Policy, Regulation and Market Enablers

Policy, Regulation and Market Enablers

Why are policy, regulation and markets important for Smart Local Energy Systems?

Smart Local Energy Systems (SLES) aim to optimise the use of local energy assets whilst meeting local needs within the context of a national energy system seeking to decarbonise at reasonable cost. This is different to the current nationalised system, which is balanced as a whole system with limited consideration of local energy assets and local needs.

Consequently, SLES are poorly understood and represented in the policy, regulatory and market rules that govern todays nationalised energy system. This results in non-technical barriers that prevent the widespread roll out of SLES, for example, a lack of incentives to balance production and consumption locally.

SLES can deliver additional benefits, often called co-benefits, such as health, wellbeing, environmental, social and economic benefits alongside direct energy benefits. Existing decision-making processes do not always take these co-benefits into account, and the evidence to support these co-benefits is often lacking. Frequently projects are judged only on the direct energy benefits, such as cost of energy and impact on consumer bills, meaning that the potential for additional co-benefits can be lost in traditional assessments supporting decision making.

 

Moving away from todays system of energy policy, regulation, institutions and market structures towards one that enables SLES is a huge undertaking. Changes to wholesale and retail markets, how energy systems are balanced and who is responsible, how costs are attributed to different actors, how data and automation are used effectively and securely, how businesses and energy assets are regulated and how consumers are protected will be required. New evidence will be required for any changes to the existing policies, regulation and rules, by those who take decisions, like BEIS, Ofgem and therefore the industry codes.

 

The current decision-making process associated with SLES can be quite narrow, focusing on specific issues such as consent, licensing, compliance, cost and consumer protection, often through a particular area of expertise, for example heat or transport. The level and quality of evidence required to help make decisions for a whole systems and multi-benefit perspective are variable. This means that a ‘whole energy systems perspective’ is often not taken into consideration during the decision-making process. Providing evidence to support taking a wider whole-system perspective and including co-benefits could assist in making better, more holistic decisions which both cost and value.


We aim to provide timely, useful and impactful evidence on the benefits, barriers and solutions for SLES to policy and regulatory decision-makers. We will work with others in the EnergyREV Consortium, the PFER Demonstrators and other case studies and wider stakeholders to investigate the nature of these barriers and how to overcome them. Our aim is to work directly with decision-makers to provide evidence in the right form at the right time to stimulate new thinking and input to decisions.

How will EnergyREV deliver unique and useful insights?

The current policy, regulatory and industry rules of SLES are complex and can be hard to understand and access particularly for those who are new to energy systems. Information is also targeted towards large, national actors with local energy initiatives operating in niches despite the rules. The barriers and gaps to SLES are not fully understood, particularly for novel activities or for issues that span multiple vectors, for example using hydrogen for heat, power and transport.

Knowledge ‘sprints’

To provide new and useful insight on the complex existing policy and regulatory landscape for SLES we need to be able to harness the knowledge that exists amongst SLES stakeholders. A novel approach will be undertaken to review the current landscape, where we have adopted a crowdsourcing approach to identifying knowledge alongside traditional academic literature and systematic reviews.

We are also using an agile approach, where the complexity of SLES wiill be broken into a series of manageable ‘sprints’ covering specific topics over short periods of time. This  will allow for relatively rapid outputs and the opportunity for stakeholders to feedback so we can continually refine and improve the process and products.

By engaging stakeholders throughout the process and taking feedback on the products we think we can deliver unique and useful insights on the landscape and barriers for SLES.We are prioritising activities common across the PFER demonstrators as the first review topics. The first review focusses on electricity storage and electric vehicles as these are common to all the PFER Demonstrators. Subsequent reviews will examine new local energy platforms such as peer-to-peer, virtual power plants and local flexibility platforms, and low-carbon heating such as heat pumps and heat networks. Beyond these initial sprints, we will engage with stakeholders to prioritise subsequent topics.

Policy Contact Group (PCG)

To provide timely evidence in the right form for policy and regulatory decisions-makers we have established a Policy Contact Group (PCG). The PCG comprises invited SLES decision-makers from ministerial departments, devolved administrations and the energy regulator. It is a forum for decision-makers to explain priorities, evidence needs, and expectations and timelines faced in the SLES arena. These insights will enable EnergyREV to marshal its breadth of skills to deliver relevant and high-quality evidence on SLES in the right form, at the right time to assist informed, evidence-based decision-making. It also provides a conduit to raise new, and unexpected policy and regulatory issues arising from our work. We propose to bring a wide variety of stakeholders from EnergyREV, the PFER Demonstrators and more widely to the PCG so that new evidence and insight is delivered by appropriate expertise.

What will the policy, regulation and markets team deliver for EnergyREV?

Our initial priorities focus on establishing the Policy Contact Group and undertaking the review of the current policy and regulatory landscape across a broad range of themes associated with SLES.

The review aims to set a baseline for the existing situation for SLES, including how this enables or constrains the approaches undertaken by different actors in the UK energy system. This baseline is important for development across EnergyREV as several themes will require knowledge on how the policy and regulatory environment affects other aspects of the energy system, for example business models and policy and regulation are strongly related.

The Policy Contact Group provides a conduit for new evidence and emerging issues to be communicated directly to decision-makers. It also provides a means for decision-makers to communicate priorities, evidence needs and timelines to the wider EnergyREV consortium and related stakeholders.

Beyond these initial priorities, the team will be working with stakeholders within and outside EnergyREV to gather and deliver evidence and recommendations to decision-makers on changes required to policy and regulation to maximise the benefits and positive outcomes from smart local energy systems.