Policy and Regulation

Policy Challenges

The changes in technology, social engagement and market structures, described on other project pages, that are implicit in the move towards a low carbon energy system have major implications for regulatory and institutional arrangements. The transition will need to be achieved at reasonable cost, whilst providing modern energy services with the high degree of reliability, which advanced economies already expect, and to which developing economies aspire.

This systemic nature of the energy transition, including changes to policy and regulation, but also the actors involved in the system, constitutes a change in energy governance.

The number of actors likely to be involved in power generation, demand side response and distributed storage vastly exceeds the number of traditional dominant players in energy systems. Engaging these actors in investment and real-time operation of power systems is a new challenge. This implies that governance structures will have to include better engagement of these smaller scale actors, possibly at more local levels.

New technologies, such as energy storage are already raising complex regulatory issues, and the governance of energy is increasingly connected to governance of information technology, e.g. in smart grids, and other infrastructures, notably transport. At the same time, new market structures are being developed to deal with capacity and flexibility, and these require appropriate regulations and institutions. Traditionally largely passive, grid operators will play a much more active role in balancing the system across space and time. And new infrastructure systems, e.g. for hydrogen, may need to be developed.

It is likely that there will be increased trans-national governance to address international electricity flows, development of more cross-border interconnection and carbon markets. The low carbon energy transition therefore increases complexity at the traditional (usually national) scale of energy regulation, but it also has increasingly diverse spatial dimensions. While security and affordability remain critical to the delivery of any energy policy, the law and institutions through which they are managed will have to change.

This workstream is undertaking research on governance and policy challenges, and their potential solutions. We are looking at some of the fundamentals of energy governance. For example, we are using insights from the wider governance literature on common pool resources to rethink how electricity grids might be governed. We are also using specific case studies, at a range of scales, to understand how energy governance is changing in practice in response to the pressures of the transition to renewables. For example, we are looking at potential policy arrangements for heat in the UK in high renewables scenarios.

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