On 20 July 2021, the Department for Business, Energy and Industrial Strategy (“BEIS”) published its 2021 Strategy and Action Plan on digitalising the energy system for net zero (the “Strategy”). The Strategy, which was developed in partnership with Ofgem and Innovate UK (part of UK Research and Innovation) is the first of its kind in the UK, and sets forth the government’s ambitions and actions to accelerate the transition towards a fully digitised and future-proof energy system that enables the UK to meet its decarbonisation targets.
In this article, we provide an overview of the key points to note from the Strategy and consider how the actions proposed by the Strategy may impact the regulatory landscape in the energy sector.
Harnessing the power of data and digitalisation across the energy system is a matter that BEIS has been increasingly cognisant of over the past few years. As greater sources of variable, distributed energy come online, this will require a significant step-change in the energy system’s ability to manage and react to increasingly complex energy flows. The Strategy notes that greater exchanges of data in order to facilitate an energy system that can effectively accelerate, automate, plan and anticipate processes will be vital in enabling the system to operate flexibly and to optimise assets across the network.
In 2018, BEIS and Ofgem published a progress update to its Smart Systems and Flexibility Plan, which set out the role of energy data in decarbonising the energy system and paved the way for the development of an Energy Data Taskforce (our commentary on the update can be found here). Against this backdrop, the Strategy builds on the impetus for energy digitalisation identified in other governmental plans, such as the Energy White Paper which committed to develop world-leading digital infrastructure across the energy system. In a similar vein, a core priority in Ofgem’s 2021/22 forward work programme is unlocking the benefits of data and digitalisation. Alongside publication of the Strategy, BEIS and Ofgem also published an updated Smart Systems and Flexibility Plan, (which we discuss in a separate Law-Now)), which focuses on the role of smart and flexible solutions in delivering decarbonisation of the energy system.
The Strategy sets out the government’s vision and action plan to digitally modernise the energy system as it transitions away from high carbon to low carbon technologies, and sees increased decentralisation. It aims to ensure that, as low carbon generation is increasingly integrated onto the network, valuable and accessible system-wide data is used and optimised to drive efficiencies, all while benefitting consumers and lowering system management costs.
The Strategy defines a “digitalised energy system” as one where:
Presumption of data openness is the industry default;
Data is adequate, standardised, and interoperable across the sector;
The required infrastructure, processes, technologies and skills are appropriately deployed; and
The relevant rules and regulations, costs and benefits, and roles and responsibilities are clear.
The ambition to digitalise is clear, but as BEIS notes throughout the Strategy, the scale (and speed) of change required presents a number of complex challenges to be overcome. Several actions have been identified to address these challenges, which we review in more detail below.
1. Government’s ambitions for a digitalised energy system
By the mid-2020s, the Strategy aims to have achieved the following:
Established standards and regulatory frameworks in place that ensure best practice is met for energy data collection, accessibility, privacy and security;
Significantly stepped-up visibility of assets across the system and new digital services such that stakeholders can understand what data exists and how they can gain access to it; and
Identified the next steps for digitalising the energy system including what new data governance, market frameworks and institutional designs need to be developed to ensure data privacy and cyber security while increasing market access and services.
Looking ahead to 2030 and beyond, the Strategy sets out the following ambitions:
System operators will have visibility of all energy assets enabling more accurate, efficient and cheaper planning, forecasting and management of assets;
Greater data access in the market will support new business models and entrants participating in the energy sector; and
Innovators can use the digital energy system as a platform to revolutionise the system’s interaction with wider national infrastructure and services.
2. How a digitalised energy system will be delivered
To deliver on the ambitions set out above, and to address some of the barriers that a transition to a fully digitised energy system may bring, the Strategy sets out nine actions that the government, Ofgem and industry will take in the next phase of policy implementation. The actions are categorised into three overarching themes: a) leadership and coordination, b) incentivising change and the c) development of digital solutions. We outline below some of the proposed actions that may have an impact on the regulatory landscape.
A) Leadership and Co-ordination
BEIS and Ofgem aim to lead by example by reviewing their own datasets and digitalisation processes by the end of 2021 in line with newly developed Energy Data Best Practice guidance. Both entities also commit to aligning policy, regulation and innovation competitions with the goals of the Strategy. Ofgem’s newly established Data and Digital Insights team will, amongst other tasks, work to ensure that Ofgem’s regulatory requirements for the use of energy data and the development of digital services are robust.
In addition, a new Energy Digitalisation Taskforce, led by Energy Systems Catapult, has been established help identify further actions and propose new recommendations that will be required as the system digitalises. These recommendations are expected in winter 2021/22.
B) Incentivising Change
The Strategy maintains that, to incentivise change, Ofgem will implement an “agile regulatory environment” regarding data, digitalisation and its market design. While agile and regulated environments are often at odds, this action proposes that stakeholders will be incentivised to adopt new behaviours such as adhering to agreed standards, for example through network price control frameworks, or by integrating obligations into relevant licences. In particular, Ofgem intends to ensure data and digitalisation expectations are included as part of the design of the RIIO-2 price control regime for distribution networks, whereby network companies are required to comply with Energy Data Best Practice and Digitalisation Strategy and Action Plan guidance (which Ofgem recently consulted on).
The government is also developing a coordinated asset registration strategy for smaller scale assets such as behind-the-meter solar panels, electric vehicles charging, battery storage and heat pumps. This will assist system operators and network companies in having greater visibility of the energy assets on the system, which will in turn inform decisions on strategic investment that affect where network infrastructure is built, live network operations, and security of supply.
Moreover, the Strategy highlights that Ofgem will seek views on wider applications of data and digitalisation across its regulations, for example for other licenced entities such as generators or suppliers, and with industry codes. Further, Ofgem is due to conduct a holistic review in winter 2021/22 to understand new and existing data and digital monopolies, potentially adapting regulatory expectations on market actors.
C) Development of Digital Solutions
The Strategy outlines ambitions to work with industry to fund and develop innovative system-wide digital solutions and architecture, as well as to stimulate the market to develop new business models. So far, a number of innovation competitions have taken place, such as Innovate UK’s Modernising Energy Data Access competition to create a data access and governance framework for the sector. In addition, the Strategy commits to the improvement of visibility and searchability of energy datasets, firstly through an Energy Data Visibility Project, of which the first phase is to be ready by summer 2021, as well as through the development of a National Energy System Map by the Energy Networks Association.
Digitalisation of the energy system will be no easy feat and will require the integration of millions of new and existing energy assets, deployment of sufficiently secure and smart infrastructure and the collaboration of varied – and sometimes competing – organisations.
A key challenge to date with digitalisation of the energy sector has been the lack of availability of shared, and meaningful, data. While the energy system is rich with valuable data, much of these datasets remain locked in silos, which results in a general lack of understanding in terms of what datasets are available, who holds them and how they can be used. Naturally data is more valuable when combined with other datasets, however without the right incentives and frameworks, it will be challenging to motivate organisations to share data with other stakeholders.
As the Strategy notes, our current energy system rarely treats data as a public asset and even where stakeholders are aware of what data exists and where, the lack of cohesive or coordinated standards and infrastructure to facilitate easy data exchange can make obtaining such datasets challenging. This lack of cohesion, combined with burdensome processes, such as overprotective and bespoke data sharing agreements, and low adoption of open-source technologies prevent energy data from reaching its full potential. As such, it may be the case that if the industry does not move with the speed that the Strategy necessitates, the government may seek to use further policy and regulatory levers to better support digitalisation efforts.