Forward work programme 2021/22

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Building a greener, fairer energy system for households and businesses in Great Britain

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Contents

  1. Who we are and our objective
  2. Our focus for 2021/22
  3. Point 1: core regulatory functions
  4. Point 2: delivering government schemes
  5. Point 3: low-carbon infrastructure
  6. Point 4: full-chain flexibility
  7. Point 5: future of retail
  8. Point 6: data and digitalisation
  9. Point 7: energy system governance
  10. Point 8: transforming Ofgem
  11. Point 9: burden reduction
  12. Point 10: specific 2021/22 initiatives
  13. Point 11: estimated expenditure

The Gas and Electricity Markets Authority, Ofgem’s board, consists of non-executive and executive members, and a non-executive chair and operates through the Office of Gas and Electricity Markets (‘Ofgem’), which is a non-ministerial government department.

Ofgem’s board determines strategic direction, sets policy priorities and makes decisions on a wide range of regulatory issues, including price controls and enforcement.

Our objective is to protect consumers’ interests now and in the future by working to deliver a greener, fairer energy system. We do this by:

  • Working with government, industry and consumer groups to deliver a net-zero economy, at the lowest cost to consumers
  • Stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable
  • Enabling competition and innovation, which drives down prices and results in new products and services for consumers.

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Responses to our forward work programme consultation confirmed stakeholder support for our new strategic framework. We will focus our resources on our five strategic change programmes – alongside our core regulatory responsibilities and environmental and social scheme delivery – in order to achieve the greatest impact and help deliver the transition to net-zero in the interests of consumers. We will also continue to deliver commitments that we made in our Decarbonisation Action Plan by prioritising and focusing on issues through our strategic change programmes. Activities that support our Plan have been highlighted throughout this document.

During 2021/22, and as we further develop elements of our strategic framework, we will publish further details for the activities that we plan to deliver. To reflect this, the document will remain ‘live’ throughout the year. We will also publish our responses to key Government consultations regarding the energy sector, including the planned Strategy and Policy Statement for Ofgem.

Enduring priorities

  1. Our core regulatory functions to regulate the sector and protect the interests of consumers.
  2. The delivery of current and new government schemes to support vulnerable consumers and advance decarbonisation.

Strategic change programmes

  1. To enable investment in low carbon infrastructure at a fair cost.
  2. To deliver full-chain flexibility in how we generate, use and store energy.
  3. To deliver a future retail market that works for all consumers and the planet.
  4. To unlock the benefits of data and digitalisation.
  5. To ensure energy system governance, including Ofgem, are fit for the future.

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We will continue to strive for excellence in delivering our core statutory and regulatory functions, protecting the interests of energy consumers, while conducting our activities as cost-effectively as possible. In 2021/22, we will deliver against our principal objective by focusing on the following:

  • Consumers continue to pay a fair price for their energy through the effective running of the default tariff price cap
  • Consumers, particularly the vulnerable, are treated fairly by suppliers
  • When suppliers exit the market, consumers are protected through our Supplier of Last Resort process
  • Through our price controls, competition models and tender processes, energy networks continue to offer consumers value for money
  • Net-zero goals are supported through increased operational flexibility in the energy system
  • Through our enforcement activity, we provide a credible deterrent to non-compliance
  • Changes to the energy codes benefit consumers and our licensing is robust
  • Through our joint Competent Authority role with BEIS, networks companies are cyber resilient.

In additional, and following the end of the Transition Period, work with the Government and energy stakeholders domestically and in Europe to:

  • implement the EU-UK Trade and Cooperation Agreement as it relates to energy, and
  • ensure effective new cross-border arrangements are put-in-place.

Core regulatory activities in 2021/22

Activities

Outcome: consumers pay a fair price for energy and benefit from rights and protections

Activity: Default Tariff Price Cap (the ‘price cap’)

Q1 – Carry out final consultation on price cap policy updates

Q2 – Decisions taken on final consultation findings

Q2 – Six-monthly update of the price cap model

Q3 – Any required price cap related reviews for Period 8

Q4 – Any decisions related to price cap for Period 8

Q4 – Six-monthly update of the price cap model

Activity: retail monitoring

Ongoing – Identify and understand changes in the market and inform compliance and policy activities

