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Ofgem eyes creation of independent bodies to operate local energy systems

Currently, distribution network operators manage local grids, together with local authorities playing a role.

Currently, distribution network operators manage local grids, together with local authorities playing a role.

Ofgem has launched a review into the operation of local energy systems, eyeing the potential creation of new independent bodies to avoid conflicts of interest.

It has issued a Call for Input that includes four different alternative governance models, ranging from relatively small changes like governance reforms within existing institutions to the creation of entirely new institutions.

At the moment, distribution network companies are responsible for the operation of local power grids and planning for future energy demand. As the push to decarbonisation continues, this includes accounting for millions of electric cars and electrified heating solutions coming onto the grid.

Networks operators are therefore having to look at reinforcing the grid to manage the increased demand and ensure these green alternatives can be connected quickly and at low cost. Local authorities play a role in making sure that network companies meet the needs of transport and housing in their areas.

However, this current arrangement has gaps within it according to Ofgem, along with a lack of co-ordination and the potential for conflicts of interest, which could lead to higher costs for consumers and a longer path to net zero.

The regulator provided the example of the role local markets could play in balancing supply and demand, providing flexibility that reduces the need for new grid capacity. Electricity distribution network companies being responsible for these markets could be a potential conflict of interest, as building out the new grid capacity would increase their revenues.

As such, it has released its Call for Input, to establish if new bodies separate from network companies should be created to run the system locally.

Reducing Britain’s reliance on expensive gas and accelerating the transition to net zero will require a “a transformation of our energy system, in particular at a local level,” said Charlotte Ramsay and Richard Smith, co-directors of energy systems, management and security of Ofgem.

“This review will ensure that local energy systems across Great Britain are set up for a huge increase in green, more affordable and homegrown power.”

In addition to the Call for Input, Ofgem will be running a series of stakeholder workshops over the second half of 2022, to evaluate reform options and inform how these are taken forwards.

The review follows the recent creation of the Future System Operator, a public body built on the capabilities of National Grid ESO, and unveiled the beginning of April 2022.

Its creation followed an independent system review called for by Ofgem that suggested there was a potential conflict of interest given the transmission network owner’s links to the operator.

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