As the transition to low carbon electricity happens much faster than was ever thought possible, Ofgem has outlined its strategy for ensuring that regulation continues to protect consumers’ interests so they benefit from the innovation and new services that emerge as the market evolves. 

The current electricity market and its regulatory arrangements were designed for a system with very different characteristics to those we can expect in the future and are already beginning to experience – for example

  • every unit of electricity we consume produces, on average, around half as much carbon dioxide as it did five years ago
  • more than a quarter of all generation capacity is now connected to distribution rather than transmission networks and
  • …much of it is intermittent renewable generation, which only delivers when the wind blows or the sun shines
  • partly because of the growth of solar panels, an increasing proportion of generation is now located ‘behind the meter’ on consumer premises

In ‘Our strategy for regulating the future energy system’, Ofgem explains that regulation must also develop and change so that it does not frustrate new technologies and business models.

The principles on which the strategy is based are

1) Cross-cutting platforms to support the energy transition – early evidence suggests that smart meters are the key to increase consumer engagement in the energy market.

2) Balancing supply and demand at all times – which is likely to become more challenging as the proportion of non-dispatchable and intermittent generation increases and many traditional providers of flexibility are phased out.

3) Efficient locational management and development of the energy system – the efficient use of the gas and electricity networks has an important role to play in the energy transition.

4) System coordination and the institutional framework – as the energy system changes and traditional boundaries and distinctions break down, there is a pressing need to ensure the system as a whole is effectively coordinated to deliver value for consumers.

5) Supporting innovation whilst ensuring good outcomes for consumers – as new business models and new ways for consumers to interact with the energy system emerge, the regulatory framework will need to evolve to support such innovation and avoid undue barriers to entry. At the same time, it will need to ensure there are adequate protections for consumers.