Smart and Fair?
Exploring social justice in the future energy system
Project duration: June 2019 ongoing
Over the course of the next few years our energy system needs to transform into a smarter, more flexible and responsive ultra-low carbon energy system. This is part of a necessary process to fulfil the UK’s commitment to net zero greenhouse gas emissions by 2050 at the latest.
But the associated changes will massively (and potentially rapidly) disrupt the way consumers interact with the energy system.
While the changes are essential, they potentially bring with them completely new ways to generate unfairness (in terms of the distribution of costs and benefits of the new system) and to leave people behind (in terms of the complexity and cost of participating in the benefits the future energy system brings).
There is a risk that, if these changes end up leaving vulnerable people behind and creating negative social impacts, progress towards a zero carbon system will stall as public support fades. So, to avoid this risk, how could the transition be both smart and fair?
Acknowledgement of this risk is why many actors in the energy system are espousing various formulations of the principle that ‘No one should be left behind’ in the energy system transition; that all energy consumers should have the opportunity to benefit from the transition (and thus ‘keep up’) while bearing only their fair share of the costs of change.
But what, exactly, does this mean in practical terms? How can such a ‘smart and fair’ outcome be achieved (if indeed it can)? What are the implications of seeking to ensure that all consumers can ‘keep up’ or are protected in some way if they can’t?
Building on an essay written in late 2018 by our CEO, Simon Roberts, for Citizens Advice, CSE established a research programme, Smart and Fair?, to explore these key questions further. Phase One of the programme started in June 2019, generously supported by Scottish & Southern Electricity Networks (SSEN) and Western Power Distribution (WPD).
The Phase One report describes the analytical framework and associated tools which CSE has developed in Phase One, with input from expert stakeholders. These enable us to:
- Expose the full range of capabilities, characteristics and attributes which are being required of consumers to participate in and benefit from a smarter energy system, many of which are not required for participation in the current ‘pre-smart’ energy market (the Capability Lens).
- Enable the analysis of individual and sets of smart energy offers and opportunities to reveal the particular requirements they place on consumers (the Offer Profiling Tool).
- Assess the distribution of participation in different smarter energy offers and services across the consumer base, revealing the quantity, profiles and locations of consumers likely to be able to join in and benefit and of those likely to be left behind (the Consumer Classification Model).
- Inform consideration of the types of interventions which might be appropriate to reduce the likelihood of being left behind or reduce the impact on more vulnerable consumers of not participating.
The Offer Profiling Tool reveals the capabilities a smart energy offer requires of its consumers
The Smart and Fair? Offer Profiling Tool, currently a beta version in Excel, allows users to consider which of a wide range of consumer, household and dwelling capabilities and attributes are necessary to participate in a smart energy offer. It is described in more detail in Section 3 of the Phase One report. You can download the Offer Profiling Tool here.
The analytical work enabled by these tools leaves little doubt about two important findings and an obvious resulting conclusion:
- The sorts of smart innovation needed and coming forward in the energy market – from time of use tariffs to smart technologies – will bring with them new ways to generate unfairness and leave people behind.
- The smart innovation we need is unlikely to be forthcoming if we seek to achieve fairness by insisting that every smart offer in the market has itself to be fair and inclusive from the outset.
- Smart and fair outcomes will not emerge reliably from the market without deliberate and purposeful action to secure them by policy-makers and regulators, including requiring adherence by all market participants to a set of Smart and Fair Guidelines
Below, the Smart and Fair? Capability Lens reveals an extensive range of consumer capabilities and attributes required to participate meaningfully in smart energy.
The report sets out a draft of these Guidelines and makes 21 recommendations for this deliberate and purposeful action by BEIS, Ofgem, energy system practitioners (including energy suppliers, network operators, innovators and consumer advocates). These recommendations include:
- Funding the design and testing of interventions to widen participation.
- Introduction of policies to reduce the risks of consumer harm from poorly designed, targets or realised smart energy offers.
- Committing resources to effective market monitoring and ongoing distributional impacts analysis.
- A requirement on all market participants to follow the Guidelines.
- A re-evaluation of definitions of consumer vulnerability to reflect risks associated with the transition to a smarter energy system.
The Phase One report also outlines our plans for Phase Two of Smart and Fair? which, subject to funding, will be a significantly larger programme than Phase One. It includes:
- Validating the outputs of Phase One and improving the analytical tools.
- Market monitoring as the smart energy market develops.
- Pilots of interventions to widen participation and associated area profiling and targeting.
- Distributional impacts analysis, as the actual benefits and costs of smart energy offers are revealed in a maturing market.
- Policy insights and advocacy to ensure the programme findings have a valuable impact at this key moment in the transition to a smart net zero energy system.
To explore how your organisation could support and become involved with Smart and Fair? please contact CSE Chief Executive Simon Roberts (details below).