Recent developments in technologies such as solar power, batteries, smart thermostats and appliances could radically increase competition in the energy market, bring down bills and secure a decarbonised energy system, according to a new report from the thinktank IPPR, published today.
The report shows that current government policy is focused on supporting the large-scale low carbon generation technologies, nuclear and offshore wind power. But the report argues that support for rapidly developing renewable technologies, like solar power, and new 'smart' technologies would lead to lower bills, a more efficient energy system and low-carbon generation subsidies going to local communities, rather than big utility companies.
The report shows that solar power costs are falling rapidly and the technology is fundamentally transforming energy markets across the globe. In countries such as Germany, Italy, Spain, Portugal, Australia and the US south-west solar-generated electricity without a subsidy is already as cheap as electricity provided via the grid (known as 'grid parity').
The report says large-scale utilities across the world are facing severe financial difficulties because the impact of distributed electricity technologies. It shows that value of Europe's top 20 utilities has been slashed in half over the last six years and their credit ratings have been downgraded. The report also shows:
- Citibank recently projected that solar would reach grid parity in the UK by 2020.
- Barclays estimates that solar and battery systems will reach grid parity for 20% of US electricity consumers within four years.
- The cost of onshore wind power is falling fast and approaching the average wholesale electricity price in Italy, Spain, China and the UK and is already competitive with fossil fuel generation in Brazil.
- Electricity generated by both onshore wind power and solar power, operating at small scales, is already substantially cheaper in the UK than electricity generated by offshore wind, which the government is prioritising.
Will Straw, IPPR associate director, said: "Distributed electricity technologies such as solar power, batteries and smart thermostats, give reason for great optimism but they are being held back by a bias in both policy making and regulation which favours the large-scale utility business model. A fundamental change in direction is required so that the innovative businesses and entrepreneurs developing these new technological solutions have a level playing field with the incumbent utilities. It is time to break with the past and embrace the brighter new future that these technologies offer."
The reports recommendations include:
- An automatic fine for the big six for overcharging legacy customers: a new regulation should be introduced stipulating that suppliers will face an automatic fine every year at an order of magnitude higher (for example x10) than the amount they overcharge their legacy customers (i.e 'sticky' customers who are price insensitive that the big six have retained from their time as monopoly suppliers before the energy markets were liberalised). And the prospect that companies could have their licenses revoked if they continue to charge their legacy customers.
- Investigation into opening up trading in the wholesale energy markets: the Competitions and Markets Authority (CMA) should carry out a full investigation into the potential for improving competition by restricting the big six from self-supplying between their generation and retail arms, and introducing a new form of pool for trading energy.
- Review of tariff regulations to take into account innovation with new technology: the CMA should review the tariff regulations introduced by Ofgem through its Retail Market Review so that they support the deployment of distributed electricity technologies.
- Pro-industry regulation to help switching websites increase consumer engagement in market: the potential for regulating intermediary services, such as switching websites, as a way to increase consumer engagement in the energy market should be examined.
- A reorientation of Government support towards the full range of smart distributed technologies and away from the large-scale, centralised utility model: the government should acknowledge that the nature of electricity technologies is now so diverse that it is impossible to adopt a technology neutral approach with its policies.
- Large-scale deployment of solar power: the government must immediately begin work on a strategy for accommodating large-scale deployment of solar power into the electricity system so that Britain is not prevented from capturing the benefits this technology has to offer.
- Scrap the capacity market and investigate alternative: the capacity market could have been an effective instrument for supporting smart and efficient technologies but has been designed to focus on generation capacity. A new approach to maintaining the security of the energy system, including the potential for giving responsibility for maintaining system security to the district network operators, should be investigated.
- Review of network regulation to accelerate the development of the smart grid: the government should launch a review into the existing model of network regulation to ascertain where reform is needed to unlock barriers to deployment of distributed electricity technologies and accelerate the development of the smart grid.