The ‘command and control’ nature of current regulation will not deliver the level of innovation required to deliver the transition to a net zero energy system, the director of policy at Energy UK has warned.
Audrey Gallacher told a conference on essential services regulation, organised by Westminster Forum yesterday (Tuesday), that decarbonisation poses “real issues” for energy regulation.
She said: “If we truly want to see innovation in the sector, I don’t think we will see it under the current regulatory regime, which is very much command and control.
“If we want to bring forward innovation, that brings with it significant risk of failure. As a society we have to be prepared to accept that for all the benefits it will bring, but I can’t see how that will happen.”
While acknowledging she does not envy the challenge facing Ofgem, Gallacher added that Energy UK’s members complain they are being held back from innovating by being swamped by request for information (RFIs) from the regulator.
But she added that the scale of the net-zero challenge meant there was a “big obligation” on the sector to be more “clear and transparent” with the regulator and that there must be greater collaboration.
Chris Pickard, senior consultant at Economic Insight, said during the same panel discussion that the growth of intermediary services would throw up increasing dilemmas for regulators.
“Because it is about doing things differently to how they are done now, innovation is by definition riskier than business as usual. A high innovation world is also high risk: things might not work as well as hoped for and might fail.”
“Regulators are going to have to be especially careful about how they act.”
These challenges would be especially acute surrounding the least engaged customers who are “disproportionately” in the C to E social groups, he said: “It is unlikely that they will to pay upfront to use automated or digital switching services but may be more likely to use free services that are paid for by commission.”
The challenge for regulators would be ensuring that these less transparent arrangements, which do not involve upfront payments, would not end up penalising the poorer customers who may be more tempted to use them, Pickard said: “The risk, if intermediaries become more important in retail markets, is that intervening too heavily to restrict types of commercial models exacerbates problem around disengaged customers.”