We need innovation-led regulation

Ahead of the launch of the third round of the Strategic Innovation Fund this month, Utility Week speaks to Innovate UK’s Matt Hastings. He explains some of the challenges still facing the innovation ecosystem and how policy regulation should be rapidly adopting the lessons from innovation projects.

Could the current gas compression system be repurposed for 100% hydrogen networks? Is there potential for offshore windfarms to provide inertia to the power grid? Will Artificial Intelligence be able to prevent utilities workers getting injured?

These are among the questions posed by the first wave of projects to graduate to the final stage of Ofgem’s Strategic Innovation Fund (SIF). The 10 projects taken through to this beta stage of the fund’s first round will share £95 million to develop their ideas.

The SIF was introduced as part of the RIIO-2 price controls as a replacement for the Network Innovation Competition and has a budget of £450 million over five years. Two rounds have taken place so far, with a third set to open this month.

Innovation has long been a buzzword in the utilities sector but there remain concerns about whether this novel thinking is actually finding its way into business as usual and whether the, understandably, risk-averse culture of networks can ever truly embrace radical change.

It’s a question Matt Hastings, deputy director of the SIF for Innovate UK, which runs the programme for Ofgem, is familiar with.

He tells Utility Week: “We know it’s quite difficult for some innovators to get in front of the networks. That’s not because the networks are not interested in innovation, it’s just the sheer volume of what is out there. Where do you start?

“We’ve got to look at systems that enable innovation to flourish much more effectively, not just within networks, but within the whole energy innovation ecosystem.”

The adoption of innovation throughout the energy system is not a choice but a necessity, Hastings insists. He reels off the targets Great Britain has set itself this decade – quadrupling the amount of offshore wind generation; doubling onshore wind; going from a standing start on green hydrogen to 10GW.

“Basically, we need to install five times as much (renewable generation) in the next 10 years as we’ve ever done. That’s not incremental change and so you can’t use incremental processes to get there. If we rely on the same institutions and structures and the same operational and strategic approaches we’re not going to hit those targets. We need the right balance of both deep architectural innovation and incremental innovation.”

The SIF aims to shake up this status quo by focusing on the key challenges for the sector. However, Hastings is keen to stress that this is also underpinned by a mission to deliver net zero at lowest costs for consumers and to act as a springboard for the UK to become the “Silicon Valley of energy”.

Clearly there are going to be tensions between these two objectives. How do you make the case for spending millions on future-gazing projects while ordinary customers are gripped by a cost of living crisis?

Hastings responds: “We need to change from a project mindset to a products and services mindset. We need innovation to put new tools in the hands of network users and consumers. Innovation is fundamental to solving some of the issues that created the cost of living crisis and avoiding a repeat in the future. It’s important to put this in perspective, the government spent £40 billion on helping people with their energy bills in just one winter, on helping them out of the hole. We’re talking about £450 million over five years to stop another hole from opening up. So the quantums of investment are completely disproportional. Bailouts appear to be more expensive than bailout prevention via innovation.”

“But we’re also targeting that investment at solving real-world problems. I’d argue it’s worth the cost to innovate ahead of need and avoid those much larger bailout fees later down the line.”

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