Only Time Will Tell: The Future of Energy and Water Regulation

Only Time Will Tell: The Future of Energy and Water Regulation

It’s no secret that the current landscape of UK energy is long overdue for a change. Recently Dieter Helm, an economist with a concentration in the energy, water, communication, and transport sectors in the UK, released his independent review of UK energy. While many experts hail this review as a comprehensive, if not idealistic, overview of the current state of UK energy, the general notion is one of uncertainty as we wait to see if Helm’s publication will become more than just that.

 

As Lawrence Slade, Chief Executive, Energy UK puts it, “Perhaps it does lean more towards blue sky thinking, but that isn’t a bad thing”. (Areas of Disruption, p.3) After all, it’s agreed upon by all that the energy system is, and must be allowed to continue, to evolve. Even the optimistic acknowledge that it will be difficult for Helm’s recommendations to become tangible in light of Brexit. Skeptics worry that the proposed plans are too weighty, however earnest they may be. Still others hold that it’s too soon to tell. But rather than regarding the publication as the rule, many agree that it should be considered a muse for future policies that shape the energy sector.

 

Unsurprisingly, the rising cost of energy in the UK is a major concern addressed in Helm’s publication. Earlier this year, in an effort to control energy prices, the government made plans to issue the Draft Domestic Gas and Electricity (Tariffs Cap) Bill. The temporary price cap “will give energy regulator Ofgem the power to cap standard variable tariffs” (BBC.com) and will be in effect until 2020 with a possible three year extension on the horizon. Ofgem estimates that consumers have overpaid a paltry £1.4 billion a year. The hope is that the tariff will encourage energy markets to observe fair pricing practices. Though the cap has received accolades from the public, experts aren’t convinced that this is the valiant solution the energy market needs, musing that setting the price cap too late may have unforeseen consequences.

 

Rising costs aren’t the only challenges that the energy sector is set against. The tangible landscape is changing just as dramatically. With the increasing need and reach of electric generation, we inevitably come across such side effects as increased greenhouse gas emissions. Transitioning to a smart grid is key in decarbonisation efforts, but comes with its own challenges. The use of alternative energy sources such as solar and wind power has become increasingly important in the fight to reduce emissions as it’s integrated into distributed generation. While ever-changing technology works to solve many problems, it can also cause unprecedented issues.

 

Among the most prominent challenges facing electrical generation are fault levels. With growing distribution and a shift in the methods of energy generation, energy companies and network operators must also shift their methods of monitoring and controlling fault levels. This issue is without precedent, “(...) in large part because, in the past, detection and protection of fault levels was pretty straightforward. With the overwhelming majority of generation on the transmission network, the distribution network was relatively easy to protect. Recent, however, more and more generation is switching from transmission to distribution networks. (Areas of Disruption, p.9)

 

Electricity isn’t the only sector going through a reform. Ofwat, economic regulator of the water sector, recognizes that the water sector is in need of changes in order to ensure sustainability and affordable water for future generations. Water 2020 is a move to build on the previously introduced PR14. The proposed regulations will change pricing structure and crack open new markets in bio-resources, among other things. Traditionally, companies in the water sector disposed of their own sludge, but, with new technology, we have treatment options available that are capable of energy generation. With the PR19 price review of such activities, companies are detailing their current costs in regard to “sludge” treatment.

 

Two of the main factors that need to be addressed in order to access potential cost and profitability are - where the sludge is transported and what treatment process is applied to the sludge. The “where” offers potentially exciting possibilities, as this new market will allow companies to transfer their sludge across borders. “Ofwat’s research has indicated that 13% of the sludge in England and Wales could be profitably transferred in this way (...)”. (Areas of Disruption, p.10)

 

Furthermore, once we determine how to use the current capacity efficiently, then comes the challenge of regulation as the present wastewater companies and new competitors begin to take in the new capacity. One stated issue is that of regulation - can one facility treat sludge from different streams independently (i.e. recycling and food waste)? It has been accomplished previously, but intense regulation and monitoring is necessary. In spite of the challenges, Water 2020 and the closer examination of sludge as a resource are certain to bring about exciting changes in the water and energy sector.

 

With every new solution, it seems there’s a new problem to solve, but that’s the nature of evolution. Policies must evolve with these sectors if we are to have any hope of increasing energy generation yield to the growing distribution base. Only time will tell which policies will meet the demands of consumers and expectations of providers.

 

Sources:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651268/CCS207_CCS1017179938-1_Draft_Domestic_Gas_and_Electricity.pdf

http://www.bbc.com/news/business-41592200

Areas of Disruption, Dieter Helm’s cost of energy review– blueprint or blue sky?

Areas of Disruption, The automation age

Areas of Disruption, Close-Up: from sludge to bioresources

 

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