Governing Energy Networks For a Low Carbon Economy

Mr Ronan Bolton, University of Leeds

Achieving medium and long term carbon emissions reduction targets will necessitate a radical shift in the way electricity is generated and consumed. Until recently, less significance has been attributed to the role of the transmission and distribution infrastructure in facilitating this. The concept of ‘The Smart Grid’ has increased focus on this area and, in particular, on the need to stimulate the deployment of innovative technologies on the networks. Much of the literature on this topic emphasises that since liberalisation of the industry, network companies have operated within a regulatory environment which incentivises static efficiencies and low risk investment strategies. Addressing such institutional barriers to technical change is undoubtedly a key factor in inducing innovation, however, less attention has been paid to the organisational barriers to change that exist within incumbent network companies. By analysing data from over twenty semi-structured interviews with industry stakeholders, and drawing from the literature on socio-technical systems, institutional economics and business organisation, this paper explores such issues for the case of the UK distribution network operators. It is observed that barriers at organisational level take two forms, cultural and commercial. Cultural barriers refer to the difficulties incumbent firms face in readjusting established business strategies and in building new competencies. This will require a significant degree of organisational learning and adaptation, and an appraisal of the risks involved in innovation. Commercial barriers refer to uncertainty regarding the commercial viability of investing in smart technologies. It may be the case that business model innovation is required in order to capture value from technological innovation and deliver benefits to the customer. Examples include locally integrated utilities, energy services companies and distribution system operators.

It is hoped that this paper will contribute to the ongoing review of the role of regulation in stimulating innovation in the electricity networks sector and highlight the potential for organisational innovation to reduce barriers to technical change.