By Jeff Hardy and Madeleine Morris, Grantham Institute, Imperial College, London
We will shortly be publishing our Policy and Regulatory Landscape Review series paper on Digital Energy Platforms. We highlighted some of our findings in a previous blog, and will be going over these in more detail our upcoming webinar launch event with live Q&A on Wednesday 22nd July. You can sign up for the webinar here:
Here we focus on the opportunities that the Prospering from the Energy Revolution (PFER) smart local energy system (SLES) projects have to help to shape future policy and regulation in the context of a zero-carbon energy system.
As the energy system becomes increasingly decarbonised, decentralised and digitalised, policy and regulation must keep pace with advancements in energy technologies and business models to manage costs and maintain the safety and security of the system and its users. The current policy and regulatory landscape has roots in a centralised electricity and gas system and this means smart local energy systems don’t always fit with the current rules. And whilst rules can be changed, it isn’t always possible to generate the evidence to affect change. Innovative energy business models and technologies can hit a catch-22 where they aren’t able to do the activity that would generate the evidence to facilitate the change to allow them to do the activity.
Digital energy platforms are an opportunity where the PFER programme can shape future regulation. Many of the projects use such platforms and because these platforms are currently (mostly) unregulated, there is room for testing new ideas and pushing the boundaries of the current regulatory regime. This provides the opportunity to generate valuable evidence about how digital energy platforms could benefit consumers (e.g. through improved services) and the system (e.g. through improved efficiencies and/or deferring network reinforcements).
It is also crucial to capture evidence of how and where these activities may have unintended or negative consequences; whilst a lack of regulation can be a boost for innovation, it can pose potential issues for an essential service such as energy. Policy and regulation will seek to protect the interests of all consumers including those in vulnerable situations, so having foresight of emerging problems is valuable to decision-makers.
We have identified 5 key areas where the PFER projects can provide valuable evidence and insights when it comes to digital energy platforms.
1 Learning from other sectors
The energy sector is lagging behind others when it comes to digital platforms and this provides a learning opportunity. Other areas of the economy have already seen disruption from the likes of eBay (retail), Airbnb (travel/accommodation) and Uber (ride-hailing). Mistakes have been made in other sectors, leading to interventions by regulators (e.g. licencing bans for Uber in some regions). The PFER projects should illustrate where lessons have been learned from those first movers on both best practice and on what not to do, especially when it comes to consumer protection.
Platforms will need to work hard to earn the trust of consumers and service providers, as well as the Government and regulator. Any ‘misbehaviour’ will likely be dealt with severely by the regulator. The PFER projects are operating squarely in this emerging space, engaging new actors and energy resources and providing a range of new energy services. How they manage issues of trust could affect how they are regulated in the future.
One of the unique selling propositions of digital platforms is their ability to gain a detailed understanding of what their users need and want, and tailor their products and services accordingly. Energy companies in the UK have a poor trust rating, and it’s no secret that customer segmentation and understanding in energy pales in comparison to the likes of tech giants like Amazon and Google. Digital energy platforms, particularly within a smart local energy setting, can lead the way in improving consumer experience and trust. Advanced data collection and usage will be part of this, and so platforms must prove to consumers, the Government and the regulator, that no compromise to consumer protection or rights will be made. Evidence of how data can be used to empower the consumer could be powerful.
Digital energy platforms, which create a route to market for services provided by distributed energy resources, will also need to build trust in delivering these services reliably to other energy actors including Distribution Network Operators and the Electricity System Operator.
3 Data openness and interoperability
The Energy Data Taskforce has recommended that the energy sector shift to a ‘presumed open’ model, where energy system data is standardised and made openly available (where safe and appropriate to do so). This recommendation, along with others made by the EDT, have been accepted by the Government and Ofgem, who have made it clear that they would prefer the process to be industry-led. This will require a paradigm shift from the current model, where datasets lack standards and can prevent different types of interoperability. The PFER project consortia bring together actors who may traditionally not collaborate on shared goals; they again lead the way by demonstrating more open ways of working with data.
4 (Market) Transparency
There is insufficient transparency, liquidity and co-ordination of existing markets. Digital energy platforms have a role to play in providing this transparency; successful digital platforms in other sectors (e.g. Uber, Airbnb) have often added value to both providers and procurers by improving the ability to track and view transactions.
Many platforms (e.g. virtual energy systems, flexibility platforms) can unlock the flexibility potential of the growing number of distributed energy resources. These kinds of non-traditional flexibility providers often base their business models on ‘stacking value’ by participating in multiple markets. This requires visibility and transparency about what actions were performed by which actors and for which benefits. Transparency is vital for building trust and the PFER projects have an opportunity to demonstrate how this can be delivered in practice, and gather evidence on how it can benefit consumers and the wider system.
5 Emerging markets: cross-vector and cross-sector integration
The net-zero transition is one that could breach the traditional boundaries between energy vectors (e.g. power, gas, heat) and indeed between energy and other sectors, like health. The full value of cross-vector and cross-sector integration, however, is not well understood, and current market arrangements do not adequately support these opportunities. New non-traditional markets and demand for new services are ripe grounds for experimentation and learning for digital energy platforms and are areas that the PFER programme is already exploring. The projects are well positioned to contribute to market design, and, because they are working directly with assets and customers, could do so in a user-centred way. Across the wider Industrial Strategy, there may be additional opportunity to realise the value of energy data in other sectors and vice-versa.
Opportunities for impact
As part of the Industrial Strategy, the PFER programme has the opportunity to provide the evidence and insights needed support decision-making and advance the zero-carbon transition. As an example, together with the Energy Revolution Integration Service (ERIS) we are working with the PFER projects through the PFER Policy and Regulatory Working Group to understand the policy and regulatory challenges they face and the emerging evidence that could make a case for change. EnergyREV also leads a Policy Contact Group, which provides a forum for PFER stakeholders, including policymakers, to hold evidence-led discussions about those policy and regulatory issues, and, where appropriate, act upon them. Through approaches like these we hope that the PFER programme can show the way forward and accelerate the zero-carbon local energy revolution.