Are the wheels coming off the centralised utility model?

Ovo's head of corporate affairs Jessica Lennard blogs on whether disruptive technologies are sounding the death knell for traditional utilities

Earlier this week, I attended an IPPR event in Parliament on ‘disruptive technologies’. The central argument of Reg Platt’s report was that the centralised utility model is dying and we are currently paying through the nose to prop it up. It’s a convincing hypothesis when you consider capacity payments for gas (and probably coal); mind-bendingly huge sums of money for 35 years to support the economics of new nuclear; and financial incentives for standby diesel generators this winter as an emergency measure, brought forward a year by the increasingly nervous sounding National Grid.

All in all, it does look rather like the wheels are coming off the centralised model as we know it. But the UK energy system isn’t quite ready to accept that yet. Actually most of the time it feels like we’re stuck around the ‘denial, anger, bargaining’ stage, as evidenced by a few developments later in the week.

On Wednesday the Public Accounts Committee (fearsomely sardonic as always) fired a warning shot at the Department of Energy and Climate Change on smart meters. According to Committee Chair Margaret Hodge, the hugely ambitious and expensive programme showed all the signs of being ‘out of date by the time it is rolled out’ due to evolving technology. Anyone familiar with the eventual design of the technology and various other elements of the roll out will know it finished in a less ambitious place than it might have. Whatever innovation is currently flourishing is still at risk from later regulatory specifications. What the Committee is worried about, in other words, are 53 million, £215 each white elephants under the stairs of every household in the UK by 2020. 

Meanwhile the Energy and Climate Change Select Committee, clearly determined to remain a vociferous watchdog to the bitter end of this Parliament, has today published a letter to new Energy Minister Matt Hancock laying out “serious and legitimate concerns” over the design of the capacity market. The market, says the Committee (backed up by policy heavyweights NERA), is going to result in £359m of unnecessary cost to consumers in year one because its current design severely limits demand response. In short – we are still trying to build and support big power stations when we don’t have to.

The sentiment at the IPPR meeting was one of enthusiasm: disruptive technologies like solar and onshore wind, high tech batteries, smart meters, and demand management are coming – this was the future of the energy system. The duty of policymakers and large utilities and networks now was to get with the programme.

Optimism (like new capacity) is in fairly short supply in today’s energy industry, but nonetheless I have to agree with CHPA’s Tim Rotheray who suggested to the IPPR audience that it seemed highly unrealistic that policy would facilitate this system transformation. More likely, is that policies which continue to move several steps behind innovation will instead eventually collapse under the weight of their own irrelevance. At what cost, and having delayed progress for how long, it’s impossible to say. But the inefficient, outdated centralised model certainly isn’t going to adapt without a fight.