Ofgem’s remit is to be extended to cover carbon as part of sweeping changes outlined to better enable net zero. The regulator, alongside government, also plans to streamline industry rules and the way codes are managed to better enable innovation and unlock new services.
Ofgem’s strategic narrative document cites an ambition to enable system wide flexibility, that is, greater incentives for all domestic and business consumers to curb or increase consumption in an energy system that requires two-way participation.
Mary Starks, executive director of consumers & markets at Ofgem, said code reforms would create “lots more choices” for consumers by removing barriers to innovation.
Ofgem’s Innovation Link, she suggested, has been “an unqualified success” in identifying barriers. “But removing them has proved more difficult, which is where codes reform comes in.”
To companies trying to launch new energy services, the current codes “are an impenetrable thicket of procedural complexity”, said Starks.
Reforms would therefore try to deliver “clear central guidance while allowing innovators to drive progress,” said Starks, describing the ambition as “centralised guidance and decentralised innovation”.
Ofgem and Beis are considering two models for that structure, either a code manager with a strategic body, or an integrated rule-making body. Nothing is yet decided and Ofgem seeks feedback on its thinking, said Starks.
In parallel, reforms to the retail market are intended to further enable innovation to support decarbonisation at lowest cost.
Ofgem, said Starks, wants to enable companies to “specialise more”, or do one thing well, while ensuring consumer protections are not watered down.
“We want to see households participate in flexibility,” said Starks, which requires the whole market to be settled on a half hourly basis. Suppliers will be allowed to access half hourly data unless customers opt out, as data is critical to the functioning of a smart market.
“Data is the key issue. We need to move from the worst of times to the best of times,” said Starks and Ofgem is working with government on the Midata initiative to try and leverage data and enable data sharing across sectors, such as health and transport, and to try and better identify vulnerable customers.
While Ofgem is keen to create functioning flexibility markets that enable household participation, Starks said codes must be mindful of vulnerable customers and those unable to curtail energy use.
“There is no point in sending price signals to someone who has to feed the kids at 7pm,” said Starks. “That doesn’t buy you anything and gives you huge political cost.”
Starks was speaking at an Elexon meeting, alongside Joanna Whittington, director general of energy & security at Beis. Whittington was asked if government is leading on code direction, what role Ofgem plays.
“We both have very important roles,” said Whittington. “I don’t feel it is wrong for government to have a role [in steering regulation] when we are considering such a significant transformation … There are so many moving parts in getting to net zero.”
See Ofgem’s strategic narrative document here.