Ongoing – Update retail and customer service indicators

Ongoing – ‘Request for Information’ monitoring  

Activity: market assessment

Q2 – Publish 2021 Conditions for Effective Competition report for price cap decision making

Activity: retail compliance

Ongoing – Retail compliance casework and publication of compliance outcomes

Outcome: consumers engage and take advantage of a competitive retail market and technological change to support decarbonisation

Activity: Innovation Link

Ongoing – Provide advice and support to innovators looking to bring new products, services and business models to market

Outcome: Suppliers provide consumers with a stable energy supply and effective service

Activity: Supplier financial stability

Ongoing – Respond to supplier failure events – using the Supplier of Last Report process where needed – to ensure continuation of supply and minimise disruption for consumers

Outcome: Consumers, particularly the vulnerable, are treated fairly by suppliers

Activity: Improving outcomes for vulnerable consumers

Q2 – Publish our Consumer Vulnerability Report, with a focus on debt and affordability

Q4 – Publish a report focused on Priority Services Register improvements

Continued development of outputs and incentives for the Electricity Distribution Price Control, including for licence condition on treating customers fairly

Outcome: Impact of and compliance with RIIO-1 price controls identified

Activity: Operations and closeout

Q2 – Run our network innovation competition

Q2 – Initiate our annual monitoring process

Q3 – Publish RIIO-1 annual performance reports

Outcome: RIIO-2 price controls take effect

Activity: RIIO-2 Gas Distribution and Transmission

Implement and monitor the RIIO-2 price controls, which take effect in April 2021.

Outcome: Networks offer value for money

Activity: Offshore Transmission Operators (OFTO) tenders

Ongoing – Carry-out competitive tendering process for OFTOs

Ongoing – Carry-out annual monitoring, respond to claims events and compliance

Activity: Interconnectors

Ongoing – Continue to manage regulatory decisions for approved needs cases

Outcome: Efficient/efficient network charging arrangements are in place

Actvity: Targeted Charging Review (TCR), core charging and connections (Supporting Decarbonisation Action Plan Action Six)

Q2 – Decisions taken on final TCR implementation modifications

Q3 – Decision taken on Balancing Service Use of System (BSUoS) charging reform code modifications

Ongoing – Decisions taken on core code modifications, derogations and disputes

Outcome: Cost effective net-zero is supported through flexibility, while maintaining security of supply

Activity: Short-term security of supply (Capacity Markets)

Ongoing – Work to continually improve the Capacity Mechanism – for example – by consulting on setting up and advisory group for capacity markets in time for Q4

Ongoing – Effectively regulating the Electricity System Operator (ESO) and the Electricity Market Reform delivery body for cost effective security of supply

Outcome: Net-zero transition goals are met through system operation

Activity: Electricity System Operation regulation (Supporting Decarbonisation Action Plan Action Five)

Q1 – Begin implementation of new ESO RIIO-2 Price Control

Q2 – Review outcomes generated by the ESO incentives in 20/21

Q3 – Half-year review of ESO RIIO-2 performance

Outcome: A credible deterrent to non-compliance

Activity: Market intelligence and oversight

Ongoing – Encourage high levels of compliance with wholesale market regulations resulting from the credible deterrence from potential enforcement action

Activity: Enforcement

Ongoing – Investigate, penalise or seek redress for non-compliance in the retail and wholesale markets

Outcome: Codes benefit consumers and licensing is robust

Activity: Industry codes and licensing

Ongoing – Deliver our statutory functions to protect consumers, and to facilitate competition and innovation (see energy system governance section, for code reform details)

Outcome: Network companies are cyber resilient

Activity: Cyber Competent Authority

Ongoing – Monitor, evaluate and report on how energy companies keep networks secure and consumer data safe, through our joint Competent Authority role, with BEIS

Outcome: New cross-border arrangements are in place

Activity: Cross-border market arrangements

Effective new cross-border trading arrangements are in place by April 2022.

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Ofgem administers a range of environmental and social schemes on behalf of government and for the devolved administrations, which collectively are worth £9 billion per-annum. Our schemes fall into three main categories – renewable electricity schemes, renewable heat schemes and energy efficiency and social schemes.

2021/22 will be a key year for heat decarbonisation schemes, as the current Renewable Heat Incentive (RHI) schemes close to new participants, and the new Green Gas Support Scheme is launched. The continued decarbonisation of heat is central to the delivery of Action Four in our Decarbonisation Action Plan (DAP).

