Innovating beyond energy retail - Tom Luff

Comment by Tom Luff, Practice Manager (Electricity Markets & Policy) at Energy Systems Catapult.

Energy retail reform has gotten bogged down in technical debates about price cap methodologies. In our new report, we argue the case for looking beyond this to unlock innovation – through experimentation and whole energy system thinking – and deliver tailored ways of saving money and carbon for consumers.

It is becoming increasingly clear that the next phase of the energy transition to Net Zero will be happening in people’s homes and communities. Energy retail – as the interface of the energy system with the consumer – has a crucial role to play. Upgrading a heating system, to take just one example, requires careful consideration of many aspects (cost, timing, comfort, lifestyle, etc) to meet the unique preferences and needs of the householder.

To make Net Zero a reality, we need to take a holistic approach that goes beyond how we think about energy retail.

Beyond the familiar business models.

Beyond the confines of traditional “energy retail policy” – recognising the other levers and enablers across the wider energy system.

Beyond siloed, binary policy decision-making to an approach which embraces experimentation and welcomes new technologies and innovators.

Our new report Innovating beyond retail: reaching Net Zero consumer energy sets out a guiding vision:

Delivering this vision requires changes to energy retail policies and regulations, such as simplifying the rules and industry codes that currently block innovation (the codes extend to over 10,000 pages, making them intractable to all but the best-resourced incumbents).

We also need to recognise the impact of wider policy and market frameworks. For example, policy inconsistency means that electricity remains much more expensive than gas – with an overall effective carbon price of £305/tCO2e on electricity vs £0 on gas – making it harder for consumers to choose greener options like heat pumps.

And – crucially – we must change the way that policy is made. Policymakers need to proactively pilot ideas in the real world, learning and iterating quickly. Ofgem’s proposed Future Regulation Sandbox is a step in the right direction, but we need to go further: Energy Systems Catapult has developed the Living Lab to deliver such rapid real-world feedback. Policy and regulation should be guided by a shared clarity of purpose in unlocking innovation, with more effective alignment across regulators, government and industry.

Our new report sets out the problems with the current energy ecosystem and recommends immediate actions as well as ideas that warrant further testing with consumers. We’ve drawn from the Catapult’s portfolio of work across consumer research, evolution of the role of retailers, wholesale electricity market reform, decarbonisation of homes, Warm Home Prescription, signals to reduce emissions across the economy, and data and digitalisation.

Past attempts at energy retail reform have tended to fall flat – either because they were too narrow or because consumer-facing transformation was not seen as a priority. But this mindset is no longer compatible with the vision of a Net Zero economy. We need ambitious action on energy retail and beyond, and we need that work to start now.

Figure 1. Ambitious actions needed on energy retail and beyond

Figure 1. Ambitious actions needed on energy retail and beyond

Mary Starks, VP of Regulation, Risk and Policy at OVO said:

“This report by Energy Systems Catapult raises important issues around helping customers to access cheaper, greener energy, which is something that we fully support.”

Read the report

Innovating beyond retail: reaching Net Zero consumer energy

Markets, Policy & Regulation

Independent and technology-agnostic thought leadership tackling the hardest challenges on the way to Net Zero.

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