Scarcity, grassroots action and confidence

Two pieces of news have been dominating my LinkedIn feed over the past few weeks:

• The Big Beautiful Bill (BBB) passed in America
• The Reforming Electricity Market Arrangements (REMA) decision not to proceed with zonal wholesale market pricing in the UK

Perhaps counterintuitively, I believe that the impact of both the Big Beautiful Bill (BBB) and the UK Government’s decision not to proceed with zonal pricing reform will be a net positive for flexibility markets in the US and UK respectively.

The BBB decimates the Biden-era Inflation Reduction Act (IRA), which provided significant support for solar and wind. And the provisions related to onshoring manufacturing effectively cut access for the US to cheap batteries and solar from abroad. But, I would say that the various energy policies within BBB are noise in the great scheme of things. Whilst federal and central government support for solar, wind, batteries and EVs may ebb and flow, consumers are increasingly choosing them - these technologies are here to stay.

REMA has been a three-year industry debate about reforming energy markets, though of late has centered upon the flagship question: whether to reform wholesale markets away from a single price to a Sweden-style zonal pricing scheme. This would provide both investment and operational pricing signals that would enable more optimal decisions around siting of energy assets and demand. The government decided an emphatic ‘no’ last week.

Scarcity

When you look into the core of problems that both the UK and US electricity systems face, they are fundamentally problems of scarcity. In the US context, this relates to the inability for enough generation and storage capacity to be built to meet rapidly growing demand (this is called Resource Adequacy). In the UK context, it centers around the scarcity of transmission capacity between Scotland and England to transmit wind generated in Scotland to demand centers in England.

Distributed flexibility is the lowest-cost and fastest-to-scale solution to solving network constraints or providing resource adequacy (DOE VPP Liftoff report). Distributed flexibility is not based on a single technology type - it is in fact a class of technologies including thermal generators, batteries, EVs, thermostats/HVAC, and now even data centers (Ravichandran et al., 2024).

You may even push the narrative as far as saying it may be one the few good remaining options we have. Fossil generation peakers are back in favor in the US, but are stuck in manufacturing queues until the end of the decade. Investing in grids is equally challenging; not only is it relatively expensive (Arthur Downing), but given supply chain and permitting issues, it never will be a speedy solution. Furthermore, outside clear-cut investment cases (such as renewable-driven transmission constraints between Scotland and England), it is not 100% certain whether we will need it, especially as behind the meter solar and storage soften the impact of load growth, and there is uncertainty in the actual build-out of data centers. The facts are, that outside occasional peaks, distribution grids are not being fully utilized most of the time, and whilst going into the 2030s and beyond electricity demand is expected to increase, in Europe, net electrical demand has actually been falling since the 2000's (IEA Electricity 2024 Report).

Grassroots Action

The BBB is silent on distributed flexibility, but you can rest assured that when push comes to shove, when resource and capacity constraints cause increasing reliability issues on the grid in the coming months and years, distributed flexibility will come to the rescue.

As seen during the last great repeal of climate-aligned policies in the US (in 2016), individual states and local initiatives do not always follow the trend set by the federal government - a kind of ‘grassroots action’. This is even more logical this time around, as utility regulations are mostly delivered at a state, not federal, level. As such, incentivizing utilities to support the adoption of distributed flexibility is mostly within states’ control. Over the next five years, it will be one of the most impactful levers that states may hold in keeping down the price of electricity and maintaining reliability.

And in the UK, the solution to scaling up distributed flexibility does not require the central government to mandate a new zonal wholesale market. There are lots of alternative approaches under consideration that simply need grassroots action from industry participants. The Local Constraint Market, delivered by Piclo, is one such innovative approach, but check out the Constraints Collaboration Project for the full gamut of ideas.

Confidence

However, the biggest challenge in my view is not a lack of scarcity (as this exists in spades), or lack of grassroots support - it’s a crisis of confidence.

Building system-wide confidence is the single most important task for flexibility markets in the years ahead. This means different things for different actors.

For utilities and system operators, this is about confidence in the ability for flexibility providers to show up when they need them. It’s a fundamentally different business model from relying on a few power stations (which you can call up and get instant feedback) or commissioning a grid upgrade. Relying on an ecosystem of hundreds of third parties, themselves managing a wider network of millions of distributed flex assets is a bold ask. If it doesn’t look and feel like a power station, we are never going to change behaviors in the control rooms.

On the other hand, it’s about confidence from flex providers that if they are going to make investments in customer contracts, measuring equipment, and market know-how, that the value is going to be there - and be there for some time. Is this just another utility pilot, or a reliable and forecastable revenue source to add to the stack?

Marketplaces like the one Piclo is building are fundamental to solving this chicken-and-egg problem. By providing visibility and access to all the world’s flexibility buyers and sellers, we have the best chance to scale up flexibility markets. Crucially, marketplaces can provide tools and services which counter the confidence crisis, by translating and bridging requirements between buyers and sellers.

Conclusion

In conclusion, when I read the headlines such as BBB and REMA, I don’t despair. In fact, I think the increased scarcity and grassroots activity that will emerge are strong tailwinds for distributed flexibility. But without addressing the ‘confidence crisis’ between buyers and sellers, the chicken-and-egg problem will persist and distributed flexibility may end up disappointing us at this critical time.