The IGov institutional framework for energy governance: Co-ordinated national and local governance of electricity, heat and energy services
Catherine Mitchell, Rebecca Willis, Richard Hoggett, Tom Pownall, Richard Lowes, Jess Britton
9th July 2019*
Since 2012, the IGov research project has examined how the energy system is governed, in GB and elsewhere, and what changes are necessary to bring about a secure, fair, zero-carbon system. In this blog, we bring together our proposals for the institutional frameworks that we argue are required.
IGov has already published (in draft form) its proposals for the institutional framework at the GB level, centring on the proposal for a new institution, the Energy Transformation Commission, parallel to the Committee on Climate Change, to co-ordinate, engage and oversee the energy transformation process over time. We will also shortly publish a summary of project findings and recommendations as a whole.
This blog focuses on the interaction between institutional frameworks at national and local level, and includes heat and market design.
The current GB energy governance framework
The current GB energy governance framework is shown in Figure 1 below:
Figure 1 GB Energy Governance: current institutions and responsibilities
This diagram demonstrates that there are many difficulties with current arrangements, including. In particular, the chart illustrates that:
- No government departments except BEIS have a specific responsibility for carbon reduction or requirement to respond to advice from the Committee on Climate Change; neither does Ofgem have a direct relationship or responsibility in this area.
- Energy and climate governance is a process of transformation over time, yet there is no clarity over which institutions should oversee this process. Government can and should set direction, but there is a need for further co-ordination and engagement.
- There is no clear means to ensure co-ordination between institutions, to achieve vital energy system goals such as rollout of electric vehicles; social goals; demand reduction or system integration.
- Most regulation of private sector actors in the energy sector falls to Ofgem, yet Ofgem’s duties do not incorporate wider energy or climate goals.
- There is no strategic oversight of the electricity and gas transmission and distribution systems.
Figure 2 Proposed new institutions and responsibilities
Figure 2 illustrates IGov’s proposed new institutional structure. The proposal is to add an additional institution, the Energy Transformation Commission, as well as bodies to oversee data management and heat networks. The remits of several other organisations are altered, to overcome the difficulties of the current arrangements as follows:
- A new institution, the Energy Transformation Commission (ETC), is proposed, to implement the transformation process set by government, through a process of brokering, co-ordination, consensus-building and engagement. The ETC takes advice from the Committee on Climate Change and the National Infrastructure Commission, and works with all government departments.
- The ETC also has a ‘deep dive’ function, to co-ordinate action on critical energy system issues, such as the rollout of electric vehicles, the future of the gas grid, or particular social goals, as requested by government.
- Ofgem’s remit is amended, to focus on economic regulation compatible with the transformation process set by government and the ETC.
- The current, separate System Operators for gas and electricity move into the public sector, and co-ordinate energy systems in an integrated way, taking a lead from the ETC.
- DNOs become Distribution Service Providers, co-ordinators of local energy systems, market facilitators and balancers.
- A new cross economy Data Regulator
Figure 2 includes Heat Networks as a combined public private institution. If they grow, one answer is to regulate them like the natural gas network – although their probably joint private public ownership makes this a bit trickier, and their expansion also needs to be regulated. Other countries which already have heat networks, do this in different ways. For example, in the Netherlands, where all heat networks are municipally owned, they are set up to have consumer protection at their heart.
Currently heat products in GB are in general not covered by any energy type scheme. Heat pumps under RHI (and microgeneration for electricity) are required to get accreditation through the microgeneration certificate scheme (MCS) to protect consumers. Heat pumps are more difficult to specify and install than gas boilers, and the MCS is necessary to insure installer competence. This accreditation scheme and some long term, sustainable process is needed. At the moment, the PAS 2030 (a public standard) is being adopted. Will this be sufficient? And if so, who enforces it? Accreditation and enforcement is definitely required while the heat pump industry is small and developing, although may not be needed in the long term.
Customer protection is an important part of a sound energy governance framework. IGov does not recommend a new Consumer / Customer Regulator – although we think that strong customer protection is going to be a very important part of the newly digitalising and smart energy system.
