for creating a low carbon energy system. The Energy Policy Group along with many other commentators describe these changes in terms of a system based on the 4Ds: decarbonisation (and the need to deliver the carbon budgets); decentralisation (reflecting the clear shift towards a more decentralised system); digitisation (opening up new ways to design and operate the system across all levels); and democratisation (with consumers, prosumers, communities having a greater role and say in the energy future). While much of the change to date is happening in the electricity system, sorting out heat and transport will also increasingly reflect these drivers and the shift towards a 4D system.
Against this backdrop there is a growing interest and emergence of policy support for the role of local energy within the energy transition. This includes the Green Growth Strategy, a pillar within the Industrial Strategy on the role of place and the inclusion of clean growth and future Grand Challenges. These priorities are now being supported through the Industrial Strategy Challenge Fund via the new Energy Revolution Challenge funding that sees a central role for supporting local energy systems and approaches. BEIS have recently supported the development of energy strategies for Local Enterprise Partnerships (LEPs) and are now in the process of creating regional hubs to support their implementation to help develop a pipeline of projects within LEP areas. Pilots, modelling and research from the ETI and the Energy Systems Catapult on local energy planning and innovation are expanding.
Meanwhile many cities, combined authorities and some local authorities have developed and are implementing energy plans at a variety of scales and ambitions, often as part of devolution deals. Some cities are also exploring their role in ensuring smart meter data delivers local public interest benefits. Community energy has also continued to grow in strength. There are many examples of projects within the UK that show the opportunities that these can bring with respect to ownership and control, with local benefits – in terms of both the processes and outcomes of projects. However, community energy is at the same time now facing an uncertain future. Whilst the sector is resilient, the latest State of the Sector report shows that growth in the sector slowed in 2017, as a result of falling financial support and increased financial risk. The research suggests that the sector needs a clearer strategy from government and local authorities to flourish further.
Collectively this is all creating a new opportunity for the role of local area action on the transformation to a low carbon, secure and affordable energy system. In previous work in IGov we have argued there is a strong case for looking at how to optimise the energy system from the bottom up. This is because it is only at a local level that challenges and solutions can be identified across heat, transport and power, given the best options for this are so closely related to place and the infrastructure, homes, businesses and communities that are there. It also reflects the need that people will need to be put more into the centre of the system.
In other areas, the energy industry itself is also working to understand and shape its role within the energy revolution. This includes large utilities adapting to increased pressure to manage energy prices and deal with the large shifts in customer bases away from them and towards new entrants over the last year or so. This requires them to develop new business models and new approaches to keep in the game. At the same time electricity network companies are working to set out how they can move from passive operators to more active networks with local system operation and balancing. Gas network companies are having to consider what role they will play in a low carbon energy system, given the long term need to decarbonise heat in order to reach the UK’s climate targets. Much of the gas network and gas supplier companies thinking appears to currently be focussed on hydrogen as a follow-on fuel from natural gas. The future of natural gas and hydrogen is a contentious area with major uncertainties on what role either of them will play in the future, but decarbonising heat remains a key issue for the UK.
National Grid is also working on its future role, not least because of the inevitable tensions that will arise between national and distribution system operation and balancing. Also they are having to rapidly adapt to the changing system with a fall in the availability of large thermal plant and the ongoing growth in renewable generation technologies requiring a new approaches and incentives to ensure they can balance the system through demand response and system reserve.
Against this back drop, Ofgem are working on how to evolve the regulatory and market arrangements for the changing energy system. This includes the development of the RIIO-2 Framework; work under the smart systems and flexibility plan on upgrading the energy system; work on electricity settlement reform significant code review; future arrangements for the Electricity System Operator; and a targeted charging review – amongst other things. Collectively these will shape how regulation over the coming years will sit within the energy system transformation, but more ambition is needed in some of this.
There are numerous challenges with all of this change and these will continue to evolve as the energy system is a system of systems – what happens in one area/vector shapes and reshapes what happens in others. Given that change and action is happening across national, devolved administrations, regional and local levels, a key emerging issue is how to coordinate activity across these levels to ensure that whole-system change is reinforcing, symbiotic, and heading in the same direction. This alignment should not only speed up the rate of change but also help to minimise costs, whilst also helping to reduce situations where developments in one area do not push problems into other areas.
We need optimisation from the top down, the bottom up, and the middle out – effectively multi-level system coordination and governance. This is becoming a central area of research within the Energy Policy Group and IGov project. We think it is vital that things come together rapidly to ensure each level of the system is optimised and working together in the push towards a low carbon energy system, that maintains system security, and leads to the most cost-effective and equitable route forward.