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- Energy market experimentation is being held back by risk-averse regulators
- Technology like smart-meters, microgrids, and distributed generation will take off, if innovators given opportunity to thrive
- OFGEM should to adopt a system of ‘permissionless innovation’, granting innovators the freedom to experiment without a regulator’s say-so
The UK's energy market is unfit for the modern age, a new report from the Adam Smith Institute argues.
The report, Power Up: The framework for a new era of UK energy distribution, argues that new technologies such as smart grids and distributed energy production can revolutionise old models of energy distribution and pricing, in the same way that apps like Uber are disrupting traditional models of transport.
In a world of expensive of energy prices, the report suggests regulators should encourage experimentation with new technologies, rather than cutting them off at inception. Regulating the market too heavily - often justified by claims that consumers are being 'ripped off' or overwhelmed by the number of tariffs available - closes down consumer experimentation and prevents technological and economic progress, which keeps energy prices high.
The paper envisions a world of choices in the energy market; where smart meters that relay real-time price changes to encourage better energy use are just the beginning. The author, Dr Lynne Kiesling, imagines consumers being able to see where their energy is coming from, and to choose what kind of green-grey energy mix they want.
Most important, Dr Kiesling argues, is for OFGEM to adopt a structure of 'permissionless innovation' - which allows companies to experiment freely without being granted permission from regulators. In the early days of the internet, no-one envisioned a world of Amazon, iPhones and Uber; but these inventions were able to thrive, as there were not limited by regulatory barriers. OFGEM, Kiesling argues, needs to adopt a more relaxed regulatory structure that dismantles the barriers that have been created.
Commenting on the report, author Dr Lynne Kiesling said:
In light of the dramatic innovations in digital technologies in the past two decades, the organisation and regulation of the electricity industry must be free to modernise if Britain is to enjoy the transaction cost reductions and new value propositions that these technologies make possible.The paper's argument supports the Competition and Markets Authority conclusion that OFGEM's regulations contribute to making energy markets less competitive than they could be. Reducing barriers to bringing innovative energy products and services to market will enable consumers to protect themselves better than regulations that look to slow the pace of change.
Innovation in the production of energy is steaming ahead, with rapid and steady improvement in the effectiveness of renewables like solar, and many changes that make existing fuels cleaner and cheaper to use.
But distribution has enjoyed less in the way of disruption. This is in large part not just because the technology doesn’t exist, but because it is being held back by regulation that makes it unprofitable for consumers and firms to employ it—for example controls on vertical integration.
If the government wants a more fluid, consumer-centred, and futuristic energy distribution network, it should look at carefully deregulating supply.
Notes to Editors:
For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at email@example.com | 07476 915072.
The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.