More broadly, we will continue to work actively with government to develop future policies, including future energy efficiency obligations. We will work on a programme to strengthen our scheme systems, improving delivery and efficiency over the coming years. We will also work to engage with the schemes’ key stakeholders to provide clarity in this year of change.

All of the government schemes that we administer support our Strategic Change Programmes, most notably through our drive towards decarbonisation:

Renewable Electricity Schemes

These schemes have laid the foundation to deliver the transition towards low carbon infrastructure. Moving forward, they will continue to support renewable generation, ranging from domestic solar panels to the largest windfarms.

Scheme

Value generated in 2019/20

All Electricity schemes

112.8 TWh of total supply from renewable sources generated (41.2% of UK supply)

41.8 GW of renewable electricity generated

Schemes supported growth in the renewables sectors, now employing 33.7

Feed in Tariff

Covers on average one in thirty UK households

£1.5b payments made to generators

Renewable Heat Schemes

These schemes have supported early adopters of technologies like heat pumps and biogas injection, and have moved the UK towards lower carbon energy networks.

Scheme

Value generated in 2019/20

All RHI schemes

58.3 THh thermal heat generated to date

5.2 GW of thermal capacity installed

£78m of fraud identified through gaming detection

Domestic RHI

5.36 MtCO2 of carbon savings of the lifetime of the scheme

311,000 payments issued last year worth around £136m

Northern Ireland RHI

2.527 GWh heat generated by installations

£120.7m total payments made to scheme participants / £2.6m in 2020/21 to date

Non-Domestic RHI

71,030 payments issued in 2020/21 to date last year worth around £756m

Energy Efficiency and Social Schemes

These schemes provide direct support for vulnerable consumers and energy efficiency measures, which reduce the amount of energy generation needed. They also provide routes for innovation for new technologies and monitoring systems to be trialled.

Scheme

Value generated in 2019/20

Energy Company Obligation (ECO)

Over 3,500 installers fit on average 870 ESO measures every day

Over 2.7m ECO measures installed in over 2.2m households

ECO measures have contributed to 48.24 MtCO2 of carbon savings

£15b in lifetime bills savings delivered to vulnerable households through ECO

Warm Home Discount

(WHD)

£2.8b of support on WHD schemes, of which £210m is support from industry schemes

17.5m customers supported since the beginning of WHD

One of our key drivers across all of these schemes is to ensure that public funds are protected. To that end, we employ data driven statistical and targeted auditing, to ensure that participants on the schemes comply with the rules that are set out in legislation. This is managed through our hub model, which provides functional expertise for: delivery; assurance and; policy and engagement.

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The transition to net-zero requires a major transformation of the energy sector: the continued decarbonisation of power; the electrification of most surface transport; and the moving to low carbon energy sources for heating our homes and workplaces. In some areas, there is broad consensus on the direction of travel – for example, the accelerating deployment of renewable power and electric vehicles (EVs). However, there remains uncertainty on key questions such as the roles of hydrogen in heat, and how much nuclear power and carbon capture, utilisation and storage (CCUS) will be needed.

Major investment will be required to deliver net-zero in the energy sector. In addition to £30 billion of investment recently approved in our electricity transmission and gas network price controls, we have introduced a range of new mechanisms with the flexibility to approve more than £10 billion of additional net-zero expenditure over the next five years. Additional expenditure will also be required in electricity distribution networks, new power generation and the deployment of low carbon technologies, such as heat pumps.

Ofgem will take an active role in facilitating this investment and in ensuring that it is efficiently spent. We are continuing to develop our agile and proportionate approach to assessing submissions for additional funding, including through our net-zero re-openers. We will work collaboratively with government to enable and encourage the industry to prepare for the future, by setting frameworks to help manage uncertainty, and to maximise the opportunities to enable a smart, lower cost zero carbon future. As part of this work, we want to ensure processes are in place to deliver the coordinated expansion of infrastructure in both onshore and offshore networks. This will include ongoing work on competition for onshore networks, an offshore transmission network review, and a review of onshore network planning and the role of the System Operator in this.

Alongside these initiatives we have been considering how to improve the transparency of information made available by regulated network companies in key area such as dividend policies, workforce resilience, and corporate governance.

