The UK’s transition to a low-carbon energy system is unlocking unprecedented opportunities for deep tech innovators, as they pioneer advanced technologies like Artificial Intelligence (AI), quantum computing, blockchain, the Internet of Things (IoT), and advanced data-sharing systems. With the government’s Net Zero strategy catalysing over £100 billion in private sector investment by 2030, the energy flexibility market is poised to become a major frontier for innovators. Unlike more established sectors, the energy flexibility market is still developing, offering a unique opportunity for innovators to enter and make a significant impact.
The current structure of the energy system was not designed to accommodate the large influx of renewables, leading to supply volatility that network operators find challenging to manage. This misalignment requires significant structural changes, the digitalisation of processes, and a different approach to operating the system to meet Net Zero objectives. The Department for Energy Security and Net Zero (DESNZ) has identified energy flexibility as a cornerstone in transitioning to a low-carbon energy system, detailed in the Clean Power 2030 Action Plan. This policy directive creates a clear and substantial opportunity for deep tech innovators to support the delivery of decarbonisation targets.
Looking at other industries, we can see how these technologies are being applied in a variety of ways. In the financial sector, machine learning technologies for investment forecasting and advanced trading algorithms have revolutionised markets, providing real-time insights and predictive analytics. These principles can be adapted to the energy flexibility market. For instance, machine learning-powered trading systems could enhance participation in spot, intra-day, and balancing markets by predicting demand and supply patterns. Similarly, blockchain technologies have demonstrated their value in industries like supply chain management, where they ensure transparent tracking of goods from origin to consumer. This same technology could be applied in the energy sector to verify renewable energy certificates or enable peer-to-peer trading of flexibility assets. Finally, drawing inspiration from telecommunications networks, where distributed systems manage vast IoT ecosystems, energy innovators are exploring how smart devices could autonomously balance local grids.
As renewable penetration exceeds 40% in some markets, industry analysts project that AI-driven flexibility platforms could reduce grid balancing costs by £3 billion annually by 2030. These tangible use cases demonstrate how innovators can repurpose advancements from sectors like fintech or telecommunications to solve critical energy challenges.
During workshops hosted by Digital Catapult and Energy Systems Catapult as part of the Digitalising Energy Flexibility programme, innovators mentioned market entry challenges including understanding the complexity of a regulated market and identifying suitable partners for collaboration.
The energy industry is heavily regulated and as a result accessing this market becomes challenging. While significant digitalisation programmes present opportunities to build new products and services, the system’s complexity may deter new entrants. Navigating the regulatory landscape requires a deep understanding of evolving policies, compliance requirements, and market dynamics. Innovators must build a clear picture of the regulatory and technical direction to understand how their solutions could be integrated into the energy system.
Innovators already established in the energy sector noted that some policies, such as those related to incentives for electric vehicles or heat pumps, change frequently which makes it challenging to keep pace with evolving regulations. This frequent policy change creates uncertainty, deterring innovators and investors from committing resources to the energy flexibility sector.
Another market entry barrier identified in our research, is the difficulty in identifying the right partners within the value chain. Innovators often struggle to answer crucial questions:
Addressing these questions is vital for identifying opportunities, challenges, and de-risking growth. Partnerships become feasible once the value proposition is clearly understood and articulated.
By understanding and addressing these barriers, we can create pathways for bridging innovations and facilitating a more seamless entry into this dynamic market. With targeted support and resources, the energy sector can transform into an accessible and attractive space for innovators eager to contribute to a sustainable future.
Our goal is to support innovators in navigating the complexities of the UK energy sector while building on the country’s significant investments in digital infrastructure. Through the Digitalising Energy Flexibility programme, we aim to break down barriers to innovation, enabling the UK to fully harness its technological advancements and modernise its energy systems.
By fostering collaboration, driving innovation, and addressing key challenges, this initiative will help accelerate the transition to a low-carbon energy system, delivering economic growth, creating new opportunities for innovators, and advancing progress toward a sustainable, decarbonised future.
Want to receive updates on the Digitalising Energy Flexibility programme? Click here.
Independent thought leadership and practical expertise that harnesses digital innovation to tackle the hardest challenges on the way to Net Zero
Find out moreFind out more about how Energy Systems Catapult can help you and your teams
Find out more about how Energy Systems Catapult can help you and your teams