Dieter Helm’s cost of energy review – blueprint or blue sky?

Economist Dieter Helm’s review of the cost of energy contains some radical thinking. Utility Week asks some major energy players, will the review shape the future energy system, or remain in the realms of academic theory?

Renowned Oxford economist Dieter Helm has published his independent review of the costs of UK energy. The paper issues a call for a drastic overhaul of the energy system, its existing market structures and institutions, and prompted a rash of national headlines, inevitably revelling in Helm’s conclusion that the cost of energy in the UK is too high.

But will Helm’s government-commissioned study now be embraced by the energy secretary as a driving force behind policy making? Or are his recommendations so far-reaching and challenging that they will find themselves dismissed as the blue-sky theories of a consummate academic?

The answer to this question is critical in defining whether Helm’s opus will be remembered as a seminal document in the history of the energy industry, or a flash-in-the-pan stunt, pulled together in a hurry and with no notable external input. And so, executives and investors whose interests stand to be radically affected by some of Helm’s proposals will be watching closely to see just what BEIS’s ambiguous promise that it will now “consider carefully” how to apply the evidence presented in the review, really means.

In the shadow of Brexit, it can’t be denied that Helm’s recommendations will find it hard to make the leap from blue-sky to blueprint for the future. Some of his recommendations for reform rely on swathes of new primary legislation being passed – for example his call for the establishment of Regional System Operators to manage flexibility and balancing markets at a local level. So, it’s hard to imagine the parliamentary time being made available.

This feeling certainly resonates with most energy industry experts, one of who told Utility Week that the “enormous” challenge set out by Helm for both BEIS and Ofgem is simply “too much work” - even if it does contain “a lot good sense”.

Some went further, describing the report as a “roller coaster” which passes over practicalities in favour of putting forward grand theories, or occasionally even taking “unnecessary” swipes at past policy decisions. Former energy secretary Sir Ed Davey derisively told Utility Week that the publication is already “gathering dust”.

It’s also been widely noted that Helm’s report is not precisely a blast of fresh thinking. Big chunks of the publication rest heavily on his past work and personal convictions about what is best for the energy system, leading some observers to label it a vanity project. On twitter, David Black, director at the Energy and Climate Intelligence Unit, observed that Helm managed to plug his own books twice in the introduction.

This said, many commentators are also clear that Helm’s gregarious publication is not simply a flash-in-the-pan, and that its usefulness in influencing thinking about the evolution of the energy system should not be dismissed. As Energy UK chief executive Lawrence Slade suggests below, at a time when “most agree that the sector needs to evolve”, Helm’s review should be viewed as a helpful addition to a growing canon of thinking around energy system reform. And it is notable that, like Helm’s, other publications in this canon – like Laura Sandys Reshaping Regulation report and the reports published by the Future Power Systems Architecture programme – all suggest that the incremental approach being taken to adjust today’s market structures and regulations, is not sufficient to meet the requirements of fast-paced change already impacting the sector.

Read industry views on the significance of Helm’s report for the future of the energy system in full below.

Lawrence Slade, chief executive, Energy UK

Perhaps it does lean more towards blue sky thinking but that isn’t a bad thing. I think most would agree that the sector needs to evolve to meet the new reality and energy mix and there’s some very useful challenges to both the industry and the government in the report. It is right to review how we are doing things and indeed how society pays for them. 

However, the important element here is that time is not on our side.  So, while this new report adds constructively to the debate following the well-received Clean Growth Strategy, it should not delay the policy decisions needed for industry to invest in our clean energy future.

There is a relatively new framework in place that’s working well and should be allowed to continue the improvements it’s brought. Of course, policy and the framework within which we work change – but neither should stop industries being free to evolve and ultimately support the UK economy with clean energy.

Maxine Frerk, director, Grid Edge Policy (formerly senior partner for networks, Ofgem)

Dieter’s report roves widely but trying to cover the whole “energy” landscape in a “mere” 218 pages means nothing is really explored in depth and the practicalities are skirted over. For example, on network regulation he presents a model of national and regional system operators which has logic in a world with more local generation, storage and demand response but would be a costly and disruptive change that may or may not be justified.

Moreover, the idea that this would allow you to then abandon price controls ignores the vital “bread and butter” part of the DNOs’ role in maintaining the networks and responding to outages which won’t go away and where price controls have driven much improved reliability and customer satisfaction. Given the high-level nature of his review it would be dangerous to simply do as Dieter says but foolish to ignore some of the fundamental issues he raises.

