Epilogue

This volume is a timely contribution to the topic of the innovation and disruption, which is increasingly dominating the discussion within the energy industry, and is coming to the fore at academia. As the first contributions in this volume demonstrate, innovation is not limited to the use of new technical devices, but entails a new organization of the business and is centered at the grid’s edge, that is, at the border of the industry and regulation. The traditional utilities, as well as regulators, are being equally challenged by this development.

The European Union prides itself of being at the forefront of the transition process in the electricity system. The COP 21 commitments are yet another sign that policy is firmly set to a low-carbon path until 2050. The midterm target of the European Union is to cut CO₂ emissions by 40%, and to achieve a share of 27% of renewables in total final energy consumption by 2030.

However, energy policy concerns itself with different things from what the energy industry is discussing nowadays, at least so it seems. Political discussions are about changing the energy mix, about capacity markets, and whether they are in line with competition law or just another means to subsidize incumbent producers; they are about near to real-time markets, which allow renewable generation to participate in wholesale markets, and how to integrate those markets across national borders; all in all more of what has been discussed for the last 15 years, when competitive markets were created by virtue of EU-level legislative acts. The industry, however, has been pointing toward a disruption in their business model for a number of years. A wave of restructuring of big energy companies ensued after the drop in prices due to the economic crisis in 2008. For at least 5 years the industry has been looking for fundamentally new ways to add value, and new competitors with new business models have been entering the market.

Only recently a clearer picture of what we may expect in the future has emerged. The transition is not restricted to substituting big fossil fuel energy production infrastructure with mainly small, low-carbon entities. It may not be confined to the normal network environment, but instead entail changes along the whole value chain and beyond. The direction of the transformation is more likely bottom–up than top–down, and value generation may well be based on services, such as efficiency or information services, and new bundles of services, more so than on the provision of energy itself.

The different chapters in this book deal with such phenomena, new sources of electricity demand, such as electric vehicles; new business models, such as those based on blockchain technology; the Internet of Things development; the integration of flexibility in generation and demand; and finally, the probably changing role of the public supply system, just to name some of the developments explored in this volume.

European regulators have been discussing the future role of distribution operators as a consequence of the present transformation for many years. Finally, in November 2016, the European Commission published a new legislative package for discussion.¹ Apart from traditional considerations, such as security of supply mechanisms or solidarity issues, the topics dealt with in this book, such as prosumers, local energy communities, microgrids, aggregators, and demand response are also essential elements of this package. Some of the proposed mechanisms may not be supported by lawmakers in the end, but the discussion is valuable in and by itself. The core of the package clearly is the transformation of the role final customers play in future electricity systems. They are to become active participants in the market and the package aims at facilitating this transformation.

From a regulatory perspective developments at the grid’s edge are challenging the traditional objectives and mechanisms of network regulation, which are described in this book in detail. The main pillars of regulation are separation of monopoly business from competitive activities, incentive regulation for efficient investment, and operation of the grid, as well as nondiscrimination by the monopolistic operators. In the European Union, as the additional dimension is cross-border market integration, these elements have been enriched by setting up cross-border mechanisms for establishing market rules and defining priority investment projects. The aim of these measures has been to establish efficient wholesale markets and guarantee sufficiently effective competition for final customers to get their fair share from increased efficiency in the industry.

After many years of development, the market now quite efficiently organizes dispatch in the European Union, inefficient assets had to leave the market, and consumers are benefiting from efficiency increases. This is the beaten track of market liberalization.

However, can our regulatory system withstand a phase of Schumpeterian destruction? Former certainties are being challenged, and regulation has to follow suit. One of the tenets of regulating the distribution industry is its monopoly status, which is called into question by the idea of local energy communities. These can separate themselves from the public distribution grid, consumers can opt in and out of the network: difficult times for a style of regulation that distributes network cost over a stable customer and/or demand base. This has economic consequences, such as potential cherry picking or even the construction of parallel infrastructure, as further discussed in this volume, but may also have more fundamental consequences for the entire inherent solidarity mechanism in the long run.

Where should innovation happen? Expenditure for innovation is part of regulatory cost accounting, as is labor cost or depreciation of assets, as long as cost is incurred efficiently. The cost is covered by the community of all customers and such a system works well, as long as cost structures are comparable. In the Austrian regulatory system, network operators also have the possibility to invest outside the regulated framework, taking into account principles of unbundling and competition law. This may not be the case in all regulatory systems, though.

The Austrian regulator E-Control launched a consultation process on new principles for network tariffs in 2016. The aim of the consultation was to gauge different means of accommodating foreseeable changes in demand and supply conditions, such as flexibility providers or prosumers. More fundamental changes to the system have not been proposed as yet; the potential developments that we may see are still too vague to prepare for them in concrete terms. So far, network regulation has proven flexible enough to tackle or integrate new aspects of network business. This book certainly helps to get a better understanding of potential future paths of development and allow regulators, as well as the industry itself, to accommodate for these changes ahead.

Regulation must keep up with the evolving roles of market participants. This may not be restricted to network regulation, but could extend to the whole set of legal requirements defining roles and responsibilities, regulating entry into the market as noted by top regulators in Australia, California, and New York in this volume.

A process of open debate is vital to securing the confidence of all involved parties in the energy system’s ability to solve the issues ahead. This volume provides a selection of articles covering developments in the industry and regulation around the world. Regulators are informed about new ways of organizing energy supply or energy markets, international examples and trends are presented, along with aspects that might not be desirable from the perspective of society as a whole. This publication tries to grasp early signs of a changing environment, and regulators are well advised to follow this discussion.