Janette Webb, School of Social and Political Science, University of Edinburgh
A coherent response to the European energy crisis would prioritise energy efficiency as a component of a resilient system. In Britain however, efficiency has had limited attention in energy market policies and practices. Gerald Leach’s 1979 book ‘A Low Energy Strategy for the UK’ set out a sectoral route to low energy strategies. The UK government regarded this as unrealistic, and continued to plan on a supply-side model, suited to mid-20th century macro-economic policy. This paper uses economic sociology concepts to ask whether privatisation and liberalised markets have since demonstrated the validity of the efficient markets hypothesis with respect to energy efficiency.
Energy efficiency is conventionally construed as a ‘consumer’ issue. In this paper, the conjecture is that failure to capture value from energy efficiency and (in economistic terms) ‘demand reduction’ is a systems failure embedded in market institutions historically geared to supply, rather than demand, side. In economic theory, the latter are commonly defined negatively as ‘demand destruction’ rather than as productivity opportunities.
Empirical material is derived from participant observation in business planning by British electricity network operators (DNOs) for the 2023-28 price control period. The regulator Ofgem sets the market rules for the monopoly networks, but there is potential for unintended consequences, including inefficiencies in infrastructure investment and operation. Distribution network businesses are required to invest for a Net Zero transition, while keeping cost to consumers as low as possible, and optimising efficiencies across the whole system. In practice, DNO Business Plans lack clear commitments to energy efficiency as a realisable asset. Two specific examples are developed: first network losses, which comprise around 90% of DNO scope 1 and 2 GHG emissions 1 , and second the new energy efficiency licence requirement.
Losses are a prime example of a whole-system issue where inaction increases costs, but financial incentives for DNOs to reduce losses have been withdrawn, with reliance instead on reputational impacts; proposed investments in loss reduction are correspondingly very small. Ignoring losses will however increase requirements for generating capacity, increasing whole system costs. Second, from late 2022, DNOs have a licence requirement to promote uptake of energy efficiency, where this is a cost effective alternative to upgrading capacity. DNOs are expected to work across sectors, and to adopt new tools and methods to minimise losses and to maximise efficiency of network capacity. Again, DNO Plans lack focus on such efficiencies. For example there are no detailed proposals to make building retrofit and flexibility services work as an alternative to network investment, and there are limited commitments to whole systems’ planning and integration.
In conclusion, it is argued that the efficient markets hypothesis remains to be demonstrated: new DNO Business Plans will add costs to the whole socio-technical system. Routes to effective regulation frameworks are discussed.
