The largely unregulated world of AI is changing the heavily regulated world of energy and water in providing consumers the freedom to choose how they interact with energy and water systems, led by developments in the electricity sector. As regulation adapts to meet this challenge, it is crucial that it promotes a secure, smart, flexible and agile approach, enabling innovation while protecting consumers.
Energy and technology – opposite starting blocks
Just over 20 years ago IBM’s Deep Blue became the first computer system to defeat a reigning world champion in a standard chess tournament. The internet was fast becoming mainstream, the “Internet of Things” had been coined and powerful internet-based search engines were being developed in universities.
The lack of a governance and legal framework facilitated the rapid growth of these technologies. Law and policy has been trying to keep up ever since.
In contrast, the world of energy and water was heavily regulated. Private ownership of electricity, gas and water had bedded in following the seismic shift on privatisation. The Government was refreshing policy in light of factors such as commitments to tackle climate change and environmental protection, and the impact of the ‘dash for gas’. It also had a plan to modernise regulation.
In the energy sector, competition was promoted. A single regulator for gas and electricity was set up. The principal objective of this refreshed regulation was protecting consumers. Consumers were now free to choose their energy supplier, giving them a louder voice.
Shifting consumer expectations
20 years ago I pressed down on my light switch and expected the light to turn on. I knew that energy and water were precious resources, and I was learning that I should take care with my consumption. I knew that I could choose an environmentally friendly ‘green’ energy tariff. No more than that. I relied entirely on the energy and water systems to meet my demands. I had no idea how much electricity or gas I consumed other than from an annual meter reading. I paid for water and wastewater services based on the rateable value of my home.
Did I predict that in 20 years’ time I could generate my own electricity using solar panel tiles and small wind turbines, that I would be able to purchase a home battery, store energy and charge my electric vehicle at my own home? Did I anticipate that I might know how much energy or water I consumed and how much it cost on a real-time basis? Did I imagine that a handheld personal computer would give me the power to control when I turn my lights and heating on or off? Did I foresee that it would be able to connect to my home appliances, learn my consumption patterns and use AI to inform my choices on when and how to consume energy and even make those choices for me? Did I contemplate trading electricity with my next-door neighbour? I would like to say that I did all of that. I did not.
From consumer to prosumer
Today, I want my home to be connected and to control my consumption down to each hour or half hour of my day. I want to get involved in community energy projects and peer-to-peer trading. Installing solar panels and a heat pump at my home, buying a home battery and investing in an electric car seem like the right things to do. Self-sufficiency may become the new way to follow the crowd. I no longer blindly consume energy and water from the system. My relationship with these vital resources is symbiotic. Today, I have the power. I can take decisions like these to save money and give something back.
It is here that the unregulated world of AI co-exists with the heavily regulated world of energy and water. This is no case of ‘never the twain shall meet’. AI pushes boundaries and gives me freedom to choose my user experience with the energy and water systems.
The rollout of smart meters is gradually removing physical barriers to this freedom. It is arming us with the digital and real-time data to inform our choices and facilitating agility. We can now purchase smart appliances. Our home technology hub can understand and learn from our consumption patterns, and advise us how to be more efficient. It can switch our smart appliances on and off depending on outside signals, including our proximity to the home. Soon that hub will be able to choose when to turn on our appliances based on the cost of energy on any given hour on any day. We, the prosumers, will know how much it costs to run not only our home, but each individual appliance within it. We will be able to increase or decrease our consumption in real time to take greater control of that cost.
Law and Policy - working hard to keep up
The Government and Ofgem’s Smart System and Flexibility Plan responds to this challenge. Its core aims are:
- To remove barriers to smart technologies and deliver a level playing field for participation in the energy system.
- To enable smart homes and businesses whilst protecting consumers, with regulatory requirements relating to new technical standards, inter-operability, data privacy and cyber security.
- To make markets work for flexible and smart tariffs through settlement reform.
Some practical examples of the implementation of this plan include:
- Pilot peer-to-peer trading schemes, which require open access to settlement and metering systems, have been facilitated by regulatory ‘sandboxes’ in which Ofgem grants temporary relief from regulatory hurdles to innovative projects.
- The first ‘time of use’ energy tariffs have been facilitated by regulatory reform to the settlement of sale and purchase of electricity on the wholesale market to reflect real time electricity consumption data from smart meters.
- In its ongoing ‘Future of supply market arrangements’ workstream, Ofgem is exploring the role of energy supply in light of prosumers’ more active role in the market.
- The Government is offering up to GBP 4.4m in grant funding for the development of solutions leveraging smart meter data to deliver domestic energy savings through its Smart Energy Savings (SENS) Innovation Competition.
Maintaining a balanced approach
Above all else, we must all be able to keep the lights on, heat our homes and access clean water. Whilst this comes at a cost, energy and water regulations were built to protect consumers and prioritise protecting the most vulnerable among us. AI is part of the solution. This is not just about AI helping to identify vulnerable consumers – affordable technology that intelligently analyses and optimises household energy use could be a tool to protect vulnerable consumers for the future, alongside consumer product suppliers’ continuing to invest in affordable efficient appliances that meet required technical standards.
AI is giving power to the people. As the legal and regulatory framework for energy and water evolves to support the rise of prosumers and the divergence of demands on our systems, there is a wealth of collaborative opportunities for businesses across the energy, water and technology sectors. The challenge will be to get AI past its infancy and unlock wide scale consumer engagement.