BEIS/Ofgem – Smart, Flexible Energy System – A call for evidence
Catherine Mitchell, Richard Hoggett and Bridget Woodman, Energy Policy Group, University of Exeter
The Energy Policy Group (EPG) of the University of Exeter is very pleased to input to the BEIS / Ofgem Call for Evidence (CfE) on a Smart, Flexible Energy System. The EPG undertakes many research projects related to innovation and governance within energy systems to increase flexibility and smartness1. We have had one particular project called Innovation and Governance for a Secure and Sustainable Economy (IGov, 2012-2016). This has now been extended to become Innovation and Governance for Future Energy Systems (IGov2, 2016-2019). Much of our arguments below have come out of the IGov work.
The CfE paper itself is thorough and its goals of delivering a smart, flexible energy system are welcome. We agree that technological change within energy systems around the world is happening very fast (for multiple reasons) and is opening up the possibilities of many new ways of operating energy systems and business models for the benefit of society and consumers. However, we argue that the institutional structure of the current GB energy system cannot enable an efficient transformation to a flexible, smart energy system as called for in the CfE. The GB institutional structure needs to move from its linear, top down supply format to one where any actor can buy and sell services of all sorts from any other actor, as shown in Figure 1. The reasons why this is necessary and suggestions for the necessary institutional change in GB to allow this to happen is set out in detail elsewhere2, and we precis those arguments briefly below.
We are in agreement with much of the discussion put forward in the CfE. Our solutions tend to be at the more demanding end of options that are suggested in the CfE – although we would argue that they are not particularly radical options given that they already exist elsewhere in the world. We agree with these options because we would argue that to not implement them would be to choose options which try to improve the situation within the current linear structure. Because of this they are doomed to failure and would be yet another classic GB ‘fudge’.
The energy situation is so different now from even a few years ago that a new institutional structure is required which does not just cope with greater decentralisation , more flexibility, more data, more customer involvement, more smartness and more energy efficiency and demand side response but positively embraces and values it. We would argue that if BEIS and Ofgem genuinely want this – as the CfE says it does – then they should follow our arguments set out in this response.
Energy is a long lived industry – and that which GB has in place is a structure linked to technologies and business models which are not those being chosen by the new entrants or new investors. As a country, our public policy and regulation has to bridge that gap between the ‘old’ and the ‘new’ in order that it is fit for purpose. Where a country falls in terms of the balance of support it gives to the ‘old’ or ‘new’ system reflects its attitude to Innovation (Section 6 of the CfE). GB has continued to support the ‘old’ system whilst saying it wants the ‘new’ system. The reality is that if ‘value’ (both real and de facto via the existence of barriers etc to the ‘new’ etc) is given more to the ‘old’ system than the ‘new’, then the ‘old’ will continue. It is very useful that BEIS and Ofgem have put out this CfE – calling for evidence about barriers and solutions to enable a smart and flexible energy system. But endeavouring to provide ‘value’ in monetary terms for a smart and flexible system must be undermined if it continues to do so in an institutional framework which essentially suits the ‘old’ system. The basis of much of the discussion for recommendations within the CfE does de facto assume no changes within the current institutional setting, even if there is a section at the end (5) which does raise the possibility of more fundamental change.
This CfE is a very useful step in opening up a debate about the transformation of the GB energy system, and how to move forward quickly enough to best meet the goals of GB energy policy – whether environmental, affordability, security or cost-effectiveness. Moving too slowly, as is currently the case, will be costly to GB society in all these ways. It is understandable that those with assets in the ‘old’ system would prefer that their economic interests are not unduly affected by change. However, we would argue that the GB energy system should suit the public interest foremost. GB is lucky that the fundamental changes in the energy system – cheaper decarbonising technologies, flexibility, smartness – all suit GB energy goals. Moreover, other countries are grappling with the same issues – and much can (and should) be learnt from them – as the CfE says.
The full submission can be downloaded here: BEIS Ofgem Smart Flexible Energy System – submission from EPG Jan 2017