Our low carbon infrastructure Strategic Change Programme aims to ensure that the necessary infrastructure enablers are in place by 2025, by:

  • Efficiently transforming the onshore electricity network, connecting and enabling new sources of low carbon generation (e.g. offshore wind generation) and increasing demand needed to meet net-zero targets
  • Taking a coordinated approach to the expansion of the offshore network and interconnectors
  • Providing advice and developing regulatory mechanisms to enable investment in CCUS transport and storage and new nuclear power, where requested by government
  • Preparing gas networks for a transition to a low carbon future, helping understand the feasibility and costs of hydrogen in the gas grid
  • Developing new regulatory approaches and best practices to manage cyber risks to energy infrastructure.

Proposed low-carbon infrastructure activities in 2021/22

Activities

Outcome: Effective RIIO-2 price controls are put-in-place and monitored (Supporting Decarbonisation Action Plan Action One)

Activity: Gas Distribution and Transmission operations

Q1 – Receive re-opener applications – including for net-zero investment – from network companies

Q1 – Agree a re-opener pipeline and assessment processes

Q3 – Expect to have made re-opener decisions, where appropriate

Activity: Electricity Distribution

Q1 – Prepare for network company business plans1

Q1 – Develop and calibrate incentives

Q2 – Review draft business plans and provide feedback

Q1 – Develop approach to anticipatory investment

Q3 – Receive final business plans and assessment towards draft determinations

Q4 – Preliminary decision-making for draft determinations

Q4 – Prepare for open hearings

Outcome: Networks offer value for money

Activity: Interconnectors (Supporting Decarbonisation Action Plan Action Three)

Q2/3 – Develop frameworks as part of BEIS’s Offshore Transmission Review, to enable a coordinated expansion of the offshore network

Q2 – Complete our Interconnector Policy Review and communicate next steps for future interconnection

Q3 – Explore and develop a regulatory model that could enable multi-purpose interconnectors

Outcome: Support the net-zero transition

Activity: Low carbon – Regulated asset base (RAB) models (Supporting Decarbonisation Action Plan Action Six)

With BEIS, develop RAB models to support investment in low carbon technologies (potentially focused on technologies such as new nuclear, CCUS, batteries and hydrogen).

Activity: Hydrogen (Supporting Decarbonisation Action Plan Action Four)

Ongoing – Support BEIS as they develop, publish and implement their Hydrogen Strategy, Industrial Strategy and consultation on commercial models, including supporting trials for 100% Hydrogen Heating, and identifying requirements for hydrogen blending

Activity: Heat pump rollout (Supporting Decarbonisation Action Plan Action Four)

Q2/3 – Develop approaches with networks to plan for increased take-up of heat pumps

Support the development of flexible and smart heat pumps and heat storage to unlock consumer benefits

Activity: Innovation (Supporting Decarbonisation Action Plan Action Two)

Q2 – Set innovation challenges for the RIIO-2 Strategic Innovation Fund (SIF) covering the Electricity System Operator, electricity transmission and gas network price controls

Q4 – Award SIF project funding (subject to conclusion of governance and administrative arrangements)

Q4 – Award funding under our Network Innovation Competition, covering electricity distribution

[1] Network companies’ business cases will need to show how they support decarbonisation for new or anticipatory investment.

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The potential for energy flexibility to reduce costs as we transition to a net-zero system is widely acknowledged. As the share of intermittent renewable generation rises, and electricity demand from heat and transport grows, the electricity system will need to become more flexible if system costs are to be minimised. Flexibility enables demand to adjust to the intermittency of low carbon supply, reducing fossil fuel use and limiting the costly curtailment of renewable generation. In a fully flexible electricity system, every connected resource could contribute its full potential to meet system needs, deliver cost savings of more than £5 billion per-annum, primarily from avoided investment in generation plant and network capacity.

Enabling demand flexibility will rely on customers having smart meters so that they understand their energy use and how to change it, and on it being possible to use time-of-use price signals to incentivise flexible responses. We continue to monitor the smart meter rollout by energy suppliers so that more consumers can take advantage of their benefits and ensure they are offered a quality installation experience. We will ensure timely implementation of the market-wide half-hourly settlement to create incentives for suppliers to drive flexible tariffs and new services.

