S.2. Internal Energy Market

D.

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Ofgem and British Government launch Review of UK energy system rules

Monday, November 26, 2018


The aim of the Review is to develop options for improving state Energy Codes and energy system governance, including through legislation, if necessary.

On 26 November 2018, the UK government and the energy regulator Ofgem announced the launch of a comprehensive Energy Code Review designed to assess the adequacy of existing national legislation to meet the demands of a sector undergoing unprecedented transformation. There is growing stakeholder consensus that action is necessary to adapt the regulatory framework applicable to the sector if the UK is to deliver the changes required to move towards a sustainable, electrified and consumer-led energy system in line with national Industrial and Clean Growth Strategies.

The Review will consider the views of industry organisations, which have highlighted considerable flaws in the existing system of Codes and their governance, including but not limited to: slow decision-making processes; a conservative approach towards dealing with sector challenges; an overly complex body of Codes of over 10,000 pages acting as a significant barrier to market entry and a disincentive to invest; a resource-intensive representation process leading to under-representation of smaller and/or newer interests; a lack of coordination between different Codes; the fragmentation of the governance of different Codes providing for a complex institutional landscape. As such, the purpose, content, and governance of existing Codes will be examined along with the potential side-effects of the amendment process itself, and propositions for a transition period to any new regulatory regime.

A previous Review conducted by Ofgem in 2016 delivered notable improvements to Code governance, yet the authorities concluded that further modifications seem necessary given the scale of on-going industry changes. Ofgem announced its intention to revisit Competition Market Authorities Code governance remedies in light of the latest energy market developments.

The authorities aim to consult on changes to existing arrangements by summer 2019. A series of stakeholder engagement workshops and webinars will be held in London and Glasgow early next year. The Review could provide a useful example for other EU Member States.