Tony Cocker, chairman, Infinis (formerly chief executive, Eon)

It’s blue sky rather than blueprint. There is a set of interesting propositions here, some of which Dieter has set out in papers previously. I believe firmly that there is an opportunity to really look at what is the right institutional framework and the right regulatory framework to deliver a radically different energy system over the next twenty or thirty years, enabled by new technology and more customer involvement and focus, with customers genuinely at the heart. In that context, some (but not all) of Dieter’s ideas are good, even if he’s floated them before. It’s clearly a big piece of work, covering the whole of the electricity sector and in some detail.

At the same time, there is also some intriguing work going on by other groups / individuals, for example by Imperial College and Challenging Ideas – which is actually probably even more forward-thinking than Dieter’s, although also much more blue sky, so much, much less detail set out.

Dieter’s report gives the government and Ofgem real food for thought, but certainly doesn’t give a blueprint that they could go out and implement tomorrow – each idea and each step need careful assessment. I should also say that the government should ensure that that they are, and are seen to be, very considered and evidence-based in any changes to the institutional and regulatory framework – so that they reduce the risk premium of investing in the UK energy system, and so help to keep down the costs to customers.

Tim Yeo, former chair, energy and climate change committee

Too early to tell. It’s stronger on theoretical solutions than practical policies, so runs the risk of being quietly put on the shelf by the ministers at BEIS.

Everything is overshadowed by Brexit so the amount of ministerial time and attention that can be devoted to other issues is curtailed. Anything that involves legislation is going to be very difficult to find time for.

The criticism is right that low carbon technology support during the early period of the CfD have not have not been very good value for money. We have to be very careful that future low carbon energy generation is done at the best possible price.

A single systems operator is definitely worth exploring. This is also an area that needs very strong ministerial decision making at a time when the government is rather weak, and the benefits will not be felt for long time.

Ed Davey, former energy secretary

It’s gathering dust before it’s even published. I question whether anyone would seriously think that a Conservative government would introduce an economy-wide carbon tax.

We are going to have enough problems with Brexit without that. There may be economic arguments for what he is proposing but the politics are extraordinarily difficult, and I can’t see them working.

I think Greg Clark will be polite about it and take one or two of the ideas, like the independent system operator but I’m pretty confident that he’s not going to take up the carbon tax.

His predictions of the past proved wrong and the cost of going green have fallen dramatically which undermines his central thesis. It’s answering yesterday’s questions not tomorrow’s questions.

Simon Harrison, energy policy panel chair, Institution of Engineering and Technology

Dieter Helm’s welcome review is a rational economist’s perspective on what to do to lower consumer bills, starting in the here and now. It recognises the transformational changes taking place now in the sector, and looks to find ways to harness those changes to consumers’ benefit.  Implementing such changes in a single step would create massive opportunities for some and destroy substantial value for others. The question really is whether there is the political appetite to deliver major reforms over a period of time that deliver the reforms proposed cohesively.

In a time of Brexit and minority government anxieties that seems unlikely. Some reforms would indeed need government action. But there is another way for much of the agenda. The IET/Engineering Systems Catapult Future Power Systems Architecture Programme, whose delivery I chair, seeks a consumer-centric future and proposes new agile, flexible and inclusive forms of whole industry governance based on concepts of enabling frameworks, and covering the whole system – including both the utility and consumer sides of the meter.

The goals of this thinking are similar to those envisaged in the Helm Review, but the mechanisms of implementation are different. Use of Enabling Frameworks sets out a process of discovery by which the best models to deliver consumer benefit are discovered through constant iteration. And in the process new opportunities and business models for both established and new players will emerge.

John Scott, director, Chiltern Power

Helm’s document is quite a roller-coaster – some highs of inspirational fresh thinking and lows that take an unnecessary swipe at past policy decisions. Those decisions were made by conscientious people and informed by consultation – the deeper issue is how do we get better-formulated policy as we move in to a future with far greater uncertainties than the past?

Helm’s paper makes radical suggestions about industry structuring but is silent about the mechanisms for change that will need to be much more agile and inclusive than today’s governance structures. The work of the Future Power Systems Architecture project may be of assistance in filling this gap as government and regulators ponder Helm’s insightful challenge for a new industry order.

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