We have established a full-chain flexibility programme, to build on the existing work that we set out with BEIS in the 2017 Smart Systems and Flexibility Plan. Through this programme, we will consider options and opportunities to unlock flexibility, as we decarbonise the system and protect the interests of consumers. We will be focusing on:

  • Updating our understanding of the greatest needs and benefits from flexibility across the electricity value chain to achieve a secure, cost-effective system as we decarbonise
  • Understanding how smart EV charging and vehicle-to-grid services can be leveraged for the system’s benefit, as the adoption of EVs accelerates
  • Developing a comprehensive approach to unlocking significantly more flexibility services from smaller, distributed energy resources, including demand-side sources (e.g. heat pumps and industrial demand)
  • Working with BEIS to continue to identify and remove barriers to energy storage
  • Understanding how to maximise the flexibility benefits at a whole system level, allowing flexibility service providers to contribute to location-specific and system-wide needs.

As part of this assessment, we have reviewed our Access and Forward Looking Charges Reforms to ensure alignment with the approach that will emerge from the full-chain flexibility work, and plan to consult on an early minded to positions in the spring. We will be feeding our initial findings into our work with BEIS on the new joint Smart Systems and Flexibility Plan, which we will publish later this spring.

Full-chain flexibility activities in 2021/22

Activities

Outcome: More consumers manage their energy use flexibly through smart metering

Activity: Market-wide half-hourly settlement

Q1 – Publish full business case

Q2 – Consult on implementation governance and obligations

Q2 – Decide on implementation governance and obligations

Q3 – Make code and licence changes as necessary

Activity: Smart meter rollout over sight

Q2 – All Reasonable Steps (ARS) obligations end and new post-2020 rollout framework based on annual targets commences

Q2 – Assessment of compliance with the ASR obligation

Q3 – ARS cases are reviewed

Q4 – Post-rollout enforcement framework in action

Activity: DCC annual price control

Q2 – Data Communications Company (DCC) price control submission expected

Q3 – Publish DCC price control consultation

Q4 – Decision taken on DCC price control

Activity: DDC price control review

Develop new arrangements for when the DCC licence comes to an end in 2025.

Outcome: Cost effective net-zero is supported through flexibility, while maintaining security of supply

Activity: Electricity Network Access – next steps (Supporting Decarbonisation Action Plan Action Six)

Q1 – Publish ‘minded to’ consultation on priority access reforms

Q3 – Publish ‘minded to’ consultation on remaining access reforms

Activity: Flexible/Wholesale market reform (Supporting Decarbonisation Action Plan Action Six)

Work with BEIS, the ESO and stakeholders to consider whether wholesale electricity market arrangements are fit for net zero.

Activity: Electric Vehicles (Supporting Decarbonisation Action Plan Action Seven)

Q3 – Publish our Electric Vehicle Action Plan

Activity: Distribution System Operation (DSO) and Whole System regulations (Supporting Decarbonisation Action Plan Action Five)

Q1 – Publish decision on Whole Electricity Systems licence change

Q1 – Review the Distribution Network Operator (DNO) flexibility report

Q2 – Working groups commence for the Long-Term Development Statement changes

Q2/Q3 – Consult on CLASS ancillary services

Q3 – Finalise Network Development Plan requirements

Review Open Networks progress, including on coordinated development of DNO/ESO markets, cost transparency, data sharing, etc.

Activity: European coordination

Q1/2 Agree a Memorandum of Understanding with ACER

Collaborate with our colleagues in Europe – including through the Council of European Energy Regulators – on areas of mutual interest, especially as they relate to supporting the energy sector in achieving net-zero.

Regulation and reform of the Electricity System Operator will play a key role to play in developing cost effective net-zero pathway milestones through flexibility in Balancing and Ancillary markets. Details of our 2021/22 activities in this area can be found in the energy system governance section.

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The energy market is likely to undergo rapid change in the coming years. The need to decarbonise heat and transport will impact how consumers use and access energy, while better access to data and new technologies will drive innovative new products and services. At the same time, post-COVID economic pressures may affect the ability of some households to pay their energy bills. And decisions will need to be taken in relation to appropriate protections for consumers, as we approach the 2023 date at which the current default tariff price cap is due to expire.  

Ofgem aims to enable a future retail market that can help deliver the technological and behavioural changes needed to support decarbonisation at lowest cost, while ensuring the interests of consumers remain protected.

