Institutional energy reforms are ‘unfinished business’

The institutional reforms to the energy industry recently proposed by the government and Ofgem represent “unfinished business,” an influential academic has argued.

Catherine Mitchell, professor of energy policy at the University of Exeter, described the proposals as “tantalising” and stated: “It’s really irritating that they just have not gone that extra step.”

In a series of joint consultations released last week, Ofgem and the Department for Business, Energy and Industrial Strategy (BEIS) outlined plans to create a fully independent Future System Operator (FSO), while also replacing the current code administrators and “industry-led” panels with a series of code managers given strategic oversight by the regulator.

With regards to code governance, BEIS and Ofgem said they are also considering an option in which the roles of both the code managers and the “strategic body” are fulfilled by an “integrated rule-making body” – namely, the proposed FSO.

Although she would prefer the second, Mitchell said: “Both options are far better than we currently have now.”

She said the important thing is to “get rid of the self-regulation of codes” whereby a code modification can spend years in development and still be rejected by Ofgem at the end of the process.

“Nobody else in the whole world has code changes based on panels,” Mitchell added. “It’s purely a technical thing. You decide on a policy and then you just make sure that the code underlying it fits with that.”

She said the plans to create a fully independent system operator that is partly integrated across electricity and gas is “a big deal”.

Mitchell welcomed the suggestion in the system operation consultation that a new institution – “from a small unit within BEIS to a large, independent agency outside of it” – may be required to coordinate the wider transition to net zero emission, as she has previously argued: “They’ve actually put it in there – that’s great – but it’s a shame that they haven’t gone through to say we’d actually like to discuss it this time around.”

She said it is also good that the option has been left open for the strategic oversight role for energy codes to be transferred to another body other than Ofgem.

She added: “It’s good that they’re moving things on; it’s good that the options they’ve put forward are better than what we have now; it’s great that the options allow them to progressive; but what a shame that they didn’t this time just bite the bullet and get on with it.”

Mitchell said the network charging regime, which she said is a legacy of the old, centralised energy world where “if you added another power plant you could tell what the extra costs were going to be on the system,” also requires drastic changes: “Network charging as it is currently is just completely messing up the economics of the energy system and they have to get rid of it.”