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Helm pitches ‘significantly diminished’ role for Ofgem in future power market vision

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Dieter Helm has pitched his vision for the future energy market, including a “significantly diminished” role for Ofgem as its responsibilities are largely redistributed.

Helm’s cost of energy review, published by the Department for Business, Energy and Industrial Strategy earlier this week, outlined his take on the UK power market and included several direct criticisms of current regulation.

Chief among Helm’s complaints was that government intervention had caused the cost of decarbonisation to increase to such an extent it was higher than necessary to meet carbon budgets. Legacy policy costs, particularly those associated with the RO and feed-in tariff schemes, was a principle offender in this regard.

“These excessive costs are not only an unnecessary burden on households and businesses, they also risk undermining the broader democratic support for decarbonisation,” Helm wrote.

Helm’s review has established various recommendations to address this, some of which settle on the wider electricity market and its evolving nature.

Two of the key recommendations within Helm’s review are the implementation of a broad carbon price across the entire UK economy alongside the creation of unified firm power auctions – designed specifically to reflect any inherent technological intermittency – to source generation capacity.

These auctions would replace feed-in tariffs and Contracts for Difference auctions, which Helm has recommended be phased out and eventually abandoned altogether.

However Helm also establishes his future vision for the management of the whole electricity system, much of thinking of which aligns with the transformation already underway.

Helm has said a National System Operator needs to be established with the distribution system handed over to Regional System Operators that operate in the public sector sphere. Functions or enhancements could then be opened up to competitive tender, while RSOs would be able to invite bids to procure generation, storage or demand response capacity to aid with network management.

This ties in with much of the work already being conducted and explored by existing Distribution Network Operators as they embrace wider Distribution System Operator roles and responsibilities, particularly in storage and demand flexibility.

Also in Helm’s crosshairs is the RIIO framework. Helm has recommended that Ofgem consider its actions over the future of the framework considering how its controls are already being “significantly outperformed”.

RIIO has come in for criticism in recent months after it was revealed that many network operators had been able to profit – unjustly according to some industry groups – from conducting works more cheaply than expected. As a result, Ofgem has warned operators to expect tougher controls in the future.

Helm has recommended that the current system of periodic reviews every eight years be scrapped, adding that the rate of technological change was too fast for the reviews to be practical.

But perhaps Helm’s most radical recommendations for the energy market are reserved for the regulator Ofgem. Helm wants to merge the generation, supply and distribution licences into one, single licence – at least at a local level – to reduce the complexity of the system. Renowned energy regulation expert Laura Sandys, who contributed towards Helm’s report, argued as much in her own publication Reshaping Regulation last week.

Such a change would see Ofgem’s role in the market “significantly diminished”, Helm said, with Ofgem itself questioning its place in the market as energy generation and supply becomes increasingly democratised and deregulated.

David Wadham, utilities partner at law firm Ashurst, said Helm’s recommendations constituted a “near complete rethink” of the structure and regulation surrounding the UK’s energy market.

“It will be no easy task for the Government to balance the potential benefits of a new approach with the potential detriment of an inevitable period of regulatory uncertainty that may arise from yet another set of reforms,” he added.

Lawrence Slade, chief executive at trade body Energy UK, was more reserved, insisting his organisation would be analysing Helm’s recommendations in full before responding.

Richard Black, director at the Energy and Climate Intelligence Unit, said that while much of Helm’s thoughts were “unarguable”, there were some “strange holes”.

“There’s also more than a hint of alarmism in the frequent statements that electricity system capacity margins are dangerously low, when there’s been no power cut relating to a shortage of generation for well over a decade.

“Overall, the review is a bit like a Harry Potter packet of Bertie Bott’s All-Flavour Beans – there are plenty of chocolate ones for sure, but a fair few rotten eggs and, unfortunately, the occasional piece of tripe,” he said.

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