Yesterday, the government published the Energy White Paper, which sets out an ambitious programme to build a fairer, greener energy system.
Ofgem will continue to work closely with the government, industry and wider stakeholders to help Britain make the transition to net zero at the lowest cost to consumers.
To support this effort, last year we published our Strategic Narrative, which identified three strategic priorities for Ofgem: protecting consumers, decarbonising at lowest cost, and enabling competition and innovation.
This year, alongside working with government and industry to support consumers through COVID-19 and help drive the green recovery, Ofgem has been thinking hard about how we can best deliver these strategic priorities.
As the energy sector goes through a historic transition, it’s more important than ever that we set out a clear vision for the energy sector and a clear strategy for how Ofgem, in partnership with others, can deliver it in the interests of energy consumers.
So we are publishing today a new Strategy Framework for Ofgem, as part of our annual consultation on our forward work programme (FWP), which builds on last summer’s Strategic Narrative.
Enabling net zero
The energy sector is undergoing a rapid transformation as it transitions to net zero. In the last fortnight, the government has announced an ambitious target to reduce emissions by 68% by 2030 compared to 1990 levels, and the Committee on Climate Change has published its recommendation of a 78% reduction for Carbon Budget 6 (2033-37).
To meet these targets, the UK needs to build an energy system which can deliver a massive increase in low carbon electricity generation, charge millions of electric vehicles, and replace gas boilers by clean alternatives like hydrogen and heat pumps to heat our homes and businesses.
Ofgem signalled our commitment to supporting the transition to net-zero by publishing the Decarbonisation Action Plan in February on Jonathan Brearley’s first day as chief executive. By 2025, our vision is for an energy system to be digitally enabled and on track for net-zero, decarbonising at lowest cost, and with protections for the vulnerable.
The first elements of our new framework recognise our two enduring priorities, vital roles that Ofgem will continue to perform:
- delivering our core regulatory function of regulating the sector to ensure security of supply, and protect the interests of consumers
- delivering current and future government schemes to advance decarbonisation and support vulnerable consumers.
In addition, we have identified five strategic change programmes where Ofgem can shape the energy system to deliver real change in the interests of consumers and the climate. These will shape where we direct our resources for the greatest impact:
- To deliver a net zero energy system we will enable investment in low carbon infrastructure – strengthened networks to connect more renewables, more electric vehicles and more heat pumps; new regulatory regimes for nuclear and carbon capture and storage; and pilots and trials to assess the potential role for hydrogen. And our robust regulatory regimes will ensure this investment can be delivered at a fair price to consumers
- In order to efficiently manage the growing share of wind and solar power on the system, alongside growing electricity demand from transport and heat, we will promote full chain flexibility, for example enabling new sources of flexibility such as electric vehicles to shift their electricity demand to help balance the system.
- As the pace of change in the future retail market accelerates, we will empower consumers to take advantage of new products and services, whilst updating our consumer protections to keep pace, with safeguards both for those who actively engage in the market and for those who don’t, particularly the vulnerable.
- Alongside the net zero transition, we are also seeing growing opportunities from data and digitalisation. We will take further steps to unlock benefits for consumers, promoting the sharing of data to promote innovation and efficiency, with suitable protections in place to safeguard privacy and manage risks from new digital monopolies.
- As the energy sector goes through this major transition, we need to ensure that our energy system governance is fit for purpose, including the role that Ofgem plays. To keep pace with change, we will look at how we regulate the system, taking a whole systems approach, and working with government to ensure appropriate governance, oversight and coordination.
We have set out in the draft forward work programme our initial views on the key activities and interventions we should pursue to advance these objectives in the coming year. In some cases, we are still developing our thinking. In others, our plans are more developed.
We welcome views on our strategic priorities and draft work programme for next year. Please email your response to the consultation to FWP@Ofgem.gov.uk by noon, Friday, 19 February.
This is a vital agenda. We have an opportunity, together, to decarbonise the UK’s energy supplies, ensuring security of supply and protecting the interests of consumers as we do so – delivering a greener, fairer energy system, an essential service to the energy consumers of today and tomorrow.
All of us at Ofgem look forward to working with industry, government, consumer groups and other stakeholders to deliver this shared vision.