Friday, May 1, 2015

All change: new energy, new institutions

‘There needs to be some sort of regulatory overseer with clearly defined boundaries, given to it by, and answerable to, Parliament’. That’s one of the main claims of a discussion paper from iGov, the Exeter University based energy research group:

It argues that the current energy regulatory and decision making system is flawed, cumbersome and slow and does not reflect the changing energy context and the need for long term rational energy policy development and management. OFGEM, the main existing regulator, is primarily focused on economics, with competition seen as essential to drive down prices so as to meet social objectives. However, with responding to climate change now high on the agenda, this short-term market based perspective has limits: longer term strategic developments are needed and not all will necessary look cost effective in immediate terms. Meanwhile the market system itself is changing, with ‘prosumers’ and energy co-ops taking over from at least some of the traditional players. The old system of governance was at risk of being captured by, or some say was a creature of, the vested interests of powerful incumbents, and either way does not recognise, or even resists, this change. Certainly there is a potential for chaos, as old regimes break up, and the need therefore for some regulation, but the real fear seems to be about changed power relationships.

The iGov proposals seek to recast the structure and practice of regulation to take these emergent trends and requirements on board in a positive way by expanding the regulators purview and brief.  While there would still be an economic regulatory function, a mini OFGEM, there would be higher-level strategic body changed with what iGov call ‘ Public Value Energy Governance’. Overall iGov argues for ‘a shift in the balance of decision-making-power from ‘the independent Regulator’ to a ‘governance process’ which would establish a changing set of relationships between institutions, so that it moves from a delegated to a directed process’. That would entail ‘a re-balancing of power currently concentrated on the Regulator and National Grid across more, focused institutions which would make the process more flexible, more transparent and more accessible to the regulated companies and customers alike’ and for  ‘a move from a dominant economic ethos to one which broader dimensions, including greater focus on societal wishes and change’ so that this  ‘better meets the technical and social needs of the evolving energy system’. They say they favour ‘a body which is responsible for implementing energy policy, which is separate from DECC and which has heirarchial decision-making power over Ofgem, the system operator and other regulatory and governance institutions’.

They note that the Labour Party has talked about an Energy and Security Board, but iGov want to enlarged this to an ‘Energy, Security, Sustainability and Affordability Board’ (ESSAB) and on balance think it should be outside of DECC, to aid legitimacy. They see it as working with a new state owned and/or not for profit system and market operator (SAMO), which would ‘have responsibility for the technical transformation to a secure, affordable, low carbon energy (ie both gas and electricity) system’. It would ‘enable better integration of system operation, including the demand side, capacity markets / capabilities, storage, heat, interconnection, electric vehicles etc. However, the SAMO would not simply become a recast National Grid. Its roles is sometimes known as a system architect’, an idea also promoted by the Institute of Engineering and Technology (IET), to ensure a holistic approach to adapting the power grid to meet challenging and complex new requirements resulting from decarbonisation.
There is no question that change in needed. Prof Catherine Mitchell for Exeter summarised the problems of the existing system by saying that there was  a lack of legitimacy within our energy policy process which leads to an increasing separation between the policy wishes of Government and/or the energy industry incumbents and with society’ and also ‘a the lack of nimbleness in its decision-making, which means that there is a gap between removal of regulatory barriers and technology take-up, so that in practice change is slow’.  And in addition, there was ‘the way that its rules and incentives suits the characteristics of fossil and nuclear technologies and business practices, thereby undermining new business models and competition and perpetuating the current system and current ways of thinking’.
Would the new system be any better? Prof. Mitchell worries that it would still be prone to political direction, with all the regular volte faces and destabalising policy changes that can entail, but surely in a democracy we have to accept that, even if it leads to continual policy uncertainty. The alternative is a corporatist structure that may be more rational, but may become captive of vested interests or bureaucratic ossification, just as with the present system, though with even less opportunity for democratic scrutiny.  Some say that is what the European Commission amounts to, an unelected executive, only tenuously scrutinised by the European Parliament, albeit with overall direction given by elected (national) ministers serving on the Council of Europe. 
The new UK ‘energy agency’ version proposed by iGov is meant to be more open and decentralized. Indeed the team initially talked about ‘decentralized regulation’, reflecting their view that it should be more open to wider influences and options, including ‘new types of ownership and non-traditional business models reflecting a new public-private continuum’ and new types of consumer or citizen involvement’. But their core belief seem to be that what is vital is a shift from the current OFGEM situation with ‘delegated types of decision-making via a law’ and on to a new system with ‘‘directed’ decision-making via new sets of mission statements, aims, objectives, processes, discussions, expectations and so on which come together as different relationships between those politically responsible and those responsible for implementaion’. 
That may avoid ‘corporatism’, but it won’t avoid political interference.  Whether the later can be made less problematic, or at least more coherent, by a shift away from the UK’s ‘first past the post’ election system, as Prof Mitchell seems to think, is far from clear. Multi-party coalitions may damp down extremes of policy changes, but may be no better at yielding programmes that address urgent problems than the current system.  We certainly need better governance, but we also need better governments, and that's not something that institutional adjustments, however radical, can deliver.   However, some say that multi-party systems open up more opportunities for inputting new ideas into government, and new institutions may also help, so iGov may be on the right track…
With the upcoming UK election likely to yield yet another coalition, we may have no option than to try to make a multi-party system work. Whether it could also tackle regulation remains to be seen.

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