The Belly Of A (System) Architect*
Matthew Lockwood, IGov Team, 27 May 2014
Calls for some form of “system architect” for energy transitions, especially in electricity, are becoming more and more common. Recent examples come from Newcastle University, the Institute of Engineering and Technology, and the Smart Grid Forum. The Labour Party has also recently proposed a new Energy Strategy Board to guide investment in generation. This was also a common theme in a major conference on progressive energy governance held by the IGov team in London on Wednesday.
There is clearly a feeling in the air that our current governance system for energy markets and networks is somehow not coordinated enough to manage a major change. However, while the system architect notion may be powerful and appealing, it quickly throws up a number of important questions, including those of scope, depth and duration. In other words, there can be lots of different kinds of system architects, and one danger with the current debate is that a broad term is used in a number of different ways.
Some focus on the need for coordination in quite a narrow set of activities, for example in smart grid standards to ensure interoperability and avoid stranding. Others are concerned with a larger scope, such as Ofgem’s Integrated Transmission Planning and Regulation project which is seeking greater coordination of onshore, offshore and interconnection investment planning. Still others argue that there needs to be coordination along the whole of what is otherwise a “missing value chain” in areas such as smart meters and demand response. And for yet others, the needs are even more systemic and cover all areas of energy policy.
Beside scope, there are also different conceptions of how deep the coordinating powers of a system architect should go. Given the now long experience of coordination through markets in energy, many in the UK context are suspicious of strong and direct coordination by government or regulator on principle. Certainly, when Ofgem debated the concept of ‘guiding mind’ for network transformation in the RPI-X@20 review in 2009 it rejected it in favour of a more decentralised approach (although Ofgem was also accused for setting up a “Soviet” straw man just for the purposes of knocking it down).
The minimalist approach to coordination fits well with neoclassical economic ideas of separate instruments for separate market failures, but it doesn’t sit so well with some of the evidence on state intervention and innovation, where strong direction from “mission oriented” programmes have often had the greatest success (but also possibly the greatest risk). Again, many in the UK struggle with this idea. This is partly because of the strength of economic ideas, but also partly because of the perception that the British state has a particularly poor record on intervention in industrial and innovation policy. In energy, there is also concern about the capacity of government to be a good architect, given that most of the expertise and knowledge now reside with the private sector (hence several architectural roles seem to be falling to National Grid at the moment). The rapid expansion of the EMR team in DECC shows that Government can sometimes quickly build up capacity, but this is far from an ideal model, especially since it is dependent on secondments from industry bringing the risk, if not the inevitability, of conflicts of interest and capture.
A third issue is how long a system architect should be in place for. At one extreme, the Electricity Networks Strategy Group formed a temporary team in 2009 to map out transmission needs to 2020 which was disbanded within two years. At the other, some argue for a more or less permanent independent system operator on a Danish or US model to oversee a transition over decades.
In Britain, the combination of slow progress on energy transition and extensive reliance on markets (or delegation to network companies) to make decisions points to the need for greater coordination. In the IGov project we do not yet have detailed proposals for what a system architect should look like, but our comparative research is aimed at gaining insights from a number of other countries to make such proposals in due course. What we can say now is that these are important dimensions of the system architect concept, and we should be as clear as we can about each of them, and recognise the full range of options that are possible. Otherwise we run the risk, as so often in the past, of missing the opportunity to make the right choice.
*With apologies to Peter Greenaway