Tuesday 12 January 2021

‘Energy sector’s financial models must change to avoid perverse incentives on road to net zero’

‘Energy sector’s financial models must change to avoid perverse incentives on road to net zero’

The energy sector's financial models must change to avoid "perverse incentives" on the road to net zero.

That’s the suggestion from Simon Alsbury, Managing Director of Energise, who spoke to future Net Zero about how in order to tackle climate change and rise to what he says is "realistically the greatest challenge mankind has ever faced", it is vital that monetary incentives are in the right place.

He told future Net Zero that current financial models, where brokers and consultants act as the sector's conduit to customers and are remunerated in a pence per kWh format, 'cause a real set of challenges around a perverse incentive' and says the industry must react to this.

He suggests this structure will have to change, claiming that if companies are paid more when there is higher customer energy usage, it clashes with end-users being encouraged to use less.

Noting that he wanted these businesses to work in a different way rather than disappear, he said different models are needed, with an added focus on being a partner rather than having a relationship based around "transactional behaviour".

He said: "It's great to see all the announcements and the policy shift is really, really important to see but I think that within the mix of all of that, we're not necessarily focusing on the fact that there are some structural barriers behind the way that we deliver as an energy sector and the wider sustainability professional sector.

"Principally I see it as three areas we struggle a bit with - one, there are some structural flaws, namely things like some of the standardisation in the industry - the whole pence per unit remuneration model typical of brokers. Usability, we've got a real issue about making sure things are actually readable and usable by the end-user, we've almost got some things that are just the way they are because they always have been and not because they're fit for purpose."

Mr Alsbury noted that the third barrier surrounds the issue of the skills needed to deliver the system transition and make policies a reality - he highlighted that while the government predicts jobs in the industry will increase fivefold over the next decade, it must also remember that it will need the right people to fill them.

Written by

Bruna Pinhoni

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