Reshaping Regulation | New Regulatory Principles for A Future Energy System

A report published today reveals that the electricity utility companies will need to transform to avoid being superseded by new service providers and data companies who will be better placed to serve consumers, and more effective at optimising our future electricity system.  

The report recommends that consumers will not need specific energy regulation to protect them as energy will be an almost invisible product bundled in with other home services from Alexa, electric car providers and Local Authorities.  Consumers will however need much stronger consumer protection around their personal data and across these bundled services. 

ReShaping Regulation, a report from Laura Sandys, a former members of the Energy and Climate Change Select Committee, Dr Jeff Hardy and Professor Richard Green, Imperial College Business School, and supported by the Energy Systems Catapult, paints a picture of the long-term destination of the energy system and proposes a new set of regulatory principles focused around the consumers, data, markets and system security. 

The four proposed regulatory principles are:

  • A One-Stop-Shop Consumer Regulator: Regulate for how consumers consume not how businesses are organised reflecting the blurring and bundling of products and services.
  • Optimise All Energy Assets: Regulate for system optimisation to deliver the most productive, efficient and affordable system changing the shape of the regulated market.
  • Open Up Markets to More Players: Regulate to promote transparent, cost-reflective and open markets to allow new technologies and demand responses to compete with generation assets.
  • Understand where Risk Really Lies: Regulate for where security of the system is truly at risk shifting from security of supply to cyber and data security.

“For too long we have been talking about transition – we need to be focused on the destination that is why this report is “Planning FROM the Future” rather than mapping the world from today”, says co-author Laura Sandys. 

“The regulation required to ensure that consumers are king in the energy market, needs to reflect how we will be “consuming” energy into the future, allowing for bundling of products, and intermediaries like digital assistants Alexa or Google Home to provide energy.   This will create new winners and losers in the market, new risks for consumers who will need less protection from an invisible energy product, but with many more risks around personal data.   The old-fashioned utilities who do not reform will find themselves under huge pressure from the growing number of new services that are designed around consumers, ensuring that consumers are market makers not market victims.” 

Most importantly the report proposes a clean out of the old policy obsessions, such as the Trilemma, fuel poverty and security of supply as currently defined, that have dominated and distorted policy making and regulation for too long.

“We believe that digitalisation, optimisation, innovative service provision and new technologies will transform today’s uni-directional flow of electricity from suppliers to passive consumers, to a bi-directional, participative and optimised system.  We propose that regulation should be demanding more from less, driving optimisation of consumer energy services for the benefit of both consumers and the GB electricity system.” said Imperial College academic and report co-author, Dr Jeff Hardy.  “This requires changing the market structures and the roles and responsibilities within the system, creating markets that are open, transparent, cost-reflective, technology neutral and focused on system optimisation. No-one knows what the future holds for our low-carbon electricity system, so rather than prescribing the solution, lets unleash the power of innovation through simple, principle-based regulations.”

“If we are to unleash innovations that can transform the energy system and drive economic growth, then we need to look across the whole energy system – including regulation”, said Energy Systems Catapult chief executive Philip New.

“By encouraging radical thinking we’re aiming to inspire innovators to open new markets that put consumers at the heart of the energy system.”

The report drew on lessons from other sectors, from food to banking, on how new consumers will consume, and how new markets underpinned by data can work.

This report shapes a future destination and will be followed by a roadmap that will describe the journey from where we are today to the future with strong consumer regulation, new market design and new policy imperatives.  

Click here to downlaod the report.

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