The energy market is changing far more quickly than the rules, stifling innovation and creating mounting problems. Jo Butlin urges rule makers to keep up.
I gave a presentation last week on the future of the Energy market to 2050. During the presentation, I heard myself say ‘change has happened in the market far faster than anyone expected’ and ‘what hasn’t changed since market opening is how regulatory change is implemented’.
The question that has been niggling me ever since is: Why in an increasingly fast changing energy world, is the process for regulatory, policy and industry change so glacially slow?
My comment on the speed of change, was with reference to the speed that the costs of renewables and storage have been falling. BEIS’ own 2013 predictions of the cost of onshore, offshore wind and solar by 2016 were over inflated by around 25-30%. Lithium-ion battery costs have fallen by around 80% in the last five years, with the trajectory anticipated to continue.
These changes have had massive impacts on the market, hugely accelerating the growth of renewables but also causing the subsequent ‘hatchets’ of policy change, given with little or no warning and fundamentally shaking investor and developer confidence. Many businesses have been seriously burnt, and the appetite to invest ‘big’ has been significantly reduced.
The example of tortuous regulatory change that I get really cross about, is the faster switching programme being implemented in the retail space. Ofgem announced its ambition to implement faster switching four years ago in June 2014.
Now, years later and more importantly, tens of millions of pounds poorer, we are edging towards delivery. The questions here: Do we really believe that customers are not switching because it takes two weeks for it to happen? Why are we spending time, resource and effort on this programme whilst there are far bigger issues to deal with? If so important, why on earth has it taken over four years to deliver? The irony of the name of the programme is not lost on many.
Analogies can and should be drawn with the IT industry, where the pace of market change has resulted in a fundamentally different way of implementing IT change. Gone are the days of ‘waterfall’ project management where monumental programmes were designed and delivered at a controlled pace, instead we are now used to using agile methodologies – with short sprints of activity, a test and learn approach and little and often system drops delivered. Core to the ‘agile’ world, is the ability to change direction if the fundamentals change.
Change by stealth
The result of such a slow pace of change, is that we see change happening by stealth. Examples include the changes to embedded benefits and now potential changes to the supplier hub model.
Since Ofgem launched its call for evidence on market design in November 2017, Elexon has pushed forward modifications and launched its own white paper, effectively providing solutions for ‘getting around’ the limitations of the supplier hub white elephant, which will no doubt be implemented long before we get to a conclusion on market design.
For embedded benefits, we saw multiple modifications being proposed, assessed and addressed during the time that Ofgem came up with its ‘minded to’ position.
This behaviour happens time and again, and is slowing the industry down, as it reviews all the options, counter options and variations on a theme of such in line with the standard protocols.
Very few businesses now have the bandwidth to keep up with, let alone actively participate in the endless consultations, modifications and working groups that characterise market design – hence making a mockery of the anticipated democratisation of industry change.
There are enormous industry opportunities and challenges as we move through the transformation of our energy system. It is vital that the process for enabling the underpinning regulatory framework and industry design keeps pace, and keeps relevant to the accelerating market.
Jo Butlin is director of Energy Bridge, a specialist energy consultancy. This piece first appeared on the Energy Bridge blog.