Encouraging innovation in regulated utilities: consultation - response from Faraday Grid

The HM Treasury’s and Department for Business, Energy & Industrial Strategy (BEIS) initiated a consultation focusing on innovation in utilities, with the aim to “ensure our system of utilities regulation is fit for the future.” As an innovator of technology that will radically transform the market and with a growing global presence, Faraday Grid is keen to engage in the conversation and submitted a response to BEIS, which can be accessed here.

There is no doubt that significant innovation is required throughout the energy sector if the UK is to meet its legally-binding target of reducing carbon emissions, specifically by 80 per cent from 1990 levels by 2050. This commitment is part of the international action to limit global temperature rise to no more than 1.5 degrees Celsius. Within the energy sector, decarbonising electricity was identified as key in achieving this.

It is important to recognise that the UK has cultivated an environment which strongly supports research relating to electricity utilities. However, it lacks similar success in subsequent phases of product development and technology diffusion. Hence, there is a rapid decline in the number of patent applications over the years, as shown in Figure 1.

Figure 1. Number of patent applications between 1958-2012 in the electricity sector Jamasb & Pollitt, 2015.

Figure 1. Number of patent applications between 1958-2012 in the electricity sector Jamasb & Pollitt, 2015.

The kind of fundamental innovation necessary for decarbonisation is risky by nature, but power providers face little incentive to experiment with new technology that is yet to establish a near perfect reliability. This is because strict governmental requirements prompt network operators to focus on power reliability as their main concern. As such, they favour safer, precedent-based innovation carrying incremental improvements.

Relaxing these requirements can help take innovation from the lab to the grid. Simultaneously, independent, high power rating testing facilities could support validation of innovative approaches risk-free.

In line with this, Faraday has recommended that the Government explore and increase market-based measures, such as lessening network regulation requirements - in certain situations and under certain conditions - to stimulate the testing of new technologies on existing electricity networks. Additionally, it is key that rewards for innovation are bestowed once their importance and applicability have been established, rather than trying to pick ‘winners’ before the innovation has substantiated.

R&D is playing an essential role in not only the utility sector but ultimately in defining the future of our climate. This consultation by the Treasury and BEIS is therefore an important step in ensuring that the energy sector is an environment conducive to creating impactful innovation.

Figure 1. from Jamasb, T. & Pollitt, 2015. Why and how to subsidise energy R+D: Lessons from the collapse and recovery of electricity innovation in the UK. Energy Policy. Volume 83. Pp. 197-205.