Suddenly, it seems, I’m part of the establishment. Last weekend, the Sunday Times business pages announced the “death of the power dinosaurs”, arguing that the very existence of the big energy supply companies is now in doubt. The old model, where consumers simply bought units of electricity and gas and then paid the bill, is on its way out. As the Sunday Times put it, “Centrica is the new Kodak”. Instead, there are now opportunities for people to generate their own renewable heat and power; manage demand through smart meters; trade with their neighbours; charge electric vehicles; and store power through battery systems.
Allow me a quick I-told-you-so moment. In the early 2000s, I worked with a brilliant group of energy entrepreneurs who were suggesting outlandish things like domestic solar generation, demand response (when your fridge switches off automatically if there is a spike in demand on the grid) and community energy co-operatives to generate and sell power locally. I wrote about this in a little book for Green Alliance, Grid 2.0.It was very hard to get mainstream energy players, or government, to listen. This sort of stuff was seen as a niche pursuit. Fast forward a decade or so, and it has become the orthodoxy.
But I don’t think we can sit back and just watch the energy revolution unfold. I argued back then, and believe even more strongly now, that this new approach provides opportunities to put people at the centre of the energy system, engaging them as citizens, not just as consumers. We could reduce energy demand and carbon emissions, in ways that improve our quality of life. But these outcomes are most certainly not guaranteed.
We have the technology. Falling costs of kit, like solar PV, and increasing data availability that can make just about anything ‘smart’, offers huge potential. We can integrate anything we want. Linking cars, phones, heating, electricity, local grids: no problem. Optimising supply and demand, in real time, to make the best use of every single unit of electricity or fuel: no problem. Tailoring energy services to fit the specific requirements of individual households: no problem.
Yet just because the technology exists, it doesn’t mean that it will automatically get used in ways that reduce carbon emissions, increase energy security or protect vulnerable consumers. In fact, the opposite could be true. Greater availability of data could allow energy companies to tailor products, providing premium services to wealthy people and leaving others behind. Those who can afford it could invest in enough kit (think solar panels, plus electric vehicle, plus battery storage) to produce most of what they need. They would benefit from the services of the grid as a backup, but would not contribute much at all to the costs of grid services, low-carbon innovation or funding for fuel poverty, since these are all added onto energy bills, which such ‘grid defectors’ would barely pay (for more on grid defection, see this report from Green Alliance).
How, then, can we make the most of these opportunities, harnessing the energy revolution to reduce carbon and improve energy services for vulnerable people, not just those who can afford new tech toys? The answer lies in understanding the difference between Kodak and Centrica. Unlike the market for cameras and photographs, the energy market is a product of regulation. The way that we use energy depends entirely on the structures and regulations imposed by governance. Even the ‘product’ that is sold is arbitrary. Why are we trading in units of electricity and gas? Why not services, capacity or infrastructure?
Once you see it in this way, the answer is both obvious and challenging. Obvious, because to get the results we want, we need to get governance right. Challenging, because this requires government to be involved actively in shaping markets through regulation, which in practice means fundamental changes to the structures that have been in place since privatisation of gas and electricity in the 1980s and 90s.
I won’t attempt any detail on what this governance would look like: not least because the iGov project at the University of Exeter (for which I chair the advisory group) are doing a brilliant job on all the gnarly technical issues that need to be addressed. But at an iGov gathering this week, we began to sketch out the principles behind governance of a new system that would put people at the centre. These, for me, are the main lessons:
First, we should stop second-guessing what people want. We know a lot about consumers in the current supplier-led system. We know very little about consumers in future systems. There is lots of second-guessing about ‘what consumers want’, but very little research aiming to understand the role of individuals in an integrated energy system. And of course, people aren’t just consumers. We are all citizens and voters as well. Public engagement, through events such as citizens’ assemblies, like this recent one on Ireland’s response to climate change, would help to build a mandate for action. (More on this in a great paper by Simon Roberts of the Centre for Sustainable Energy).
Second, we should challenge existing market structures. The ‘price’ of a particular generation technology, for example, is only a measure of how much it costs to provide that technology in the current system. In short, prices are determined by governance arrangements. We should be talking about how we can shape pricing structures so that the outcomes we want (carbon reduction, efficiency, security, provision for vulnerable customers) are valued.
Third, we should be looking beyond commercial solutions. The UK energy market is composed mainly of commercial players, who extract profit for shareholders. In other countries, there is much greater involvement of social enterprises, community organisations, co-operatives and municipalities. These organisations are often well-placed to provide local services to local people. We should be actively encouraging non-profits into the energy sector.
Last, we should be encouraging experimentation. Ofgem’s regulatory sandbox, which relaxes the rules for businesses who are experimenting with new services, is a good step forward, but is narrowly defined. The recently-announced Industrial Strategy challenge, Prospering from the Energy Revolution, will also be helpful in investigating what our future system could look like. Further experiments, at scale, need to be encouraged, and the results fed back into debates on policy and governance.
I’ve only scratched the surface in this blog. The iGov website is a treasure trove of evidence if you want the detail, and I am developing research ideas to investigate how the new energy system can build engagement in energy and climate issues – so that we can shape the system to get the outcomes we need.