Ofgem’s latest plan ensures regulation will keep pace with system change

As Ofgem publish new proposals to keep regulation up-to-date with the changing energy system, both industry players and consumers are asking what it means. Simon White, Regulatory Analyst, outlines the latest plans and their impacts on end users

Energy moves so fast nowadays that it sometimes seems the future is already old news. Talking about the “future energy system” is easy, but the detailed changes required to actually deliver it are complex and wide-ranging.

Key issues presented include adapting to new flexibility in generation and demand, increasing levels of distributed generation and keeping costs low for consumers. So how are these challenges being addressed?

Ofgem have sought to answer this question by publishing a new strategy which outlines the regulatory transition required to move from a centralised, transmission-based system to a decentralised, flexible one.

The strategy sets out five priority areas:

  • Cross-cutting platforms to enable the energy transition
  • Balancing supply and demand at all times
  • Efficient locational management and development of the energy system
  • System coordination and the institutional framework
  • Supporting innovation whilst ensuring good outcomes for consumers

Ofgem propose to ensure cost-reflectivity of charging through new incentives, ensure fairness through levelling the playing field in the market and provide a stable regulatory regime which has previously had a habit of surprising investors.

This will ensure investment and create markets for storage, demand response and distributed generation, which is crucial to achieving the right mix of flexible generation needed to meet the requirements of the new system.

The creation of new flexibility markets will enable greater opportunities for market participants, whilst lowering bills for consumers through avoided network costs.

On top of this, the proposed review of network costs promises more good things for consumers, who should again see a reduction in bills as industry works towards ensuring cost-reflective charging arrangements. Changes to align the System Operator’s incentives with those of consumers will also help meet this goal.

Also welcome are Ofgem’s plans to create transparent cross-code bodies capable of organising and coordinating changes to the benefit of market participants and end users.

Accuracy and fairness are key to gaining consumer engagement, so it is great to see Ofgem proposing a further roll-out of mandatory half-hourly settlement.

As the original proposer of mandatory half-hourly settlement in the Industrial & Commercial energy sector (P272), we realise the importance of enabling consumers to take control of their energy usage and engage with the market in order to reduce both their bills and environmental impacts.

The direction set out by Ofgem which signposts both industry and consumers towards upcoming changes is a helpful guide during a time of such transition and we welcome further detail on the proposals.

We look forward to working with the regulator and industry parties to help create a regulatory environment which keeps pace with and enables the low-carbon, flexible system to thrive.

> Read Ofgem's full strategy here