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News Regulation

Power market needs ‘managed revolution’ if decarbonisation is to be delivered

Image: Getty.

Image: Getty.

Regulators must bring about an entirely redesigned approach to the electricity market if it is to properly embrace and realise the potential of the energy evolution, a new report has concluded.

Launched within parliament today, the ‘ReDesigning Regulation’ report, authored by former MP and energy regulation expect Laura Sandys as well as academics from the Grantham Institute and Imperial College Business School, argues that further decentralisation, , decarbonisation and digitisation of the power sector will require a “managed revolution”, with regulation in need of a drastic overhaul.

Remarking that “tomorrow is already today”, Sandys said the market was ensure that inefficiencies of the past are not “baked” into the transformed system.

“We need to embark on a ‘managed revolution’ to embrace the new structure of the future of electricity. This report aims to propose regulatory actions – reimagining the market design, refocusing regulation, opening up consumer choice, and unlocking the power of supply-chain pressures while shaping a new ‘retailer’ market,” she said.

The report states that the evolving energy system will “contest” how the market current operates and, as a result, regulating that new paradigm will require “fundamental rethinking” of numerous drivers.

These drivers include the emergence of new choices for consumers, with a number of new ways to buy and sell electricity coming to the fore; a new cost base, with the uniform kilowatt-hour expected to be replaced by a new means of charging consumers; new roles for players, with networks set to play a more active role; and new players, with entrants to the energy market expected to originate from markedly more diverse business areas than ever before.

Amongst the proposals put forward in the report is a travel industry-inspired body that functions similarly to ABTA or ATOL, which would provide more efficient guarantees against suppliers going out of business.

That concept is particularly contemporaneous for the UK supplier market, which has seen more than a handful of independent suppliers go bust in recent weeks, leaving hundreds of thousands of customers being introduced to a new supplier.

Interestingly, the report goes on to recommend that the consumer-facing elements of Ofgem, Ofwat – the water utility regulator – and Ofcom – the communications regulator – be merged to form a so-called ‘Essential Service Regulator’, whose responsibility it would be to policy the provision of bundled products and services.

This aligns with noise expressed elsewhere, including from the likes of Conservative MP James Heappey, who at an industry event at the end of November suggested the emergence of an ‘Ofbundle’ body to regulate the bundled services sector as those services become wider in their focus.

Jeff Hardy, senior research fellow at the Grantham Institute and one of the report’s authors, said that the “expectation” that consumers will be more flexible and low carbon in their energy demands in the future will come as a surprise to many.

“We need to allow electricity retailers to manage risk and complexity on behalf of the consumers who can’t or don’t want to. Our proposals show how this can be done,” he said.


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