Why do we need a Living Lab?

Published: 12 November 2020

By Rebecca Sweeney, Living Lab Business Leader

To transform the UK energy system to meet Net Zero carbon reduction targets, while ensuring we capture the opportunities of clean growth, it is crucial that the UK energy sector overcomes systemic barriers and open new markets to deliver the innovative products, services and value chains required.

According to the International Energy Agency, “whole new industries will be created” in transforming the global energy system to be clean, secure and affordable. Statista (2019) estimates that the UK smart homes market will have a value of £2.6bn by 2024, while Imperial College, London (2018) estimates that smart electric heat could generate system savings of £3.9 billion a year. The investment opportunity to retrofit UK homes is estimated at £100 billion.

The UK needs to respond urgently to the transformation already underway in the energy system. Digitalisation and decarbonisation are likely to reverse the current value flow from the centralised, supply-side dominated system to the consumer. The new cultural and technological dynamics will change the whole shape of the energy sector from one of a linear supply-driven system to a diverse, distributed and dynamic market that will no longer be determined by a few players.

A new wave of technology and service firms is likely to focus on exploiting this value behind the meter, but the UK supply chain is not geared up to respond to the new value drivers. The same is true of most other developed countries. While many of the technologies required to reach Net Zero already exist, much of the competition is for innovation in market design, the creation of new value chains and the business models that operate within them.

However, at the moment no-one is clear how to respond. Policy makers can’t design new market arrangements because they lack evidence on the efficacy of one choice versus another; investors can’t evaluate returns, either in assets or in innovation, as they don’t know how the future market will operate; while regulators can’t design rules to protect consumers since they don’t know which solutions are viable and will get traction. Without change, the likely outcome is disrupted and fragmented value chains, and stranded assets.

Innovation programmes, including Smart Systems and Heat and Prospering from the Energy Revolution, have shown that:

Meanwhile, the policy levers and regulatory adjustments needed to optimise behind-the-meter flexibility are not yet fully in place. The trials identified above have established some guiding principles and objectives for a smart, consumer-centric, low-carbon energy system. But further trials are needed to work out how to deliver new low carbon products and services in people’s homes at the pace and scale required.

So in response we created the Living Lab. A national facility providing space for industry, government and academia to test and demonstrate new technologies, products, services, business models, policies and regulation under simulated in-market arrangements with real consumers. The Living Lab will support the UK energy market to confidently deploy new innovations – commercially and at the scale – at the pace required to achieve our Net Zero ambitions and capture the clean growth opportunity.