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Energy market governance in need of reform as decarbonisation, digitalisation steps up

Image: Getty

Image: Getty

UK energy codes must adapt to the transition towards a decarbonised, decentralised and digitalised energy system, a new report from Gemserv says.

The ‘Future Energy Markets: Reforming Outdated Governance’ report says that energy market rules must be updated as the energy markets face a ‘dramatic transformation’ as technology, policy and consumer expectations change.

Three main recommendations were proposed:

  • A clear strategic direction from the government and Ofgem for framework change that sets out aims for future energy markets, defining required outcomes and implementation actions.
  • A new self-governance framework that is aligned with the strategic direction and provides clear accountability, transparency and faster decision making. It should address current issues such as accessibility to decision-making and should increase the powers of independent panel members of decision-making panels.
  • A new operating model that provides greater accessibility, transparency and simplification. It should ensure managers of codes are accountable and incentivised for delivery performance and should deliver a ‘one-stop’ access for market participants through a new market portal. Targeted risked-based rules to reduce regulatory burden should also be implemented.

The ‘one-stop’ market portal would include all codes, regulation and licensing, which would reduce the burden of dealing with multiple organisations and rule books, the report says. Further down the line, it could also provide market monitoring and assurance, as well as other services such as certification and company rating information.

Gemserv says the implementation of a clear strategic direction would provide clarity for both market participants and market administrators. To implement this strategic direction, the report suggests objectives and measurable outcomes are defined, addressing:

  • Accessibility, including exploiting data and participants and incumbents.
  • Taking fast and fair rule decisions while also ensuring energy markets remain robust and resilient.
  • The flexibility to design and deliver rule and process change, as well as the delivery of process and compliance services, in a timely manner.
  • Cost and efficiency of market administration processes, including improvements such as new digital tools for providing value for money services.
  • Coordination between code bodies and managers for the development of optimal solutions.

The report has been published as The Energy Code Review is underway. As part of the review, Ofgem and the government are evaluating current energy codes in light of the move towards a decarbonised, smart energy system.

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