4 The whole system: how policy, commerce, technology and society make a difference A policy approach from Gareth Evans


Few would challenge the view that the UK’s delivery strategies for the key energy vectors - electricity, gas and oil - have been developed largely in isolation from each other. But while most would agree this ‘silo’ approach has not had major downsides, we see a growing consensus that this approach is no longer fit- for-purpose.


Given this, the IET now believes the responsibilities, accountabilities and actions of all key stakeholders should be fully coherent and aligned to deliver future energy needs. Of the three key energy vectors, electricity probably attracts the most attention. We have grown increasingly dependent on electricity to deliver many vital services and this trend is expected to continue with the electrification of heat and transport. However, according to DECC, electricity makes up less than 20% of our final energy consumption. Clearly we need to consider the balance of effort that we apply between the energy vectors if we are to meet our trilemma objectives - decarbonisation, security of supply and affordability - as well as the requirements of the Climate Change Act.


In 2013, the IET published ‘Energy Principles’, a guide to the complex issues behind energy policy in the UK. The publication stressed the importance of considering the whole energy system, stating clearly that “energy is not just electricity”. Ten key principles were proposed that could be applied by all stakeholders but particularly those responsible for developing our national energy policies. These principles embraced customers, markets and innovation, and emphasised that energy policy has to take into account the long timescales needed for infrastructure development. More recently, the IET has focused on the whole system issues within the electricity supply industry, raising questions about the need for a system architect to enhance the level of coherence for future development. This led to DECC commissioning the IET and the Energy Systems Catapult to investigate the future functionality of the power system. The resulting ‘Future Power System Architecture’ project has proposed new technical functions needed to help plan, design and operate the future power system. And while this work is focused on a single energy vector, the IET strongly believes the methodologies applied could also be used in


The IET Energy Principles


The IET believes there are key principles derived from engineering that offer policy-makers a comprehensive vantage point from which to review energy policy:


1) Think of the big picture - the whole energy system 2) There is no silver bullet 3) Energy policy is for the long-term 4) Consumers first 5) Don’t underestimate the people factor 6) Make the markets work for you 7) Make sure we have the people for the job 8) Innovation - it takes more than bright ideas 9) Think and act globally 10) Be informed


Learn more here: www.theiet.org/factfiles/energy/energy-prin-page.cfm


the context of other energy vectors. The IET has also entered a framework agreement with the Energy Systems Catapult for future collaborative projects. The Energy Systems Catapult has a unique opportunity to develop multi-vector thinking and delivery across the UK energy landscape, but concerns exist over how ‘crowded’ this landscape is now. Over the last decade, government agencies, stakeholder groups and industry have been established by different routes and under different governance to address energy challenges. Justification for these was sound at the time, but could confusion over roles, responsibilities and accountabilities now arise? Many parallel activities could dilute resources, particularly human resources, while smaller stakeholders and new market


“Over the last decade,


government agencies, stakeholder groups and industry have been established... could confusion over roles now arise?”


entrants could struggle to engage with industry discussions and consultations.


Government intervention is also a concern; consider how the mix of electricity generation technologies will develop over the next decade. The IET supports the underlying principle that competitive markets have a major role to play and considers that interventions into such a market should be justified in a transparent way and win broad stakeholder support. So, if we agree that the delivery of our energy needs is a multi-vector, whole system engineering challenge, we should consider how to develop energy policy, markets and regulation in this context. Efficient delivery of optimised physical systems requires coherent and consistent legislation and regulation to take the lead. To this end, government should use all available levers to enhance the coherence and alignment of the responsibilities, accountabilities and actions of all the key stakeholders that we are relying on to deliver our trilemma objectives.


A commercial perspective from Duncan Botting


The commercial markets for energy have developed over hundreds of years with the essential nature of a contract between two parties being the delivery of a product, service or solution in return for an agreed monetary value. Over time, however, this straightforward practice of trading has become more complex with the addition of instruments such as requirements specifications, assessment criteria, terms and conditions, payment terms, security bonds, and legal compliance to identify just a few. In the energy domain these contractual relationships have also required statutory regulators to oversee fair play on behalf of the public, regulating, say, previous monopoly assets in a pseudo market and competitive manner.


As a result, the commercial landscape is now very complex with many different stakeholders involved in the commercial direction and procurement of products, services and solutions. These contractual processes have been designed and implemented to minimisethe economic cost of the transaction but not necessarily the best overall value. Procurement has ensured that assessment, in the final analysis, comes down to a decision as to how much the products, services and or solutions will cost.


The criteria to arrive at this point are usually known and often weighted to put more or less emphasis on certain aspects of the analysis. Indeed, this process has been honed over centuries to ensure that competition allows the lowest cost of delivery to rise to the top. To a significant extent this process has been largely independent of the rest of a business and certainly of any other stakeholders wishes, apart from the statutory legal compliance issues. Therefore buying a product that has a negative impact on another stakeholder up or down the value chain in the process of energy delivery has been largely ignored. Given this, it isn’t any wonder that one part of the energy system can face unforeseen challenges when change takes place in a different part of the system. For instance, who would have envisaged that procuring a thermostat or electric car would have an impact on how distribution electricity companies manage networks? Yet NEST and electric vehicles are just two of many consumer procurements that are changing the way our networks will be managed in the future. Commercial contracting is just as inextricably linked with market structure, technical, environmental and societal whole system infrastructure, as any other element in the whole system. The impact that these elements can have on each other must be carefully considered. What’s more, interested parties should remember that while commercial contracting is configured for lowest cost delivery, lowest cost rarely means best value. We would do well to consider the impact of market structure, technical solutions and societal requirements on the way commercial transactions are configured as we move towards whole system analysis.


Gareth Evans is an Independent Consultant and Duncan Botting is Managing Director at Global Smart Transformation.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24