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PA OPINION

Power and the policy vacuum: what’s keeping energy company CEOs awake at night?

We teamed up with the Financial Times and invited a range of senior executives from across industries to dinner as part of our Ingenuity Decoded series. Here’s a brief snapshot of what participants said about being more digital and flexible.

The UK energy sector is facing a prolonged period of unprecedented disruption, opportunity and uncertainty as the first 20 years of the century near their close.

Despite the media’s focus on decarbonisation, decentralisation and the need to adopt agile working practices, players of all sizes say that political uncertainty, regulation and technological change are top of their agenda

That’s what we heard when hosting a recent roundtable with energy industry leaders in partnership with the Financial Times. The conversation kicked off with a discussion around general technological change, but the focus swiftly moved to a consideration of where the industry was heading, with wide-ranging discussions on topics including end-to-end disruption, future sources of power generation and electric vehicles and their implications for the local distribution networks, as well as the evolution of battery storage technology.

Securing a long-term view of energy regulation is vital for incumbents

The organisations in the room ranged from incumbent producers, distributors and retailers to smaller disruptors, but what unified them was a desire for innovative ways to deliver for investors, customers and society. What was fascinating was the contrasting experience and outlook of the large businesses almost 100 years old and small disruptive start-ups that haven’t been around for even a decade.

The older companies make long-term investment decisions over 20, 30 and even 40 years that have a significant role in the nation’s energy systems, while the more agile disruptors are focusing on short-term, customer-led business models. One multinational pointed out it has radically changed its generation profile and had to write off significant amounts of money as a result. While they felt this was the right thing to do, they also said regulators need to recognise that they make decisions about power-generation based on current and foreseeable policy and regulatory frameworks. That means there can be significant commercial and financial risks to businesses if changes happen without enough warning.

Everyone agrees zero-emissions is the target

One important theme, around which all quickly coalesced given the public disquiet around climate change, was the need to achieve a target of net-zero carbon emissions. While all agreed net-zero equated to some sort of guiding ‘North Star’, there was no consensus as to how best to reach it. Some argued that legislators needed to show the way forward, while others thought collaboration between sector players of all sizes offered the best direction of travel.

“Everyone knows where they need to get to, but they don’t know how to get there,” was how one person summed it up.

Regulators and policymakers need to offer more guidance here, the room felt. There was an acknowledgement that industry needs to replace polluting natural gas, but the question was with what. Electricity, hydrogen, solar and wind all have possibilities, but the regulators and policymakers need to make some big decisions in the context of net-zero. Delay in doing so will increase regulatory uncertainty or require more rapid pivots towards favoured technologies when the direction becomes clear. Both these factors will drive the need for participants to be more agile – to navigate the uncertainty and quickly capitalise on the opportunities.

Cooperation between energy competitors will be important

One conclusion was that there needs to be a debate between the incumbents and the new disruptors, from which a coalition of the willing might spring to help frame and guide the necessary policies.

This need for cooperation was a consistently important theme and builds on existing co-creation activities. Players have previously worked together collaboratively, and with policymakers and regulators, in areas such as faster switching programmes and smart metering, which help consumers and the environment. There are also schemes to foster such joint efforts, such as the Energy Networks Association’s Network Innovation Competition, which encourage companies and distribution network operators to work on co-created projects that they can win funding for.

Learning from these schemes and adopting agile working practices and a mentality that’s not afraid to experiment and learn, different participants could pool human and technical resources to develop new business models and ways of working. This could highlight opportunities to take consistent approaches that benefit all stakeholders while securing a positive human future.

Energy regulators need to find ways to let the market evolve rapidly

There was some sympathy for the regulators in such a rapidly changing market, especially in areas where technological disruption is driving widespread changes in consumption, such as the growing use of electric vehicles (EVs). While there had been a push for greater use of EVs, the implications for local energy networks and the national grid are still uncertain and regulators must support the industry in making the most of this emerging opportunity.

While the debate was wide-ranging, a clear common thread was that the energy sector is now undergoing fundamental change as the forces of decarbonisation, digitalisation and disruption accelerate adoption of new technologies and business models. This has critical implications for how energy companies organise themselves, and for the new capabilities and behaviours they will need. Those that have greater adaptability and agility will be far more likely to succeed in this predictably unpredictable future.

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