Ofgem strategy ‘limited’, warns FPSA chair

Lack of consumer-side focus in regulator's vision could pose risks to the future energy system, says expert

Ofgem’s new strategy for regulating the future energy system gives “insufficient attention” to changes taking place on the consumer side of the meter, according to a leading energy systems expert.

Simon Harrison, who chairs the government-commissioned Future Power System Architecture (FPSA) investigation, made his comments following the publication of Ofgem’s vision for the future of energy system regulation on Friday.

He said the lack of attention to “both the challenge and opportunity of what’s happening on the consumer side of the meter,” was a cause for concern for the FPSA project delivery panel.

“The risk of this limitation is either that innovations in this area create a scale and pace of change the regulatory system can’t cope with, or that cost-effective solutions are inhibited,” Harrison warned.

The leading energy industry consultant allowed that it is “wholly understandable” that Ofgem might be hesitant about setting out ambitions to influence consumer-side energy developments because of a “desire not to interfere in the choices consumers make and an unfamiliarity with this part of the system”.

But he said that such reluctance is “limiting what is otherwise high-quality thinking” about the need for regulatory frameworks to adapt for a decentralised, decarbonised and digitised energy future.

“We believe this requires substantial changes to the regulatory system itself, to give it the flexibility, agility and better ability to include new players to allow the transformation to be delivered,” said Harrison.

The FPSA project delivered its second phase report last month, setting out key obstacles that need to be overcome before the UK’s power system can develop the functions it will need by 2030.

The regulatory framework for the energy system was one of the four key obstacles identified by FPSA 2. The project report noted that current licensing and regulatory arrangements “do not account for new parties and new business models”.

The regulatory framework also fails to reflect whole-system thinking, said the report.

Ofgem’s strategy for regulating the future energy system – and its significant code review for network charging review which was launched in tandem – do attempt to address some of these concerns, including the need to review existing institutional arrangements in the energy system.

Both the strategy and the review have been broadly welcomed by industry leaders.

David Smith, chief executive of the Energy Networks Association (ENA) said it is “crucial” that the regulatory framework keeps pace with the “exciting” transformations effecting the energy system.

“Technologies like storage, demand side response, green gas and smart charging of electric vehicles can offer significant benefits and opportunities for customers,” said Smith. “As these technologies develop an evolution of the regulatory framework will need to ensure that these potential benefits are realised.”

Smith also welcomed the significant code review for network charging, saying it is “another important part of the modernising of our energy system”.