A new report on possible reforms to the U.K.'s electricity sector draws inspiration from an unusual source: the food industry.
ReShaping Regulation, a study by policy expert Laura Sandys, in partnership with Professor Richard Green and Senior Research Fellow Jeff Hardy from Imperial College, London, aims to show how energy consumption could become as flexible as supermarket shopping given the right regulatory framework.
“We wanted to start with a blank sheet of paper and say: ‘How did other sectors go from a clunky utility model to a distributed, energetic, entrepreneurial and innovative model?’” said Sandys, an energy policy adviser who is also deputy chair of the Food Standards Agency.
“What we’ve been talking about constantly is transition," said Sandys of her work for bodies such as the U.K. Department of Energy and Climate Change (now Department for Business, Energy & Industrial Strategy, or BEIS). "Nobody seemed to know what the destination was.”
Because of this, regulators have tended to introduce requirements that have acted as “drag factors” on the energy sector’s ability to innovate, she said. Much of current regulation acts as “very expensive Sellotape around the system,” she said.
She likened today’s energy market to the food sector of several decades ago, when grocery sales were regulated by several marketing boards and handled by around 10 major supermarket chains.
Limited wholesale options meant most supermarkets stocked roughly the same products, she said.
Although the U.K. food and grocery market is still dominated by large retailers, with more than half of the country’s £184.5 billion ($241.9 billion) spend going to supermarkets and giant superstores, according to IGD figures, recent years have seen growth in new channels.
Online grocery sales are expected to grow by almost 54 percent in value up until 2022, IGD estimates, while discount grocery chains could increase by almost 50 percent.
The evolution of new models in the food industry was achieved largely by changes in the supply chain, said Sandys, which could be emulated in the energy industry.
“If you go to a supermarket and put your milk across a barcode [reader], the supermarket system will tell the warehouse not only that they need to deliver more milk, but also what sort of van it needs to be in, because it’s refrigerated,” she said.
This process is now entirely automated. In contrast, “energy companies can hardly get billing right,” Sandys said.
From a regulatory standpoint, one of the big challenges facing the energy sector is that it does not regulate for outcomes, but instead imposes restrictions on processes such as generation and distribution.
Getting rid of these restrictions could help allow energy to be bundled with other products offered by third parties, from IT services suppliers such as Amazon, through its Alexa interface, to local authorities or telecommunications providers.
This bundling could even mean electricity is given away for free as part of a wider package, similar to how many financial services providers have dispensed with bank charges, Sandys said.
One of the consequences of this approach is that “data will become the value within the system, and not the electron,” said Sandys.
If delivered over a smart channel such as Alexa, she said, personal energy consumption could be combined with information about commuting, social plans, weather forecasts and even vacations to provide a much better forecast of electricity use than is currently possible.
This, in turn, could radically improve the efficiency of energy consumption. In retail, Sandys said, 18 months of loyalty card use could provide enough data to predict consumer behavior with 93 percent accuracy.
The ReShaping Regulation report has garnered interest from BEIS and regulatory bodies such as Ofgem and Ofwat, said Sandys. Its authors are planning a further study detailing how the U.K. electricity market can move to the ideal future scenario from today’s situation.
Other observers welcomed the study, while noting that the U.K. is already a world leader in electricity system transformation.
“Despite the current regulatory framework, innovation is happening today," said Jon Slowe, director at Delta Energy & Environment. "New entrants are putting customers at the center of their business, often using data to provide a blend of products and services.”
Globally, said Simon Daniel, CEO of energy company Moixa, “the U.K. is commonly seen as an island of innovation in energy, with one of the most advanced regulatory and open market systems. That said, the report is still a fantastic opportunity to make further improvements.”
