Market view: Dinosaurs walk among us
When I first considered writing about the future generation mix for the UK, I was certain I could do so with an abundance of optimism about a Utopian mix of no-carbon and low-carbon generation, large and small, a range of technologies both proven and unproven, from both utilities and independents.
All of these components working together to deliver great value and security of supply for the consumer, with the lowest possible carbon footprint. Yet, as the months have gone by I have come to realize how ludicrous my thinking was - and how impossible it now feels to fully achieve that vision.
Why the pessimism? The traditional utility model should in this day and age be firmly in the final throes of its long-awaited death spiral, yet it's not. This is despite massive successes from small independent power generators like UK Power Reserve which are driving innovation and providing long-overdue disruption to the industry.
And what's the traditional utility model? It's centralised fossil fuel generation owned by a handful of big corporates, often headquartered not in the UK, but in foreign lands, which are distributing power across a national monopoly. These same big corporates which produce the power then control how and at what cost to sell it on to households.
As I said, this model should be discussed in the past tense. Yet the Big Six are facing a rebirth and they're emboldened to “take us back to a simpler time”. This rebirth and return to the past will come at a terrible price to consumers who already have little choice but to accept bills which are creeping up because of a lack of investment in new power stations, and an ever costlier, creaking, old fleet of polluting power stations being the only option they are prepared to provide. The future UK generation mix is now being carved-up and determined in policy briefings, regulatory letters, "industry panels", rule changes, modifications and government consultations in an overwhelming storm with which small independents struggle to keep up. We simply don’t have the oversized regulatory and legal departments of the incumbent energy companies. And worse than that, the voice of the small independent is rarely represented in many of these forums when it counts most.
Just this week, an important industry vote was taken on a policy panel run by National Grid, another company that has little incentive to challenge the status quo. This panel is supposed to be representative of the industry as it regularly makes “industry” recommendations to Ofgem about important policy changes to the electricity network charging regime. Earlier in the summer, a group of small independents, including UK Power Reserve asked for representation on this panel, but the request was denied by Ofgem. The vote this week, by a panel therefore made up almost entirely by the Big Six representatives plus National Grid, was to decide on how much income should be earned by their competitors. It really is true – a vote by the Big Six on proposals by the Big Six to determine how much revenue their competitors should be allowed to earn.
The stranglehold of the Big Six shows no signs of abating. Both their competition and also all consumers will pay the price because of a lack of ambition by Ofgem and the government to deliver when it really counts by creating an environment in which smaller players – and the innovation and flexibility they drive – can thrive and grow. This seems totally counter to the government’s stated desire to drive a brave approach to economic growth in sectors, such as energy, driven by a new industrial strategy.
I do still believe we have an incredible opportunity here in the UK to develop and then export the kinds of skills and products fit for purpose for an energy system of the future. I challenge Government to live up to its promises. The energy utopia is all for the having but requires robust leadership and a concerted effort to ensure policy making within the depths of government and the regulator doesn’t stymie the energy revolution just as it’s taking hold.
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