12 Jan Q&A with Maxine Frerk, senior partner, electricity distribution, Ofgem
The purpose of this post is to communicate Ofgem’s perspective on innovation in the sector, and identify what it sees as the opportunities that Futurewave poses in terms of customer and stakeholder outcomes, and challenges to the current regulatory framework.
What is your vision for our energy future and where does the regulator fit with this?
We are at a major decision point in the GB. The energy that has powered us is no longer sustainable. Change is needed and there are various options for delivering heat, light and power to consumers in a more sustainable, efficient and environmentally-friendly way.
Our vision is of a more competitive energy retail market. We also want to see energy networks playing an important role in helping GB become a lower carbon economy.
We price-regulate monopoly network companies using our Revenue=Incentives+ Innovation+Outputs (RIIO) formula. It gives companies the right incentives to invest in their grids and find smarter ways to manage them, so that they can adapt to a de- centralised energy system.
A de-centralised system will require much greater flexibility in how and when electricity can be generated and used. More renewable electricity will be produced but as the output is variable, it’s likely that use of storage will increase. In future there will also be far more opportunities for businesses to provide ‘demand side response’ where they voluntarily adjust their energy usage to help keep the system in balance.
We want to work with the industry and other stakeholders to ensure there are no barriers to providing greater flexibility. As part of this, we are looking at how we can make it easier for consumers to provide demand side response in future. This includes examining how the distribution network operators, which run local electricity grids, can play a more active role in managing their networks, similar to that played by National Grid on the high voltage network.
We have also been looking at the future for gas networks including the regulatory changes needed to allow unconventional and low carbon gas to be used. And although we don’t have a formal responsibility for heat we are using our expertise to advise government on the implications of different options around heat networks and electrification of heat.
What does Ofgem think of projects like Futurewave?
There are growing numbers of communities and local authorities that want to develop local heat, or electricity generation schemes. They won’t necessarily be energy experts and schemes like Futurewave play a role by putting communities in touch with energy companies and finance organisations that can help them.
Ofgem has recently introduced reforms aimed at helping fuel poor households to connect to the grid – what impact can Futurewave have on this?
One of the challenges for consumers is identifying the opportunities for connecting to local energy infrastructure. For example, off-grid household consumers may be looking for options to heat and power their home. It could involve connecting to a local gas grid, or using electricity from a local windfarm.
Futurewave presents a range of solutions, from insulating your home to a complete changeover from using heating oil, to gas-powered central heating. Futurewave can provide advice and support so consumers can understand the costs and benefits of each option. This helps them make an informed choice. The service can potentially be scaled up to help local authorities if they face similar challenges.
The business model that will sit behind the Futurewave platform is non-traditional for the energy sector, what challenges and opportunities does this create for the regulator?
We have been talking to a range of non-traditional energy businesses that are coming into the energy market offering new products or services, or new ways of delivering these. These businesses can play a big part in transforming the energy market and engaging consumers. We want to ensure that regulation isn’t getting in the way of organisations delivering good consumer outcomes. We also have to protect consumer interests by understanding the benefits, costs and risks of any change to regulation. Read more about this work here.
Futurewave will also attempt to redefine the relationship between industry and consumers, how is this approach best supported by Ofgem?
We support energy network companies’ efforts on this, as our price controls require them to be far more consumer-focussed. When putting together business plans they have to show us evidence that they have talked to their customers extensively.
What four words would you use to describe Project Futurewave?
Focused, dynamic, collaborative, innovative.