A progressive view on how our energy system should operate

I don’t have a crystal ball, nor make many speeches but this week I have been asked to give two relating to the future of energy provision. Many elements spring to mind: new technologies and their falling costs, the impact of competition and funds on energy investments, or the changing needs of consumers, but actually, when I take a national view, three emerging themes stand out, and within that, one, in particular, is critical. All of these themes require Government and the energy industry to work together and collaborate.

The most important theme is how the industry creates new public/private partnerships and the primacy of the public interest must be considered in its widest sense here. Energy is an essential service provided through critical national infrastructure and in Britain energy companies exist because of an Act of Parliament, and require public consent to be able to do what we do. The stewardship of that infrastructure is both a privilege and a responsibility so people are fully entitled to ask if private ownership of utilities is the right thing for the people of this country.

Whilst the privatised energy system has led to fewer power cuts, better customer service and greater efficiency, we need to do more. Companies must put the public interest first, every day and in every way. This means creating good jobs, paying fair wages, earning fair profits and paying taxes willingly, being good community members, neighbours and local citizens, and evolving to meet society’s needs. We might not agree with some political critiques of the sector; but we have to listen.

So more reform is needed. We may have to contemplate new ways of demonstrating we are fulfilling our part of our social contract with society. That may mean new obligations, new accountabilities and new ways of doing business – embracing reform that in the past might have seemed radical, but in the future might be essential.

Perhaps now is the time for a more explicit duty in the regulatory framework that requires all parts of the energy industry to meet a defined public interest? That could include an obligation that all national energy infrastructure providers must abide by high standards of transparency on taxation or adapt their governance to give stakeholders such as local authorities a greater say in decision-making.

But, turning to my second theme, customers also want low cost energy and society wants to avoid climate change – and they are both right. In my view we need to have all the technology tools possible in the low-carbon toolbox, yet we too readily revert to polarised debates and binary choices, such as coal versus gas, or wind versus nuclear.

A smart, responsive future low carbon electricity system must be built on a platform of a strong and stable carbon price – with all technologies competing together. Technologies like nuclear and offshore wind should compete against technologies like onshore wind and solar for low carbon contracts in regular auctions that allow the supply chains to mobilise behind. All technologies, responsibly sited, are needed and none should be excluded as is the case today for onshore wind.

But, there is a third key theme needed for the future. Energy companies and governments (national, devolved and local) must facilitate the local energy systems being created by new technologies and evolving consumer behaviours. Again, this is not binary: there will be a need for big and small energy, for large offshore wind farms and small domestic batteries. Here, the task is substantial but there is a clear route to achieving it. The distribution companies who operate the local energy networks supplying our homes must and can be the engine rooms, becoming “mini-National Grids” in the way they operate smart local grids, neutrally facilitate peer to peer energy trading, and connect electric vehicles and energy technologies, big and small. The appetite is there, the capabilities are being built and with an adapted industry framework, the next regulatory period can power this evolution on.

So as the future of energy unfolds, I see these three themes as critical. It will be even more important for governments and energy companies to work together collaboratively: putting all the tools in the toolbox, reforming regulation to embrace localised energy and, most importantly of all, creating new public private partnerships that seek to adhere to higher standards. A bright energy future is very possible.

 

About the author

Alistair Phillips-Davies Chief Executive

Alistair became Chief Executive of SSE on 1 July 2013. He has a degree in Natural Sciences and is a qualified Chartered Accountant. He has worked in the energy industry since 1997, when he joined Southern Electric. He was appointed to the Board of SSE as Energy Supply Director in 2002 and was appointed Deputy Chief Executive in 2012. As Chief Executive, he leads the Executive Committee and the rest of the SSE team in the day-to-day running and operations of SSE and is responsible for implementing the strategy and policy set by the Board.

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