Ofgem needs to go further in its efforts to create a resilient energy market, CEO Jonathan Brearley stated this week.
Speaking at an Energy UK conference, Brearley outlined Ofgem’s position following the period of high gas prices, which has led to a significant number of energy suppliers ceasing to trade.
“We accept that, as a result of the events of the past months, we will need to regulate the energy market differently,” he said, adding that Ofgem is “up for the conversation about a different kind of retail market”.
Creating a more resilient energy market will likely mean an approach to regulation that is more focused on the business models that enter and operate in the market, and the risk they carry.
Ofgem will also examine the consequences for the wider design and implementation of the price cap. While gas prices remain high, the price cap will “inevitably” need to reflect them to allow suppliers to recover their costs and will need to be adjusted over time to reflect the recent changes to fuel costs.
Brearley said that considering the continued volatility in the market, it is “likely” that more suppliers will exit. As such, the regulator will continue to work closely with the wider industry and the government to manage further supplier exists.
However, Ofgem will also be examining the behaviour of companies impacted by the gas price changes. While Brearley acknowledged the “incredible and fantastic work” across the industry to manage the changes, he added that if Ofgem sees unethical practices it will use the full extent of its powers, as will the Insolvency Agency and wider government agencies, to tackle it.
He continued to state that there will be several debates as what the response to future gas price shocks should be, but that it's clear there's a need to diversify the sources of energy supply.
Indeed, with a more diverse market including more renewables as well as dispatchable low carbon power sources - which he suggested could include nuclear, hydrogen and gas with carbon capture and storage - the market will be better able to weather the economic shock it has seen in the past months.
Alongside this, a smarter, more flexible system will save billions of pounds a year, he said, giving the example of being able to control the time electric cars are charged and being able to use the car battery as a source of stability, which would result in a smaller grid and fewer power stations.
In the coming months, Ofgem will lay out its ideas as to how to build an energy system that will help create this.
In particular, this could mean expanding on the planned reforms in system governance, including a more local dimension and ensuring all markets deliver the flexible and efficient system needed.
"The energy transition is at a critical moment," Brearley said, adding that Ofgem is ready to play its part.