On 24 December 2020 the UK and the EU announced it had reached a Trade and Cooperation Agreement (“the Agreement”). The Agreement covers a range of areas concerning the future relationship between the UK and the EU, including energy.
Ofgem will continue to work with the UK Government and energy stakeholders – domestically and in Europe – to implement the Agreement as it relates to energy and continue to ensure our regulatory framework remains fit for purpose and protects consumers.
The measures in the Agreement will take time to implement. The information below provides an overview of preparations and measures which were put in place for the end of the Transition Period from 11 pm on December 31, 2020.
We are reviewing some of the content in this section of our website in light of the Agreement.
Brexit and the transition period
The UK left the European Union (EU) on 31 January 2020. Ofgem has been working closely with Government and industry to provide technical and regulatory advice during the transition period, which will come to an end on 31 December 2020. The UK and all relevant parties in the energy sector continue to be bound by EU law during this period. Ofgem has worked with Government and energy industry stakeholders to ensure that our regulatory framework is fit for purpose and protects customers for all the possible outcomes at the end of the transition period.
We expect regardless of the negotiations, the UK will no longer have access to the Internal Energy Market at the end of the transition period.
We have reviewed our existing Brexit preparations and expect our immediate preparation tasks for 11pm on 31 December 2020 to remain the same.
Our preparations include:
- Making changes to energy company licences required to ensure retained EU law functions effectively at the end of the transition period.
- Engaging with code administrators and panels to support their preparations
- Ensuring continued compliance with the REMIT Regulation to guard against wholesale market abuse.
- Engaging with interconnector operators and our regulatory counterparts in the EU to ensure suitable contingencies are in place.
- Advising Government on the impact of the transition period and the negotiated outcome on our regulatory regime, including where applicable the Government’s Statutory Instruments (SIs).
Ofgem continues to work with central government and stakeholders across industry to ensure that our regulatory framework is fit for purpose for any outcome following the end of the transition period and beyond.
What does the end of the transition period mean for Ofgem’s regulatory approach?
Britain has diverse energy sources and GB’s market-based energy system has repeatedly proved to be resilient to challenges. We expect this to remain the case after the end of the transition period.
- Ensure that our regulatory approaches continue to support competitive markets in which energy flows across borders and ensure the consumer benefits from this are maximised.
- We will maintain robust consumer protections and support competitive energy markets to ensure consumer benefits are maximised. This includes our default price cap that makes sure customers aren’t overcharged for their energy.
- Continue to monitor and enforce regulations domestically to ensure we have a robust regulatory regime that works for consumers. We explain how this would work further down this page.
- Continue to support Government and energy companies to ensure our regulatory framework remains fit for purpose, regardless of the outcome of negotiations.
- Finally, we will continue to work closely with market participants as they seek to understand the impact on their business and any interactions with our regulatory regime.
Changes from 1 January 2021
Impact on the licensing regime and industry codes for energy companies
We are confident our regulatory framework is fit for purpose for end of transition period arrangements.
Ofgem grants licences to companies so they can operate in GB’s energy market, and licensees must comply with the rules contained in their licence. Some of the licence conditions and industry codes reflect EU legislation. We have reviewed licences to identify interactions with EU law.
Ofgem is currently consulting on licence modifications to ensure licences are fit for purpose after the transition period ends. This follows on from its January 2019 ‘statutory consultation on licence modifications in the event the UK leaves without a deal’. We expect to publish a final modification direction in January 2021.
There will be a period between the end of the transition period and when Ofgem issues its modification direction and during that period licensees are expected to conduct their operations and business in a lawful manner and in accordance with national legislation. Licence conditions arising from requirements under EU law will continue to have effect unless specifically excluded by the EU Exit legislation.
Codes will also need to reflect any legislative changes resulting from the outcome of the negotiations.
Changes to industry codes are being taken forward through the industry-led code change process.
We previously have communicated the importance of ensuring that ‘day 1’ code changes are prioritised so that the regulatory framework is updated in a timely manner. By ‘day 1’ changes, we mean consequential changes required to update industry codes in line with domestic legislation following the end of the transition period.
We will continue to engage with Code Administrators to support the work they have been undertaking.
If you are an energy company operating in the GB energy market, you should make sure you are aware of these potential changes to licences and codes.
What is REMIT and how would it be enforced after the transition period?
REMIT is an EU-wide Regulation that guards against wholesale market abuse. REMIT will be retained in UK law by application of the European Union (Withdrawal) Act 2018 and amended by a subsequent statutory instrument to ensure its operability.
The guidance as set out in Ofgem’s October 2020 letter on REMIT contingency updates reinforced our previous September 2019 update. It reminded market participants that we expect the REMIT arrangements that will apply in GB from 1 January 2021 will be consistent with the arrangements set out in the September 2019 update.
Ofgem will continue to monitor and enforce GB wholesale energy market integrity and transparency as it does currently.
The obligation on market participants to publicly disclose inside information in an effective and timely manner, as well as prohibitions on insider trading and market manipulation, will remain.
REMIT registration and data reporting channels will remain unchanged during the transition period to 31 December 2020.
REMIT registration from 1 January
Registration for market participants trading energy in Britain
The REMIT Regulation requires all market participants that trade energy in any EU Member State to register with the national energy regulator in the country where they are based.
