Energy code change quick wins

Codes play a crucial role in the energy system, and to support the energy transition we need codes that are easier to navigate and more responsive to change.

The 11 major codes that provide the commercial arrangements underpinning the energy sector have been the subject of much debate over the past year. They enable the gas and electricity systems to operate smoothly, but they are complex, fragmented and can be difficult to engage with, especially for new entrants.

ELEXON fully supports the review that Ofgem and the Department for Business, Energy and Industrial Strategy (BEIS) are carrying out with a view to consolidating and simplifying the codes. The review is ongoing and it will take time to develop and implement the reforms. Until that happens, energy companies and the six code administrators will still be hampered by the slow (and sometimes cumbersome) process for ­changing code rules. ELEXON, which manages the Balancing and ­Settlement Code (BSC), believes action can be taken now to speed up the process and make it more ­consistent across the codes.

In our latest Policy View, we propose some “quick wins” for a faster, more consistent code change process across all 11 codes. The starting point for most significant code changes is the industry workgroups where potential reforms are discussed. Code managers should be empowered to take actions outside of workgroups, and ahead of, and during a workgroup’s development of code change proposals. This would mean that the time of workgroup members would be better used ­debating rule changes that have initially been developed by the code manager.

While the change process must allow for alternatives to be considered alongside the main proposal, so that the optimum solution can be found, in most codes there is scope for more than two alternatives, which slows things down and requires Ofgem to choose between multiple solutions. In one instance under the Connection and Use of System Code, 80 alternatives were tabled for just one modification. Under the BSC only two solutions can be put forward, which has worked well, and we believe this should be common practice across all codes.

Following a recommendation by a code panel, Ofgem makes final decisions on any proposal that has a significant impact on the industry and consumers. Ofgem waits until it receives the panel’s recommendation before making its decision. We believe Ofgem should have opportunities at earlier stages in the process to say if the proposal is likely to be acceptable or not. This would avoid cases where the industry spends a lot of time developing proposals that Ofgem would not accept; for example, when its interpretation of certain legislation differs to that of the industry.

Several code managers, including ELEXON, are required to consult twice on all modification proposals; our experience is that few new observations are made during the second. We believe it would save time if there was only one consultation before the proposal is referred to the panel. The option to consult again should still be available if new evidence comes forward following the first consultation.

For the change process to be effective, all users of the gas and electricity systems must feel confident that code panels are sufficiently independent, and that recommendations to Ofgem on changes are made impartially, with a view to making beneficial changes. The BSC Panel is a good model to follow on independence as its members have a duty to act impartially and must give an undertaking to do so before being appointed. This is not the case across all the codes and some panels could be viewed as being less independent.

The majority of our proposals could be introduced by energy companies raising modifications to change code rules (as the code managers cannot currently raise the change requests themselves). If Ofgem sees the benefits in our proposals, it could encourage these ­modifications to be raised quickly, with the aim of having a more streamlined code change process in place within 12 months.

The codes play a crucial role in the energy system, and to support the energy transition we need codes that are easier to navigate and more responsive to change. Our proposals can be the first step to achieving that aim, so that consumers can benefit more quickly from new products, services and innovation in the energy markets.

For more details visit https://www.elexon.co.uk/change/elexon-insights-how-we-could-streamline-the-modification-process/