Transaction cost analysis of digital innovation governance in the UK energy market

Energy markets are undergoing significant changes. Legacy systems developed around inflexible, centralized and monodirectional supplies are being replaced by flexible, distributed and bidirectional supply-and-demand systems. Where legacy systems are less entrenched, such as in decentralized renewable energy, flexibility and energy service markets, the pace of change is faster, and new technologies, business models and ideas are more likely to be tested and applied. This conceptual paper analyzes the changing governance of decentralized renewable energy, flexibility and energy services in the United Kingdom from a transaction cost perspective. Particular emphasis is placed on the impact of potentially disruptive innovations such as distributed ledgers, emerging digital technologies and big data analytics on the one hand, and the need for value creation from just and affordable decarbonization on the other. In doing so, this paper sheds light on some contradictions between current energy governance and the requirements for a decarbonized, decentralized, digitalized and democratized energy system. The paper concludes that energy governance is increasingly shaped by decentralization and digitalization, which can either facilitate or inhibit value creation through democratization (social value) and decarbonization (environmental value)

Exploring the role of servitization to overcome barriers for innovative energy efficiency technologies – the case of public LED street lighting in German municipalities

In this paper we analyse the case for public application of LED street lighting. Drawing from the energy services literature and transaction cost economics, we compare modes of lighting governance for modernisation. We argue that servitization can accelerate the commercialisation and diffusion of end-use energy demand reduction (EUED) technologies in the public sector if third party energy service companies (ESCo) overcome technological, institutional and economic barriers that accompany the introduction of such technologies resulting in transaction costs. This can only succeed with a supportive policy framework and an environment conducive towards the dissemination of specific technological and commercial knowledge required for the diffusion process

‘Pro-savers’: the role of community in energy demand reduction

Community energy provides a space for end-users and inter- est groups to engage with energy consumption and production at the grassroots level. Often emerging out of community-led renewable energy projects, community initiatives have the ca- pacity to address issues such as rising energy prices, fuel pov- erty and the desire of independence from incumbent energy utilities. The publication of the Community Energy Strategy in January 2014 in particular marks the first attempt to insti- tutionalise community energy within the UK energy system. Using localised and tacit knowledge, community energy groups can be ideally placed to deal with energy consumption at the point of demand. This opens up opportunities for consumers to engage not only in energy generation but increasingly also in energy demand-management, thus moving from consumption over ‘prosumption’ to ‘pro-saving’. Our three case studies pro- vide an overview of three community energy approaches that exhibit the emergence of ‘prosumption’ and the shift towards ‘pro-saving’, a concept which includes the notion of demand reduction as well as the development of innovative approaches combining distributed energy with demand reduction and de- mand side response. The paper draws these examples together in order to provide an outlook for increasingly decentralised energy generation and demand-management practices along with some concrete policy recommendations

Post-Subsidy Solar PV Business Models to Tackle Fuel Poverty in Multi-Occupancy Social Housing

Feed-in Tariffs created a vibrant business ecosystem for the deployment of decentralised renewable energy technologies while constituting a regressive tax and increasing inequality. Business model innovation spurred by their withdrawal is providing valuable lessons for progressive policy design. Using the case study of solar PV deployment on multi-occupancy social housing, this paper reveals policy, business and organisational challenges that need to be overcome to address fuel poverty and reduce inequality. Suitable ‘export’ and ‘local’ business models were identified through a workshop and subsequently evaluated through qualitative thematic interview analysis. The ‘local’ model compares favourably in terms of production costs and benefits for fuel poor tenants but unfavourably in terms of transaction costs. Both models are considered equally susceptible to changes in policy. Their success hinges upon third party intermediaries, peer-to-peer learning and a supportive policy environment. This paper concludes with a policy recommendation to ensure that energy justice lies at the heart of the UK’s transition to net-zero carbon through the fair distribution of costs and benefits by including specific provisions to protect low-income groups

Regulating the diffusion of renewable energy technologies: Interactions between community energy and the feed-in tariff in the UK

