Can Ofgem adapt to the fast-moving modern world?

Can Ofgem adapt to a world of rapid change, or is a new regulator one of the changes that’s needed?

In February this year, WhatsApp, the ungrammatically named five-year-old company with a single messaging app as its product, was acquired for $19 billion ($12 billion).

That is more than twice what the UK’s biggest electricity distribution network operator was sold for in 2010 and close to the current market capitalisation of Centrica. Whats­App’s acquirer, Facebook, itself only eight years old, is currently valued at more than twice the biggest utility in the world.

Twenty-five years ago a tsunami of privatisation by the Conservatives saw everything from BT and British Gas to Rolls-Royce, Jaguar and British Airways sold. Although making fewer waves at the time, also among the disposals were our electricity networks.

Looking back you will see that almost all the newly privatised companies provide a service for which we have real choice as customers, meaning market competition can be relied on to work its brutal magic.

However, while you can choose who to buy your electricity from, you cannot chose whose cables and lines deliver it. In order to prevent the newly privatised network abusing their monopolistic power, a regulator was born to protect the interests of consumers who cannot vote with their feet.

Under various names, this regulator has done a relatively good job of protecting the interests of consumers. But will what has worked to date, work in the future?

In a world where multi-billion dollar enterprises spring up in five years, based on technologies that barely existed five years previously, can Ofgem, with its five-year – soon to be eight-year – regulatory cycle ever hope to act in a way that is relevant to the operational, technological and social demands of the market?

I think not, and this poses the danger of the regulator becoming a barrier to progress in a world of fast-paced change, where conventional thinking will not be able to solve unconventional challenges around balancing supply and demand.

The solutions to our impending energy gap will not come from conventional thinking. They will not come from building more of the old stuff and they will not come from government, the regulator or even electricity companies. They will come from some clever entrepreneur devising an app that, for example, manages energy consumption in your home or allows your new electric car to act as a short-term source of energy when demand peaks and the spot price shoots up.

For an industry that has long since received its birthday card from the Queen, it is easy to think of single-digit numbers of years as insignificant. But Twitter took just three years to go from first tweet to a $1 billion valuation. In many respects, we can expect the next few year to prove more significant in terms of changes to the energy sector than the last hundred.

In a world of centrally planned transmission networks delivering power from remote nuclear power stations to dense urban conurbations of ignorant and impotent consumers, the five-year regulatory cycle worked just fine. But in a rapidly evolving world of wind turbines, solar panels, energy-efficient-­everything and apps that enable us to do things that we did not even know needed doing, it does not.

Being stuck in conventional “more of the same is better” thinking is what has caused many familiar high street names to become extinct in recent years as the world changed around them faster than they could react.

These companies had quarterly reporting and shareholders to keep them on their toes. Our electricity network companies have to rely on a perpetually several-years-off-the-pace regulator who may in fact be the first thing that needs to change.

And so the question remains – can the energy regulator learn new tricks? Or will it become a relic of a bygone age, surviving only to be a burden to an industry in desperate need of new blood?

While the industry ponders this conundrum, I shall go back to dreaming up a catchy name for my multi-billion pound home energy app – any suggestions?