Regulation

Regulation has shaped the energy industry

From primary legislation to industry codes, levels of political and regulatory intervention have influenced the structure, dynamics and working practices of the whole sector. Fully integrated and nationalised industry was broken up at the end of the twentieth century through political pressures to introduce competition. Within the upstream space the Large Combustion Plant Directive has sought to reduce the impact of large heavy polluters such as coal plants. In the retail space, smart meters were pushed through and mandated through primary legislation. Renewables, grids, pricing are all driven in a large part by regulatory decisions.

The industry at the moment is under increased regulatory pressures as pricing is scrutinised, pressures to contribute to the Climate Change Act to reduce carbon emissions as well as a host of grid changes to adapt to a more connected and intermittent renewable generation mix is developed. Smart meters are one of the ways consumers are impacted as millions of meters are changed and people receive more information than ever immediately about their energy consumption. A good place for more information is the Ofgem website. They are the consumer regulator and work to maintain security of supply, value for money and sustainability.

Whistle stop history of regulation

The Electricity Act was passed in 1926 which paved the way for the Central Electricity Board as well as a national grid. This developed over time notably in 1947 when a number of commercial entities were nationalised into the British Electricity Board and 15 regional entities. British Gas was privatised in 1986 and by 1990 the Central Electricity Generation Board was split up paving the way for competitive markets we see today in both generation and retail. Natural monopolies are maintained for distribution and transmission however regulation is placed on the financing of these through new pricing control models such as RPI-X.

While it may not be the sexiest topic it is a key to how the energy sector works. Do you have any views on regulation?

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