In the spring, Ofgem announced its Insight for Future Regulation project, and has now produced the first paper of a series: first Future Insights discussion paper. It sets out some of the dramatic changes in the way we use and buy energy which might come about in the next five or ten years.
First, a health warning – past predictions are not a firm guide to the future, though they are the best we have got. Between December 2012 and March 2016, the number of active gas or electricity suppliers in the domestic market doubled from 20 to 43. Forecasts by the (then) Department of Trade and Industry in 2000 for electricity demand in 2015 turned out to be 20% too high – our appliances are much more efficient than anticipated.
Installed solar photovoltaic capacity was predicted in 2012 to reach 6GW of generating capacity by 2030: in fact it was 10GW this year. Power from lithium ion batteries was anticipated to fall to a price of $210 per kWh by 2030, but if the recent rate of fall continues, it will be under $200 by 2019 – such is the development of battery technologies.
We can see a better service for consumers who are using newer and smarter technology (when they can adopt it). Improved monitoring, the accumulation of ‘big data’ and the connectivity of the Internet of Things means that many of our services are becoming more interdependent, so power failures or a glitch in one system can have a major impact on others – think electronic records, or bills and payment systems. Will this interdependency foster a change in energy suppliers, moving away from simply providing power to providing a bundling of other services to offer a ‘whole house’ interconnected package?
Consumers like bundles and hate them in equal measure, and consumer demand will ultimately shape the market. Millions of households letting their freezers run fractionally warmer during periods of peak electricity demand can save the need for a new power station or two, and National Grid have just demonstrated that this can be done automatically with a ‘message’ on the electricity grid communicating with the freezers through an attached smart plug.
Moving to a low-carbon future
The really big change over the horizon is the decarbonising of our heating arrangements – the substitution of gas heating by electricity or hydrogen, or possibly the capture of carbon emission from our gas appliances. This could be hugely disruptive: it could also be compulsory, since you can’t supply half the houses in a street with gas and the other half with hydrogen using the same pipeline.
There are bigger economic issues at stake too. Germany and Italy were the first to invest significantly in solar photovoltaic systems, and so have managed to command a major share of the global market. Denmark with offshore and Spain with onshore wind have done the same in those sectors. EDF energy are investing billions of pounds in Hinkley Point C to be paid back by UK consumers (via a contract signed by the UK Government) over the next six decades – time will tell whether it was the right decision or an unnecessary white elephant, but it will still have to be paid for.
We can see today, as the places where we generate our electricity and import our gas are changing, that we will need to pay much more to install new pipes and wires (even if the cost is offset by less costly wind power).
All of us, as citizens and consumers, will face these changes. Energy is an essential service which we cannot imagine living without. Ofgem is trying to prepare the way for managing and regulating this fast moving world and ensuring that all of us can expect at least minimum standards. Reassuringly, it also asserts that it will ‘focus on protecting current and future consumers, including more vulnerable consumers who may find it hard to engage with energy sector developments’.
As consumers, we may well need that protection, since we will be faced with a mass of information and some bewildering choices as we move through these fast-moving changes.