An ever increasing body of legislation and regulation is transforming the UK’s energy system and its surrounding national energy framework. Depending on the mechanisms that result from this process, new forms of engagement with energy, particularly electricity, might emerge. The current trajectory of UK energy policy leans towards a centralised scenario with a portfolio of centralised renewable energy technologies (i.e. geographically concentrated such as offshore wind), nuclear power stations and gas fired power stations with the option of Carbon Capture and Storage technologies if it becomes a commercially viable option (CCC, 2011). Forecasts predict that a combination of these technologies could place the UK on the right path to reach its 2050 carbon reduction commitments (UKERC, 2008). However, this approach fails to take broader benefits of decentralisation and localisation into account and many official documents such as the Microgeneration Strategy (DECC, 2011a) and those surrounding Community Energy Online (DECC, 2011b) point to a need for greater public engagement in the generation of energy in order to ‘derive greater benefits locally’ (DECC, 2011a: 45). The question remains in how far these diverging objectives can be achieved within the current regulatory environment as there is a lack of coordinated incentives in place to facilitate the development of new scales and ownership structures capable of promoting new forms of engagement at scales below the point at which economies of scales apply. This thesis seeks to establish what barriers are preventing community energy with the capacity to increase acceptance of renewable energy technologies while also contributing towards climate change action, energy security and the strengthening of local economic cycles from becoming more widely embedded in the UK. The main focus is on how ‘niche creation’ policies such as the feed-in tariff might provide the basis for overcoming these barriers by diffusing new scales and ownership structures of renewable energy technologies. Accompanying social innovations could potentially include more meaningful engagement with energy in general and renewable energy in particular, while also enabling communities willing to invest in renewable energy technologies to build resilient local energy infrastructures with the capacity to reduce the impact of increasing energy insecurity, fossil-fuel depletion and climate change constraints. In order to appreciate the potential of community energy in the UK, parallels are drawn to the governance of national energy frameworks in other European countries, Germany and Denmark in particular, that have provided the basis for successful community energy engagement.Funded by the Climate Change and Sustainable Futures Programme of the University of Exete

Peer-to-peer electricity trading and the sharing economy: social, markets and regulatory perspectives

Peer-to-peer (P2P) electricity trading is a new data-driven business model currently being trialed within the energy sector. Introducing P2P transactions to an essential service such as energy supply could have far-reaching implications for individuals and the grid. This paper raises considerations and questions from social, market design and regulatory points of view, which should be understood and addressed by societies and policymakers. It does this by considering under what circumstances it is reasonable to conceptualize P2P electricity trading as part of the sharing economy, and drawing parallels to the sharing economy experience in other sectors. In order to reap the full societal benefits, while avoiding considerable risks to infrastructure and individuals, a policy approach promoting dialogue and innovation is necessary. We suggest the regulatory sandbox is the most appropriate tool to achieve this and would help avoid the breakdown of trust between policymakers and platform companies observed in other sectors

Community energy business model evolution:a review of solar photovoltaic developments in England

The ongoing energy system transformation process is placing citizens and communities at the heart of future energy systems. To date, their participation has focused on the ownership and control of renewable energy installations facilitated by supportive national policies. Yet across many European countries, policies that have previously supported the deployment of small-scale renewable projects are being withdrawn. Social innovation and the evolution of business models are needed if citizen participation is to continue and succeed in this new policy landscape. At the same time, few business models stand still. This paper reviews the evolution of community energy business models in England to provide insights into the potential of community participation in the energy system post subsidies. Concentrating on community solar photovoltaic projects as the cornerstone technology, this review identifies and critique three archetypal business models as sequentially dominating English community renewable energy to date. Using insights from both Science and Technology Studies and Transaction Cost Economics, it explores the drivers and origin of these models as well as resulting community benefits. Looking forwards and by reviewing current activity, this paper identifies new intermediary actors as playing a key role in facilitating and brokering new, increasingly complicated and commercial community energy business models. We argue that this marks a significant break from the past and may, in time, offer more opportunities for community participation in energy system transformation. Moreover, it offers some communities the possibility of staying small and retaining their more radical potential