We are currently developing our future of retail Strategic Change Programme, focusing on areas of greatest potential consumer detriment or opportunity, with the following high-level objectives:

  • energy transition that works for all energy consumers, harnessing innovation and flexibility, with effective protection for consumers
  • fair energy prices, with or without the price cap
  • a better deal for consumers in vulnerable circumstances.

We expect to finalise this Strategic Change Programme in the summer. We will publish further detail as a part of an update to our forward work programme at the time. Our current planned activities, which are already scheduled for the year ahead are set out below.

Future of retail activities in 2021/22

Activities

Outcome: Consumers, particularly the vulnerable, are treated fairly by suppliers

Activity: Microbusiness review reforms

Q1 – Consult on microbusiness reforms

Q2 – Decision taken on microbusiness reforms

Q3 – Begin implementation of microbusiness reforms

Outcome: Consumers engage and take advantage of a competitive retail market and technologic change to support decarbonisation

Activity: Heat Networks (Supporting Decarbonisation Action Plan Action Four)

Support BEIS as they develop the regulatory framework for Heat Networks.

Activity: Faster, more reliable switching

Q1 – Complete system integration testing and advance to user integration testing

Q2 – Start testing end-to-end processes

Q3 – User testing complete, start transition testing

Q4 – Conclude consultations and move to code and licence changes that will support the wider testing and transition

Outcome: Suppliers provide consumers with a stable energy supply and effective service

Activity: Supplier licensing review – Phase II

Q1 – Publish consultations on 1) prescriptive rules to reduce credit balance mutualisation 2) reforming the Renewables Obligation (RO) scheme to minimise mutualisation (see Delivering Government Schemes section)

Q2 – With BEIS, decision taken on how to progress RO reform

Q3 – Consult on prescriptive credit balance rules

Q4 – Decision taken on prescriptive credit balance rules

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The energy transition will continue to drive increasing complexity as the number of energy markets, assets, services and market participants proliferate, and the benefits of clear communication and data sharing grow. The smart creation, collection and use of energy system data is fundamental to managing this complexity, and for unlocking new sources of value for all energy stakeholders, including improved consumer protection.

This data and its digital infrastructure services will be able to integrate with equivalent data and services from other sectors, further enhancing opportunities for new markets, better consumer protections and a coordination of economy-wide effort to deliver decarbonisation.

Ofgem is committed to using and sharing data effectively as a core component of our operations and regulatory decisions. Our data and digitalisation Strategic Change Programme aims to ensure better regulatory decisions are taken through the improved use of data, and that data is used more effectively by the market, through modern data regulations. In particular, the objectives of this Strategic Change Programme are:

  • For Ofgem to provide leadership and collaboration to deliver the scale of change required
  • To establish new data and digital defaults  and ensure the sector is incentivised and coordinated to adopt them
  • Enable the sector through new and existing shared infrastructure to grow and develop future data and digital solutions that work for consumers.

Core to this programme is Ofgem’s data strategy, coordinating efforts across the energy sector to digitalise, progressing government goals to modernise the use of and sharing of data, and ensuring value from public funding in Ofgem, through the better use of data in Regulation and operation. We will be working with industry and government to ensure a joined up approach to unlocking the benefits of a digitally enabled energy sector and supporting the wider agenda of joining up data across different sectors. We will detail our ambitions and delivery plans by publishing a Digitalisation Strategy & Action Plan (DSAP), jointly with government, in the spring. We will create a plan of work designed to utilise data and digitalisation techniques, enabling Ofgem to regulate and operate effectively and efficiently, aligned with sector investment.

Proposed data and digitalisation activities in 2021/22

Activities

We will publish further delivery details as this Strategic Change Programme develops.

Outcome: Improve planning and management of energy data, including regulation of data monopolies

Activity: Monitoring and Assurance

Q2 – Continue to develop the operations of data and digitalisation network licence obligations

Activity: Data & digital monopolies review

Q4 – Conduct a holistic review to identify and understand new and existing data and digital monopolies, identifying implications for energy consumers, and informing our future response

Outcome: Increased data sharing, to enable new and more efficient markets and for consumers to be able to take greater advantage of this data

Activity: Establish data and digitalisation standards

Q1 – Consult and decide over Data Best Practice guidance and DSAP guidance; these to be followed by relevant regulated entities and by Ofgem itself

Activity: Integrate the standards

Embed data and digitalisation standards into the updates we are making to our portfolio of regulations.