From 1 January, the arrangements for trading energy for use in Britain will be that:
- Market Participants currently registered with Ofgem will remain registered with Ofgem (unless they have initiated the re-registration process to become registered with an EU National Regulatory Authority – see below).
- Ofgem will recognise the registration of any market participants currently registered with a National Regulatory Authority of an EU Member State, or with the Utility Regulator for Northern Ireland, until further notice.
There is no need for market participants to take any action if they are already registered.
New participants who need to register with us for the first time, or existing market participants wanting to amend their Ofgem registration, should visit the REMIT registration section of Ofgem’s website in order to do this.
Revised information on how to register with Ofgem following the end of the transition period will be available to view from 4 January 2021.
Registration for market participants trading energy in an EU Member States
Market participants currently registered with Ofgem, and who wish to enter into transactions or place orders to trade in wholesale energy products where delivery is in the EU, will be required to re-register with a NRA of an EU Member State - consistent with the EU Agency for Cooperation of Energy Regulators’ (ACER) guidance letter published on 8 January 2019. Affected market participants are advised to initiate this process now, if they have not already done so.
Data collection for monitoring REMIT
The REMIT Regulation requires that market participants report transaction data on wholesale energy trading to the Agency for the Cooperation of Energy Regulators (ACER).
The existing data reporting requirements will remain until the end of 2020 as part of the transition period.
Trade and fundamental data relating to GB wholesale energy markets and products, will no longer be collected by ACER. From 1 January, Ofgem will, until further notice, monitor the market for possible breaches of market integrity using existing data sources. These include trade and order data currently collected directly from GB brokers and exchanges. Ofgem will keep the effectiveness of these arrangements under review, and will consult with industry stakeholders before introducing any changes.
Interconnectors and cross-border trading
Regardless of the outcome of negotiations, we do not expect any interruption to the flows of electricity and gas across GB’s interconnectors.
In the event that GB leaves the Internal Energy Market (IEM) – because there is no deal, or membership in the IEM is not featured in any agreement – this will lead to the loss of access to implicit day-ahead and intraday market coupling arrangements on GB electricity interconnectors.
We have engaged with neighbouring Regulatory Authorities (RAs) and interconnectors for both electricity and gas.
Trading will revert to fall-back arrangements. Further details on these arrangements are below.
It is expected that GB will leave the IEM at the end of the transition period. If so, GB will no longer have access to implicit single day-ahead coupling and intraday market coupling arrangements with the EU. GB’s electricity interconnectors to Continental Europe will switch from implicit to explicit trading arrangements. This is when transmission capacity on the interconnector is auctioned to the market separately from electrical energy, and the switch in arrangements will happen at the end of the transition period.
For GB’s interconnectors to the Irish electricity market, market capacity will be allocated via implicit intraday auctions. We do not expect to receive updated Access Rules ahead of the end of the transition period.
Details on the timing of the interconnectors' switch can be found on their respective websites.
We published an open letter on 16 December which confirms the electricity interconnector trading arrangements at the end of the transition period, and the applicable Access Rules. In 2019 contingencies were prepared to ensure the electricity interconnectors would continue flow if GB no longer had access to the IEM. We approved modifications to the Access Rules for the IFA, Nemo Link, BritNed, IFA2 and ElecLink electricity interconnectors to apply in the event that the UK left the EU without a deal. It is expected that these Access Rules will come into effect at the end of the transition period, 31 December 2020 at 11:00pm GMT.
For GB’s gas interconnectors there are no planned changes to either trading arrangements or the approval processes or requirements for access rules from 1 January 2021. Charging methodologies will be periodically reviewed after the end of transition period. Limited references to EU law may need to be changed in accordance with the relevant governance procedures.
Renewable Energy Guarantees of Origin (REGOs)
Ofgem’s administration of the REGO scheme and fuel mix disclosure is not affected during the transition period and we will continue to issue REGOs and accept guarantees of origin (GoOs) from EU member states during this time.
The Government will ensure that Great Britain and Northern Ireland will continue to issue REGOs and accept Guarantees of Origin (GoOs) from EU member states from 1 January 2021. This will allow electricity suppliers in the UK to continue to use REGOs and EU GoOs to comply with their fuel mix disclosure obligations.
Government has indicated its intention to review this in 2021 so that, longer term, domestic recognition of GoOs issued in EU countries will take place only on a reciprocal basis.
How can I find out more?
Government technical notices
The government has also published technical notices for the electricity and gas sectors:
- Electricity Trading: This guidance informs people working in the UK electricity market and other stakeholders about changes to the cross-border trading and supply of electricity after the transition period ends.
- Generating low-carbon electricity: This guidance explains how low-carbon electricity will be recognised and certified after the transition period ends. It is for electricity generators and suppliers, installers of certain microgeneration technologies, and renewable electricity suppliers and generators.
- Gas Trading: This guidance provides gas market stakeholders with an explanation of how the trading of gas with European states will operate after the transition period ends and outlines the actions you will need to take to prepare.
If you have a question or you have a concern that relates to our regulatory framework please get in touch with us at: EUExit@ofgem.gov.uk.