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Innovation: Waiting for Ofgem?

Posted By Dr Gordon Edge, 15 February 2016
Updated: 16 February 2016

Another day, another event about innovation. The latest was Ofgem’s “Innovation in a transforming energy system” event, in which the energy regulator set out its approach to technical and business innovation. This follows on from the various network innovation funding streams that Ofgem has presided over, and the consultation last year on ‘Non-Traditional Business Models’ (NTBMs, for those who like acronyms). While Ofgem should take some credit for trying to get on the front foot, it seems held back from taking a strong lead. If we are forced to wait on Ofgem taking on that role, however, I fear that, like Vladimir and Estragon ever hoping for the arrival of Godot, we shall be waiting a long time.

The room was full for Ofgem’s exposition of what it is doing in the area, followed by presentations from InnovateUK (snazzy, though somewhat lightweight) and the Financial Conduct Authority. The latter provided some interesting read-across from another regulatory body, and seemed to have some good lessons in terms of getting down on the innovators’ level and giving them time- and situation-appropriate advice on what would and wouldn’t work from a regulatory perspective. But overall there was a sense of Ofgem wanting to play the game by saying ‘the door is open – come on in’, but not actively striving to make innovation happen.

To an extent, this is a function of being on the edge of a predicted market transformation. While there are lots of exciting technological developments here or clearly coming soon, the environment to allow them to be adopted and flourish is only now starting to be developed. For there to be real progress here, then Ofgem and Government have to follow through quickly on the agenda to move to principles-based supply regulation (which would make the taking on of a supply licence much less onerous), having half-hour settlement for all consumers, and driving the uptake of smart meters and smart grid solutions alongside the move from DNOs to DSOs (Distribution Network Operators to Distribution System Operators). All these are only just starting to happen, and will take some years to deliver and bed down.

As an aside, it is interesting to note the submission by Ovo Energy to the NTBM consultation, which raises the issues of retail regulation and half-hourly settlement as priorities: the author? One Guy Newey, who is now… Amber Rudd’s Special Adviser. And now we seem to be getting action on these issues, including having the latter in the new Energy Bill now before Parliament for pre-legislative scrutiny.

So we seem to be being told to both hurry up and to be patient. We’re hurrying to get the new technologies and business models in place to support market-led development of mature renewables, but waiting for all these enabling regulatory and policy changes to happen. This is a delicate balance. If the two parts don’t advance together, then the businesses investing in innovation will fail because of a lack of viable business models.

What is needed is a pacesetter to force the pace and promote real-life demonstrations of pairing up local generation with local demand, using new technologies such as storage and demand-side response to provide local area balancing. At the Ofgem event, Judith Ward from Sustainability First hit the nail on the head, saying that to tackle specifically the issue of developing ‘energy ecosystems’ in cities, real-life pilots would have to pushed through, tackling the layer upon layer of barriers that lie in the way of making this a reality. This is just as applicable in rural areas, in fact more so, as this is where local, distributed renewable resources could have the ability to cover an area’s entire needs.

I’m not seeing such a scheme being talked about, let alone being planned anywhere in particular, various municipal supply initiatives notwithstanding. I’m waiting. But I’m not holding my breath.

Tags:  energy  Innovation  Ofgem 

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