Activity: Support future solutions

Q2-4 – Support technical services, governance services and innovations, integrating these into the marketplace digital architecture, ensuring data is interoperable across the energy sector, other markets and across government

Outcome: Improve regulatory decisions, through Ofgem making greater use and sharing of data

Activity: Enhance our data capacity

Q2 – Build Ofgem’s new Data & Digital Insights team and improve management and insights generated from our internal use of data

Activity: Improve regulatory methods

Advance our applications of data science to enhance our use of complex and high volume data, such as for our approach to market monitoring (e.g. assuring consumer protections for time of use tariffs).

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As the energy system undergoes an unprecedented transition, it is right to take a fresh look at the institutional and governance structures – including Ofgem’s own role – and consider whether those structures remain fit-for-purpose.

To facilitate the transition to a more flexible, data enabled, net-zero energy system, we believe that there is a case for stronger strategic oversight and better whole systems coordination, which will likely require changes to existing governance procedures, codes, standards and licensing arrangements. We also welcome the government’s intention to provide a Strategic and Policy Statement for Ofgem, which will set out the government’s energy policy priorities of relevance to Ofgem.

While we note that these questions are primarily for government, Ofgem has a role to play in contributing to the debate in our role as the independent regulator, and in delivering and/or overseeing some elements of organisational change. For example, we are working with BEIS to review energy codes and their governance arrangements. We also recently published our review of GB System Operation, recommending an independent system operator, and are now supporting BEIS to develop a plan for next steps for the GB System Operator and governance of the energy system as a whole.

The aims of this fifth Strategic Change Programme are:

  • Establishing a vision for energy system governance, with a clear view of areas for potential institutional reform, grounded in the changes we are seeing across the energy system and the pursuit of our other strategic priorities, such as data and digitalisation and fullhain Flexibility. This includes for example consideration of Future System Operator functions, including the interface between the ESO and DSOs.
  • Implementing institutional and functional reforms, to reflect any recommendations from ongoing work from the Energy Codes Review and the Engineering Standards Review.
  • Identifying Ofgem’s medium and longer-term goals as the energy regulator, for our shape, functions, and regulatory model, to become a regulator that remains fit for the future.

Our energy system governance Strategic Change Programme will help shape Ofgem’s role in the energy system transition, transforming Ofgem’s capabilities to become a more adaptive regulator, that can flexibly respond to a rapidly changing energy landscape. During 2021/22, we will identify any strategic changes required relating to how we regulate, including developing new regulatory approaches related to any additional responsibilities given to us by government.

Energy system governance activities in 2021/22

Activities

Outcome: Net-zero transition goals are met through system operation (Supporting Decarbonisation Action Plan Action Five)

Activity: Future System Operator (FSO) (Gas and Electricity)

Support BEIS to deliver their commitment to consult on Future System Operation.

Support BEIS to implement any consequent reforms, including considering change or transitional arrangements to current ESO/GSO regulation.

Activity: Distribution System Operator (DSO) governance review

Q1 – Review Distribution Network Operator arrangements

Q2 – Assess and evaluate DSO model options

Q3/4 – Assess costs and benefits and prepare for consultation

Outcome: Codes benefit consumers and licensing is robust

Activity: Energy Codes Review

With BEIS, carry out a second energy codes consultation.

Begin to implement energy codes reforms.

Activity: Engineering standards

Q1/Q2 – With BEIS, assess and consider how to take forward the recommendations from the Engineering Standards Review

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With the support of the Ofgem’s board and under the direction of our new Chief Executive, Ofgem has begun a significant transformation programme. Our overarching goal is to ensure we are a dynamic, inclusive and high performing organisation with a strong reputation as an employer of choice. We want to ensure we are as efficient and effective as possible, as we face the regulatory challenges of tomorrow’s energy market.

Our Transformation Programme will continue to drive change internally across Ofgem, into the 2021/22 year. These internal changes will take effect at the same time as we launch our new, external-facing Strategic Framework. The programme includes a range of change activities that aim to further the following outcomes:

  • Uniting behind our purpose, so we are clear what we are here to achieve, and live values we can all sign up to
  • Effective structure and governance to make better decisions, through flatter leadership, simpler governance and supporting decision-making frameworks
  • Transforming how we work so our activities contribute to clear strategic goals, and we can use our resources efficiently and flexibly as priorities change
  • Developing our talents so that we are an inclusive organisation that actively celebrates difference, and our people have the skills, capability and confidence to deliver
  • Our workplace experience so our people have the equipment, tools, skills and central support they need to work collaboratively and productively.

