The strategic importance of democratising energy

Iain Soutar, EPG, 8th October 2015

Speaking at the Labour Conference last week, shadow secretary Lisa Nandy sought to clarify what energy policy would look like under a Labour government. The speech appeared to have two aims: to temper criticism around Jeremy Corbyn’s reported plans for nationalisation, and to move the conversation to something altogether more positive: the democratisation of energy.

Despite the rhetoric, the notion of a democratised energy system is of course neither new nor radical: the potential for rebalancing power has long been a key argument for proponents of progressive energy systems. Indeed, democratisation to a degree is already occurring by virtue of the increasing penetration and ownership of distributed energy technologies. Largely enabled by Labour’s introduction of the FiT however, the speed and scale of such democratisation is now being tempered somewhat by a raft of unhelpful Tory policies.

In this light, the renewed call by Labour for energy system democratisation is welcome, and the recognition that structural change is already underway should be applauded. On the whole though, the speech was frustratingly constrained on two counts: it failed to convey how the inevitability of such a shift shifts the context for energy policy; it also stopped short of much needed reflection around what democratisation of the energy system actually entails. On these two counts, Labour thus missed an opportunity to be truly radical.

Keeping up with reality…

Despite the best efforts of the Tories, the energy system in the UK is undergoing a process of transformation, with three principle drivers. First, technological innovation is driving deepening penetration and integration of renewables into energy systems, meaning the new reality is much more distributed and low carbon than it was ten years ago.

Second, the scale and nature of such innovations is creating a new set of value propositions around what society wants from the energy system. The role of individuals, businesses and communities is no longer just as passive consumers of a centrally distributed commodity, but as an increasingly active and connected network of system owners and operators.

And lastly, social innovation is creating new social structures through which such values and objectives around energy can be expressed. Not only has the community energy movement grown considerably over the last five years; its values and approaches are now being adopted by existing energy system actors, such as businesses and local authorities.

In sum, the opportunities and constraints of today’s energy system are quite different from the opportunities and constraints ten years ago. We are indeed in the throes of the Third Industrial Revolution, and energy policy must respond to the opportunities that affords, rather than trying to make do and mend outdated technologies, business models, and norms around user engagement. It is heartening that some (albeit those currently in opposition) recognise this.

Power to whom?

So what do we mean by a democratised energy system? An increase in the number and diversity of RE ownership marks clear progress in terms of improving the distribution of power, particularly by insulating adopters from the vagaries of centralised, fossil-fuel based markets. In doing so however, it also turns passive consumers into both shareholders and stakeholders with active interest and influence in the direction of the energy system.

Moreover, by virtue of the increasingly distributed nature of technologies (in terms of both geography and ownership), the economies of scale (and concentration of wealth) that characterised thermal generation is being replaced by network economies, where wealth, and value is distributed among society. Such value lies not just in the ability to produce energy, but also in the avoided costs of centralised generation as well as in individuals’ participation in balancing markets, as discussed here.

Absent from most discussions however are potential issues around the distribution of power. Here, the distinction between negative and positive freedom is important. It is the former, as concerned with minimising restraint or coercion, and of relevance to levelling the playing field for new entrants, new business models, that tends to dominate discussion around democratizing energy. The latter, concerned with equal opportunity and the ‘right to agency’ is less prevalent, though is of relevance in terms of ensuring that the new system does not disenfranchise those with less opportunity or resources with which to stake their claim.

How far?

As new technologies, business models and values expand the democratic potential of energy, a key role for policy is to manage the democratic process. This invites the question of what Labour would do, if it could, to further energy democracy, and indeed to what extent democracy can and should be enabled. This will depend in large part on the value of overcoming system inertia.

In a previous post I argued that the energy trilemma is distracting of a more pressing challenge: that of overcoming inertia. Inertia in the energy system is a consequence of path dependencies and scale economies around fossil-fuel based technologies, and a multitude of network effects including centralised networks, concentrations of capital in an oligopolistic market, and command and control governance. However, an emergent energy system, characterised by distributed, renewable, and particularly small-scale technologies is actively challenging the profit streams of established business models, the assumptions of established modes of governance, as well as those around societal engagement.

However, distributed energy is not automatically democratic, and is dependent on adherence to participatory processes towards participatory outcomes, for example ensuring local ownership and securing local benefits. It is through these principles – diversity of ownership, pluralism of governance, and distribution of wealth – that inertia can be challenged. An eagerness to roll out renewables without an eye on these principles has no doubt damaged the reputation of the sector by leaving open the door to those investors with little interest in community engagement, limiting the availability of sites to communities themselves.

In short, policies can be more or less democratic, and encouraging of meaningful societal engagement if that it what we want. If we can believe that inertia is a problem, and that small-scale distributed energy helps, then it is the role of energy policymakers to put in place the mechanisms to overcome it.

The Strategic Importance of energy democracy

George Osborne this week announced the creation of a National Infrastructural Commission to “shake Britain out of its inertia on the projects that matter most”. Such matters under the 2014 National Infrastructure Plan covered electricity generation, oil and gas production, and networks, i.e. those issues deemed to be of Strategic Importance in terms of their ability to “deliver a significant contribution towards an objective”, defined in this case by the energy trilemma.

The creation of such a body promises to offer “unbiased analysis” of the UK’s long-term infrastructure needs, thus moving difficult energy decisions away from the Treasury (who some say have been micromanaging DECC for the last few months). Such a decision provides an opportunity to have a rethink around what is important, and how to get there. Ostensibly it is a welcome departure from ideologically driven policymaking towards something altogether more strategic.

Time will tell what this will mean for individual policies, but there is already some indication that flexibility in demand (such as through DSR) and interconnection is acknowledged as more effective and cost-efficient than increasing (often redundant) generation capacity, which of course raises questions about the future of nuclear, and of the importance of base load more generally.

However, there is also a broader opportunity here to rethink about the appropriateness of the current system in its inability to address contemporary energy challenges. To do this, the Commission must do two things: it must acknowledge addressing system inertia – and not just the trilemma – as a principle objective. And it must recognise the strategic importance of energy democracy as a means to overcome inertia. If the Commission ignores the increasing importance of societal engagement within energy decisions, its impact might be limited to underpinning the crumbling edifice of our energy system.

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