Transforming the energy market for a sustainable net-zero future

Based on recent discussions with industry executives, Michael Taylor, senior consultant at Capgemini, outlines some of the key changes that will be needed to create a net-zero energy system by 2050, including market reforms, more agile regulation and better utilisation of data.

Today’s energy market is not fit for purpose if the goal is to meet the UK’s stated net zero targets. The current model is designed with energy retail at its core, whereas the future system will need to interact with all parts of our lives, moving on past the basic requirements of decarbonisation and redefining how people engage with energy to ensure a stable and sustainable future for society.

Achieving net zero by 2050 is a massive challenge and will require a coordinated effort among the energy industry to evolve and replace the necessary infrastructure, which to-date has not been possible. Far more action is required, and faster, to achieve our sustainability goal. Capgemini put the call out to executives across multiple market segments within the UK energy industry to help construct a collective vision of the future energy system.

These discussions give us reason to be optimistic as there is a strong desire among all parties to tackle the energy transition head on. But what changes are needed to achieve a net zero energy system?

Decarbonisation and Efficiency

Deploying decarbonisation technologies at scale is going to be critical. The rollout of technologies which electrify transport, transform energy generation, and decarbonise heavy industry are often characterised by challenges that are highly interdependent and, in some instances, cross-generational. It is therefore essential that large-scale change initiatives are centrally coordinated to mitigate the risk of duplication of effort and inoperability. Technology alone is not the solution, rather it will also require a sustainable and dependable economic framework for carbon pricing in order to succeed.

Equally, improving the energy efficiency in homes is key to net zero dependency, with heating of buildings accounting for approximately half of the final energy consumed in the UK. This isn’t something that can be solved by getting rid of all unsuitable buildings as UK housing is typically built on old gas heating infrastructure. Instead, it but must be tackled through a coordinated retrofitting initiative. Such an initiative would also represent a perfect opportunity to install the latest technology in buildings, providing asset level data of sufficient granularity to enable system flexibility. We cannot create a sustainable energy environment without achieving this.

Better utilisation of data

An effective and simple consumer data consent management framework that drives transparency and accountability is the only way that energy companies will be able to build consumer confidence that handing over personal data will be beneficial to them and will enable technological dependencies required for a resilient, flexible energy system. Therefore, we need to deliver change initiatives which ensure a consistent, open approach to data sharing to enable automation and coordination of interoperable assets.

But if we are going to share data and connect millions of distributed smart assets then it will require major investment in our energy network to build a smart grid with increased capacity to support further electrification. Energy companies and the UK government must invest in an expansion and upgrade of our networks as an immediate investment for drive long-term gains, recognising that even with demand management and flexibility services our network capacity needs to at least double. We cannot evolve with our current grid infrastructure in place.

Energy regulation and arrangements

The current regulatory model is not sufficiently agile to enable the speed at which the energy transition can be delivered. Steps have been taken through the significant code review and code consolidation, but they are still not enough. We need to push for a single regulation programme that encourages innovation, protects consumers, builds trust, and can respond quickly to emerging market issues; a sustainable energy system requires a holistic regulatory framework that is based on whole-system thinking.

It is also widely recognised that our current energy market arrangements are not sufficient to support the next stage of the energy transition. Changes will be required to rapidly transform energy market arrangements and enable integration of the retail and wholesale markets to support increased distributed generation and to provide clear pricing and investment signals, whilst ensuring security, competition, and a fair price of energy to the end consumers. The arrangements will need to be flexible to incorporate a range of signals (carbon, pollution, pricing, quality of service/supply) needed by a truly flexible energy system.

There are still hurdles to overcome

So, our team of energy executives have agreed what needs to be done to create a future energy system with net zero at the forefront – why aren’t these changes in motion? Based on our discussions throughout this year, the main hurdles to an effective energy transition are a focus on short-term solutions to immediate issues at the expense of longer-term investments and a lack of leadership driving the transition forward.

The energy transition is the single biggest challenge facing humanity and whilst the prospect of delivery may look daunting, we have the capabilities to overcome it. The UK has proven it can act swiftly and decisively in a moment of crisis like the Covid-19 pandemic with its vaccination rollout, so we know that regulatory approvals and coordination can be fast-tracked if needed. A similar approach could unlock the outcomes we need to achieve for the energy transition and net zero.

Whilst we recognise there is still work to do and decisions to be made, the unity demonstrated by such a diverse set of stakeholders represents a huge leap forward in our collective effort as an industry in tackling the big issues.

Written with support and contributions from Pete King, Julian Keates and Alain Bollack.