By becoming increasingly efficient and effective in how we operate, we will be better able to deliver our strategic framework with pace and agility. An important part of this relates to providing an excellent environment for our people, for example, by supporting the retention and development of our talented workforce. This will help ensure we can best deliver good outcomes for those we serve.

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In accordance with the Regulatory Enforcement and Sanctions Act 2008, we regularly review our regulatory functions to ensure we do not impose (or allow to continue unnecessarily) undue burdens on regulated parties.

We have reviewed our ongoing commitments from previous work programme periods, and set out an update on these below. We have also set out new business simplification activities that have been identified internally and through consultation feedback.

Update on existing burden reduction activities

We continue to progress several thematic approaches to reducing business and consumer burden, while also improving Ofgem’s operating efficiencies

These include (but are not limited to):

  • Transformation – As set out in our Transforming Ofgem section, we have begun a significant programme of work to ensure we are a dynamic, inclusive and high performing organisation. This programme will help ensure we are as efficient and effective as possible as we face the regulatory challenges of tomorrow energy market.
  • Collaboration – Working with other regulators to develop common standards and approaches via the UK Regulators Network and similar cross-sectoral initiatives (such as participation in the International Network for Delivery of Regulation).
  • Industry reforms – Leading industry reforms for improved processes. This includes our work on Switching, Smart Metering and Supply Licence monitoring and reforms.
  • Embracing innovation – We are supporting new and potentially transformative ideas through our Innovation Link services, which we substantially enhanced in July 2020, and through wider policy development aimed at enabling innovative business models, products and services.
  • Efficient markets – Proactively engaging, monitoring and managing markets. We ensure efficient market operation through specific functions (REMIT, Standard Licence Conditions) but also through the provision of accurate data (State of the Market report, etc.).
  • Stakeholder communications – As in previous years, we will continue to reduce and streamline the volume of consultations we produce, and consider carefully the burden our consultation timings place on interested parties.

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As set out in the data and digitalisation section, we intend to publish our joint Digitalisation Strategy & Action Plan with BEIS in 2021, with the aim of modernising the use and sharing of data across industry, and ensuring a joined up (and efficient) approach to unlocking the benefits of a digitally enabled energy sector.

Industry information requests – We have already made significant improvements to our Requests for Information (RFI) to industry. These RFIs are a critical tool in helping shape current and future regulatory processes, but they come at a cost to industry. We are looking at the information we gather in the round to ensure we have the necessary information to monitor the market without causing undue burden on market participants.

Impact assessment (policy) and (corporate) efficiency – Our approach to regulatory policy making is underpinned by robust analysis and consumer research to ensure we arrive at interventions that work in the best interests of consumers and avoid unnecessary burdens on all parties. Corporately, we have also agreed efficiency targets with HM Treasury and have introduced internal efficiency programmes for 2021/24, to reduce our overall costs and support our Transformation Programme goals.

Business Impact Target – We continue to monitor and report on the impacts of our work on business. We continue to receive ‘green’ performance ratings from Government for this work. Looking to the term of this Parliament, we will look to engage constructively with the new business impact target methodology. Following the publication of the Penrose Report on Competition Policy we will also work closely with Government on responses to the report’s energy-related recommendations.

Introduction of electronic licensing – We are pleased to be working with BEIS on their plan to amend legislation to allow Ofgem to serve statutory notices and documents by electronic means, helping reduce the costs and time burden associated with paper-based notices.

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Ofgem submitted a Comprehensive Spending Review bid to HM Treasury in September 2020, setting out how we proposed to support the net-zero ambitions of the UK and devolved administration governments, to facilitate investment and innovation and to reduce the cost of energy.

On 25 November 2020, HM Treasury confirmed an increase to Ofgem levy funding, accompanied by a challenging efficiencies target. This figure does not include funding for the delivery of government schemes (eServe) which is agreed with BEIS and has yet to be finalised.

Period

2021/22

Total expenditure

£89.7m

Agreed in-year efficiencies

£8m

In the late summer, Ofgem will submit a bid to HM Treasury to fund activities in the 2022/23 financial year.