Putting consumers at the heart of the UK’s energy transition
As the UK grapples with balancing energy resilience, pricing, and achieving net zero, new regulatory structures are being put in place to help manage these different and sometimes competing priorities. Ahead of a forthcoming event at the Conservative Party Conference, The House sat down with Dr Tony Ballance from Cadent Gas to learn more about how a future UK energy system can best be governed.
In the past, the development and regulation of energy policy has not always been a topic that is high on the public’s agenda. Consumers simply expected the energy they needed to be there when they flicked a switch or turned a dial on their radiator.
Over the past few years that has changed. Thanks to a growing awareness of climate change, spiralling energy costs, and issues about energy security dominating the headlines, where our energy comes from and how it is used have become front-page news.
As Chief Strategy & Regulation Officer at Cadent Gas, Dr Tony Ballance views growing public awareness as an important factor that can help the UK as it grapples with establishing a future energy system.
However, whilst Ballance has detected a growing awareness about the scale of the challenge the nation faces, he cautions that consumers are often less sure about the part they can play in supporting the net zero transition.
“Speaking to customers, they absolutely know about the risks of climate change and they know that something needs to be done,” he tells The House. “But they're unsure about what their role needs to be in addressing that.”
Creating a golden thread that connects government, industry players, and individual consumers is essential if we are to deliver on the stated aims of policy. That requires a regulatory environment that has a granular understanding of the way energy is generated, transported, and used.
Helping to bridge the gap between policy and delivery will be an important function of the emerging Future Systems Operator. This new independent body will work alongside Ofgem and government to consider the whole of the UK’s energy system and ensure that the wider aims of decarbonisation, energy security, and affordability are achieved.
It is a change that Ballance welcomes, acknowledging the need for institutions and structures to be able to evolve to reflect the changing priorities of the nation.
“Our current regulations have been world-leading in driving efficiency and performance but they were constructed for a very different world,” Ballance tells The House. “Now, as we are transitioning from one kind of technology to another, those regulations are going to have to fulfil a very different function.”
Ballance speaks positively about the steps the new Future Systems Operator is taking to engage with generators and network operators to develop a detailed understanding of how the system currently operates. This is, he believes, essential if the energy industry is to operate as a collaborative partner in developing the future energy solutions that the nation needs.
However, he cautions that if the nation is to reap the benefits of the new regulatory settlement more thinking is needed about how the new FSO will operate alongside government and Ofgem.
“We really have to get the clarity of the roles right and understand where ultimate decision-making sits on things like transmission or distribution networks,” he tells us. “That's going to be incredibly important.”
The way we are regulated needs to recognise the fact that the gas network is going to be around for some considerable time to come.
Alongside this, Ballance also believes that implementation of strategy will also require new thinking and an empowered tier of planning and delivery at a local level to reflect the specific needs of different places.
Throughout our sit-down conversation, pragmatism is a theme that emerges time and again. Ballance emphasises that the new regulator must operate in a way that reflects the realities of the way the current system currently operates. It is only by understanding how millions of customers currently use energy that solutions can be developed that work for the British public.
“We need to think about consumers when it comes to the energy transition,” he explains. “It's very difficult to believe that the 22 million customers that use gas boilers today are rapidly going to move off the gas network in the next 10 or 15 years. The regulators need to recognise and work with that reality.”
In particular, he points to a potential tension between maintaining a balance between delivering affordability for consumers whilst also unlocking industry investment in the new infrastructure that will support the wider energy transition.
“It's been a very technological economic debate thus far around what the right economic and technical solution is,” Ballance tells us. “We need to start reflecting the fact you can't do that without thinking about the consumer.”
Ballance identifies a particular concern about how using regulation to accelerate a move away from gas could impact on lower-income households and older consumers. These are groups who may not have the resources to invest in new forms of heating or may simply be unable to deal with the disruption of installation.
“It's going to take considerable time to affect any transition,” he explains. “The way we are regulated needs to recognise the fact that the gas network is going to be around for some considerable time to come.”
As the nation continues on its path towards net zero and energy security, the FSO has the potential to play a critical role in shaping an operating environment that supports delivery of the long-term policy aspirations of government. However, for those structures to be fully effective, clarity of roles, local delivery mechanisms, and a full understanding of customer needs will be key.
However, if we do get those elements in place, Ballance is optimistic that the new regulatory settlement can support the industry to help deliver an energy system that is fit for the future.
To find out more from Dr Tony Ballance and other industry leaders about how a future UK energy system should be governed, join the Institute for Government’s fringe event at Conservative Party Conference on Tuesday 3 October, 8.30am – 9.30am, at Exchange 10, Manchester Central.
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