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Utility Week 27 Oct

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UTILITY WEEK | 27TH OCTOBER - 2ND NOVEMBER 2017 | 19 Policy & Regulation Opinion Laura Sandys and Dr Jeff Hardy W hile policymakers are having to look back- wards addressing legacy problems such as standard variable tariffs (SVTs), they must also keep an eye on the future. The energy sector should have recognised that the current price cap policy was inevita- ble because the large players refused to take transparent action quickly enough to satisfy the politics. However, the price cap must represent the last public policy response to legacy issues and now we all need to start embracing the opportunities that our emerging energy system offers the consumer. A report published on 17 October, "ReShaping Regulation", from Challeng- ing Ideas and Imperial College Business School, aims to do just that and proposes a set of regulatory principles that reflect the future architecture of the energy sector. This is a sector in transition, with the electricity system at its vanguard. Records on renewable contribu- tions and carbon emissions tumble every other week. The destination is increasingly clear – we are moving towards a decarbonised, decentralised, digitalised and, perhaps, democratised energy system. The challenge is that the market and system rules and regulations have been slow to catch up with this unstoppable momentum – we are still running our system as though it has a few large, enti- tled players, rather than millions of smart prosumers. The architecture proposed by the new report places consumer data at its heart – this is the big value driver of the future. Not the data that smart meters supply but total consumer data across a much wider range of behaviours and actions such as mobility, consumer pur- chases, social media and work patterns. This much more granular and specific data could have a dramatic impact on how we rationalise and optimise our energy system. The goal, as stated in our report, is to propose a new set of high-level regulatory principles that can help pro- vide the open environment to allow for a more produc- tive, simple and superior power sector, delivering con- sumer value, attracting new players, and encouraging new low-carbon and cost-efficient technologies. To this end, we propose four key principles that should guide the overall regulatory framework for market design. Our first principle is to regulate for how consum- ers consume, not how businesses are organised. By unleashing the potential of data, we foresee that consumers will start to be offered different product cat- egories and bundled services provided by trusted non- energy brands which already are starting to get a "data hold" in the home. The data harvesting from our homes will be where the regulatory risk lies for the consumer, with less interaction and less consumer risk around the energy component. Our report is therefore proposing that there needs to be a one-stop shop consumer regula- tor who can disassemble the bundled products and provide protection for consumers' data, which will be where the value and risk really lies. We do not underes- timate the risks to consumers, but rights and redress will be better protected by an integrated and more consumer- focused regulatory system. Our second principle is that, driven by much deeper data, the system could function much more productively and regulation should aim to drive greater optimisation of the generation and demand resources. The old linear supply chain – generate, distribute, supply – would change into an optimisation model and would meet the specific balancing need in a just-in-time manner with no bias to generation assets. Third, we propose that markets must become more transparent and open. New players we haven't even considered should be able to easily identify if there are opportunities to enter the energy services sector through an open, transparent, simple and technology neutral market platform. Our last regulatory principle is focused on where system risk really lies. For too long "security of supply" has been the sector's catchphrase. We need to be much more specific about this expensive term, identify the real system risk as opposed to services risks, and reshape our policy around solutions that should not always revert to generation. There is a growing risk profile, however, that needs much more attention of the vulnerabilities around data and cyber-security. We feel that there is a new world much closer to realisation than others currently think. Now having dealt with the legacy of the past decade, regulators, policymakers and the industry itself needs to move on, embrace the future and unleash the immense consumer benefits on the horizon. Laura Sandys, chief executive, Challenging Ideas; Dr Jeff Hardy, senior research fellow, Grantham Insti- tute, Imperial College London Legacy problems, future opportunities The energy market is regulated for the benefit of businesses rather than consumers – it's time for a completely new model with consumer data at its heart.

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