Local energy system governance for a net zero future

Fiona Campbell

Fiona Campbell

Head of DSO Governance

Publication date

Industry sector

Distribution Network

Ofgem is transforming the way energy is planned at a local level, increasing transparency and tightening up coordination and accountability, so that our communities can be more quickly and effectively plugged into flexible green power.  

From breaking renewable electricity generation records, to innovative energy projects and the use of new technologies, the energy system today looks very different from that of the past. It is vital that we continue this transformation and speed up the move away from fossil fuels to clean energy. We are currently consulting on proposals for reforming local energy system governance to support the transformation. This blog outlines how the effective governance of key energy system functions at a local level is essential to a net zero future.

What is effective local governance?

For effective governance, the roles and responsibilities for key activities need to be clear, well understood and assigned to those best able to carry them out to the standard needed.

The ‘local’ part means all those involved in the distribution system - running the network, helping plan it and the flexibility markets around it. This includes network operators, local government and flexibility service providers.

Without effective local governance arrangements, these key activities will not be delivered efficiently. This will make it harder to unlock a smart, flexible energy system. In turn, this will prevent us from reaching net zero in the most affordable way.

What’s wrong with current arrangements?

In April 2022, we asked stakeholders if the roles and responsibilities were appropriate for the challenge ahead. The resounding message was that current arrangements were not fit for purpose and that there is a need for reform.

Whilst Great Britain’s energy system has world-class levels of reliability, the governance around how the system is planned and markets are facilitated has gaps, lacks co-ordination and creates potential inefficiencies.

Currently, lots of different parties have slightly different responsibilities for energy system planning. This means they cannot look at the many different aspects in full and take a ‘whole system’ and ‘place-based’ view. To remedy this, we need to join up planning and ensure it uses accurate data and common assumptions. A clear vision that reflects the uniqueness of each area, is key to empowering communities to realise their decarbonisation ambitions and achieve a fair and inclusive transition to net zero.

For flexibility markets, current roles and responsibilities make things complex and hard for participants to navigate. The markets need consistent and transparent rules that support market coordination and make it easy for assets of all sizes to take part. This will help unlock the value of flexibility for the system.

How are we proposing to address the issues?

We propose two major changes:

1.  Create regional system planners

A regional system planner (RSP) would be responsible for developing a multi-year strategic plan. The RSP would bring together all those involved in planning the energy system at a local level and ensure they understand the goals and plans of each party. They would set out a single source of truth for how the local energy system should develop. This should provide confidence to local representatives of what investment is needed and speed up getting connected to the grid.

2. Assign a new, market facilitator role to a single, expert body. 

A single body needs to take the lead and be responsible for the delivery of local flexibility markets. This market facilitator will help to standardise products and make processes simpler, which will make the market more accessible to participants. The facilitator will also ensure there is alignment with national flexibility markets.

We are not proposing to change who is responsible for real time operations of the network. This ensures that consumers will continue to benefit from world class levels of reliability.

We believe these proposals are proportionate to the issues we’ve identified with how things work currently. They will help transform the local energy system and be fit for the future. There is lots of detail to work out and we want to hear as many views as possible to help shape our proposals.

To find out more about the Future of local energy institutions and governance consultation, sign up to our webinar on 12 April.

Respond to the Future of local energy institutions and governance consultation (closes 10 May).