Energy systems and markets, often characterized by natural monopolies and oligopolies, require regulation to prevent abuses of power and to ensure consumer protection from unfair practices.
Regulators are at the heart of the Energy Transition, balancing decarbonisation, affordability, security of supply, cyber protection, fair treatment of vulnerable customers, and allowing reasonable returns to the energy companies. Doing this whilst the whole integrated system transforms demands careful coordination.
Almost every country has a multi-tiered system of energy regulation. In the US this looks like a Department of Energy, the Federal Energy Regulatory Commission (FERC), and multiple state regulators. Even in countries with nationalised systems like France and Sweden, there are still regulators.
But few people are happy with their regulators.
Overlapping areas of scope between tiers of regulation creates confusion. They often play all enforcement roles, setting the rules, policing, and setting the fines. The press asks, ‘who’s side are they on?’ Regulators are seen as blockers of innovation; many complain about the vast volumes of regulation, probably over 100,000 pages in the UK.
But, mastery of regulation is a business opportunity, ‘winning the regulatory game’ can create opportunities and boost returns.
It’s clear that regulators need to evolve: We are already at the point where no human can understand the entire regulatory landscape. The future must be digitised and supported by AI. Principles-based regulation also has a role, this has already been done successfully in the UK nuclear sector, and others should follow their lead.
Regulators are here to stay, and it’s in everyone’s interests to make them as effective as possible.
