Working Paper: Energy Governance, Suppliers and Demand Side Management

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Working Paper: Energy Governance, Suppliers and Demand Side Management

Energy Governance, Suppliers and Demand Side Management

Caroline Kuzemko

EPG Working Paper: 1503


This paper examines the policies, regulations, rules and incentives governing gas and electricity suppliers in Great Britain (GB) from the perspective of how far these have served to facilitate or prevent a shift towards a more sustainable energy system. The precise context is the desirability of a fundamental shift in the underlying design of the energy system from the supply to the demand side. This paper focuses just on the governance of gas and electricity suppliers, defined as incumbents or independents, in order to explore in detail how their practices enable or constrain greater demand management and how these outcomes relate to energy governance. Energy governance is, in turn, defined broadly as including policies, regulations and rules aimed at incentivising greater demand management as well as those aimed at delivering other public objectives (such as supply security). Indeed as a complex whole energy governance must in effect balance the desire for climate mitigation (and energy transition) with supply security and also with affordability. Examining energy governance as a whole, rather than focusing just on demand policies, has revealed the variety of corporate practices that it allows and rewards: vertical integration; incumbent business models driven by volume and scale; barriers to entry and expansion for independents; innovations in trading and cost cutting that outweigh those in demand management; poor customer service and higher prices per unit charged to vulnerable (often legacy) customers. Incumbent suppliers, due to their recent dominance of the market place, are presented here as having been important for how demand management has developed so far in the UK – both in terms of their central role within the overall utility system, as the primary interface with customers, but also in terms of their direct responsibilities for implementing energy efficiency policy. These roles are, in turn, all the more important given the need for customer trust and active engagement with energy services within successful demand management and sustainable transitions. Some independent suppliers, on the other hand, are presented as offering new value propositions and motivations that are more in line with demand management and climate mitigation more broadly. On balance energy governance is understood to have done too little to challenge traditional utility business models, to enable more innovative market entrants or to enable greater demand management in the UK.

Keywords: demand management, energy governance (policy objectives, instruments, regulations and rules), incumbent suppliers, independent suppliers, innovation


Date: March 2015

Download Paper: Suppliers-Governance-Demand

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