New technology could shake up the energy market in the same way that apps like Uber are disrupting traditional models of transport, the Adam Smith Institute argues in a new report.
The free market think tank says that smart grids, distributed energy production and energy storage have the potential to revolutionise old models of energy distribution and pricing. Such innovations can enable dramatic changes in the production, consumption and monitoring of electricity, as well as changes in energy efficiency and the environmental impact of electricity consumption. But for this to happen, the government needs to deregulate power supply.
The report, ‘Power Up: The framework for a new era of UK energy distribution’, suggests regulators should encourage experimentation with new technologies by granting innovators the freedom to experiment without a regulator’s say-so.
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 Adam Smith Institute said.
Dr. Lynne Kiesling, the author of the report, wants to see greater choice in the energy market, for example with smart meters that show real-time price changes to encourage better energy use, and consumers being able to see where their energy is coming from and tailoring a green-grey energy mix to suit their budget.
Commenting on the report, Dr. 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.
Ben Southwood, head of research at the Adam Smith Institute, added: 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.