DECC have posted a recent consultation on how to regulate in a way which encourgaes innovation. Our thoughts have been submitted to DECC for their consideration (please see below). If you agree with any (or all) of our points then please feel free to quote us, and/or get in touch.
ChargeSync Response to DECC Consultation to Ensure Regulation Encourages Innovation
1.How can legislation and enforcement frameworks help support new technologies and business models to encourage growth?
The established set up of legislation, regulation, and market rules in the UK is designed to create a safe and stable power system. The focus to date has been on ensuring security of supply, with a deeply suspicious approach to change. Because the bulk of power has been generated by, and consumed by large vertically integrated businesses the focus for regulation has been a dialogue between the regulator (and associated bodies) and these larger companies. At times the relationship has been an unhealthy one and has (in my opinion) resulted in periods of very slow change, and choices of policy which have been beneficial to the larger players. Regulation has created a market with a very high cost of entry. Regulation has created a market structure which means small independent businesses cannot compete on any kind of scale with the larger players, without large amounts of collateral, or long lead times.
Of course we can argue that regulation has been successful to a point, we haven’t seen brown outs, or the problems which some other power markets come up against. But we stand on the cusp of a new energy revolution. I’m not talking about green energy per-se (although this is a part of the story), I’m talking about the ability to schedule demand on a micro level in real time. The ability to store energy at the point of use and release it as the clouds pass over the sun. The ability to enable gas fired generation to run in their most efficient mode of operation. We have the capability to enact this revolution today. Great Britain could be at the very forefront of this change, leading the world and creating years of jobs for the UK. But legislation and regulation stands in our way today. The pace of change for regulation and legislation is too slow, too cautious, too focussed on incremental change, and too subservient to the incumbents who don’t want to drive change because it undermines the investments they’ve already made.
Innovation is about rapid, low cost experimentation. Experimentation is not likely to sit nicely alongside security of supply arguments. To encourage innovation we need people who think differently. To encourage innovation we need a new way of being and acting. To facilitate change, to try out new ideas we need to apply different sets of rules and regulations to small innovative businesses who are driving change than for those who are maintaining the status quo. We need to create a platform for (safe) experimentation which allows new ideas and methods to be carried out quickly. When live tests are performed they should always be reviewed by an independent engineering panel to ensure safety. But once this hurdle is crossed deployment will be made on a limited scale, to a new set of temporary rules. If the initial test phase is successful then these tests can be scaled up quickly.
Of course this isn’t the end of the story. Once free innovation in the market place is facilitated for companies who are looking to drive change then we need to take the ideas that come out of the experiments and create a regulatory framework which drives the world towards the right future. This means that the regulatory framework needs to reinforce a vision of the future, just as it did in the past. To do this effectively the regulator needs to share its vision of the future, be prepared to rapidly change and evolve key parts of that vision, and acknowledge that some parts of the vision are unknown or unknowable. Without a clear vision we fall back to a process of incremental change which results in an inefficient path to our desired destination. Without a clear vision we don’t know where we’re going, or what we’re trying to achieve. So for me a clear and clearly articulated vision is the thing which comes first from the regulator. This vision should be unambiguous, but may have areas which are open to question, or could evolve at a later date.
The next piece of the jigsaw is a real independence and confidence for regulation. For too long the regulator has doffed their hat to the larger market players. Now is the time to demonstrate real independence of thinking. Engage with experts by all means. But be scrupulous in ensuring these experts have no connections, financial or otherwise with parties with a financial interest in the results.
And finally, small innovations need financial support and funding for experiments. This should stop short of subsidy because subsidy creates a dependence. It also creates an environment in which other ideas which may be equally good cannot prosper because all private investment seeks out subsidy.
So in summary I see four things which would help to drive innovation and change across the industry:
A clear vision (short and long term)
An appetite for short term (proven safe) experimentation
Independence of thinking
Financial commitment to assist change without subsidy
2.How is new technology likely to shape the energy sector?
Since the last electricity trading arrangements were produced significant advances have been made in technology. These changes are likely to shape the way the market works, and operates, and the kinds of companies that are successful within the evolved market. There are six main advances that I see which drive changes to the way the market will operate tomorrow:
Renewable generation including solar and wind has become (more) competitive with thermal power generation. This means we can expect significant unsubsidised growth in renewable generation with private investment, both domestic and industrial.
Battery technology has evolved significantly in terms of capacity, efficiency and cost. This means that storage is no longer the laughable pipedream of yesteryear.
Inverter technology has improved in efficiency to the point where losses are comparable with grid losses from flows through the high voltage wires.
The wide spread of both the internet, and mobile phone networks means that widespread communication, automation, control and measurement is possible and easy.
Cloud based platforms like Microsoft Azure have been developed which allow deployment to scale without significant upfront investment.
Microprocessors have become cheap and easily available, allowing client side computing to be deployed for pennies rather than pounds.
All of the above leads to a world where the potential for demand management on the micro scale is huge, even daunting, and very feasible. Even today. And this is more than the demand management of the past where load was sacrificed for an economic loss. Today we can (and at ChargeSync do) use batteries to schedule consumption and create a new environment on the low voltage grid, which works together with the network to create a more efficient environment for large power plants to operate.
In this environment, local constraints on the grid can be solved by local actions, without human intervention. In this world there can be a price for each network node of the grid to switch from generation to consumption. Nuclear power, and more efficient gas fired generation provide baseload power which is stored in batteries at the point of use, and used locally when required. Solar and Wind are balanced by battery based action at the point of use. NB. Storage on the high voltage grid doesn’t solve the problem like low voltage grid storage because peak flows through the network still need to be high to meet demand, and this means increased need for wires to meet demand.
This is my vision of the future energy network. Quite different from today. To achieve it we need very different rules and regulations from those in existence today.
3.How can regulators better utilise new technologies to generate efficiency savings and reduce burdens on business?
In a way this question seems ill worded as the regulator is unlikely to utilise new technology themselves. More likely to facilitate the use of new technology to generate efficiency.
To do this I see a few different routes:
The regulator could reduce the cost of entry into the market and facilitate small scale experimental innovations.
The regulator could mandate suppliers to provide small innovative businesses with the full embedded benefit and energy benefit created by half hourly metered demand which is notified to the supplier prior to action. In this way smaller innovators would not need to establish supply businesses to collect the commercial benefits of shaping demand.