IGov recommends the establishment of a new Data regulator, which will have responsibility across the economy and sectors – and therefore many of the issues to do with energy, customers and data will come under their remit.
With respect to non-data customer protection, we have decided that we think that Citizen’s Advice formal requirements should be expanded (and further funded); that the Energy Ombudsman should also be expanded and further funded; and that Lord Tyrie’s suggestion for the CMA be accepted. Ofgem continues to have consumer protection at its heart, but in a more limited manner given that our recommendation that it becomes an economic regulator only. At the same time, one of the key duties of the ETC is to have an engagement function, and one aspect of this would be to understand levels of trust with the energy industry.
Energy governance at the local level
Figure 3 shows the combined local and national governance frameworks. A detailed explanation of proposals for local energy governance is available in this blog. Local governance of energy brings in a far wider set of institutions than the energy industry and system alone. It combines energy efficiency measures, electric vehicles, planning etc, and it requires cross – energy sector coordination and cross –scale coordination. To the degree that any coordination exists within the energy system, the cross scale coordination is particularly limited.
Figure 3 Local and national governance
Figures 4 shows the framework with a market design framework for a high variable power, energy efficient smart and flexible energy system. As a first principle, it enables any resource provider to sell to any resource buyer; and it enables any resource buyer to buy from anyone they wish to. It introduces local balancing and coordinating markets of Distributed Energy Resources (DER) under the Grid Supply Points, overseen by Distribution Service Providers (DSP, see here). DSPs can trade between themselves if they wish; and there are also local, private platforms which can buy and sell as they wish. A three part blog series follows shortly to explain these diagrams.
Figure 4 Link between market Design and Wider GB Energy Governance Framework
Figure 5 (below) shows how all three diagrams come together.
IGov is coming to an end. We have been working on providing evidence of poor energy system governance for 7 years. We are convinced that GB energy governance has to change if we are to meet net zero, by 2050 as is currently legislated for, or by 2035, as we recommend
Our Energy Governance Framework does not require wholesale change. Some institutions stay the same; some alter; and a few are new. It does need more coordination; and it needs more transparent and legitimacy with respect to people’s meaningful consent and involvement with the transformation process. Government should set the direction but, once that is agreed, markets should deliver outcomes. It supports bottom-up optimisation via customer propositions that customers actually want. This adds local markets to our current national wholesale market design, thereby revealing value of DER in a way that is impossible in current GB market design and allowing stakeholders to exist in the realm they wish – either local or wholesale only, or both.
The IGov website has publications on all the aspects of these diagram. The final months of IGov are being spent discussing these proposals with industry, government and other energy stakeholders.
 The CMA’s existing statutory duty is to “promote competition, both within and outside the United Kingdom, for the benefit of consumers”. It is proposed that this duty be changed so that the economic interests of consumers, and their protection from detriment, are paramount (page 9 in the letter).It is also proposed that the duty apply to the courts (including the Competition Appeal Tribunal) that review the CMA’s decisions, so that both operate with a shared objective to put the consumer first. Further duties are also proposed, including a statutory requirement on the CMA to conduct its investigations swiftly, while respecting parties’ rights of defence (page 31 in the letter).
 The strategic oversight function: The ETC would map progress toward energy system goals, as set by government, including decarbonisation, innovation and social goals. Through a process of consultation and consensus-building, it would assign responsibilities and agree the contributions to be made by different regulatory bodies. This would be achieved through an annual summit, convened by the ETC, bringing together the Secretary of State for BEIS, and the Chairs and Chief Executives of energy system regulators and advisers, to monitor progress toward energy system transformation. Through this process, the ETC would take direction from government, and would also offer advice back to government, based on its work. An engagement function: Stakeholder engagement would be designed to encourage input from new entrants as well as established industry players. Alongside this, the ETC would also collect and incorporate wider public views into account, through incorporating existing consumer research, polling and deliberative processes, and commissioning new work where necessary. It would also keep track of technology change, costs, new business models and new regulatory compacts occurring around the world.
* The figures in this blog were updated on 29th July 2019