Throughout this week, the energy regulator Ofgem made several key announcements and proposed changes to the GB energy market, which could well aid the energy industry in a number of different ways.
Regular readers of Current± will be aware that the organisation revealed not only that Elexon has been appointed to drive alignment between local and national flexibility markets but also that it has retained the divisive ban on acquisition-only tariffs (BATs), released plans to develop a more regionally focused energy market, and opened a consultation on DSI governance.
Of course, Ofgem announcements regularly occur, especially on market dynamics, but the scale of some of these announcements deserves a deeper look.
Elexon announced as market facilitator for local energy
Perhaps the most significant of the announcements this week, Ofgem confirmed that Elexon has been appointed to drive alignment between local and national flexibility markets, and launched a consultation on a proposed common Flexibility Market Asset Registration (FMAR) solution.
Flexibility has been hotly tipped to be a crucial aspect of the energy system as the globe looks to integrate more variable renewable energy generation resources to the grid. Indeed, the GB grid was first created to connect just a handful of coal-fired power plants dotted around the country. Now, there are hundreds of generation projects looking to connect.
Although solar and wind energy, in particular, will make up the vast majority of a decarbonised energy system, they have one major downfall – they are variable. To capture the potential and create a foundation for these technologies to flourish, energy storage capacity must be scaled in parallel. It is no coincidence that the technology has dramatically increased in recent years.
Indeed, according to Elexon’ chief executive, who exclusively panned a contributed blog for Current± earlier this year, flexibility will be crucial for the energy transition.
“The scale of the flexibility challenge is significant; the government estimates that the UK will need an estimated 30GW of flexibility by 2030, which is around a quarter of the current total installed capacity. Aggregators will play an increasing role in engaging consumers and helping them to provide flexibility by using apps and other technology (including automation),” Stanley said.
FMAR is a response to Ofgem’s call for input on the Future of Distributed Flexibility in 2023. It proposes a “one-stop-shop” to register flexible assets such as EV chargers, heat pumps, and home battery storage systems. This would help maximise participation in flexibility markets by eliminating the need for multiple processes and platforms.
It will form part of the regulator’s Flexible Digital Infrastructure vision, and the consultation will be the second negotiation round; Ofgem first called for input in March 2023.
Ofgem said Elexon’s appointment was in light of its “strong track record”. On the topic of flexibility and its role in the energy mix, Stanley said: “We cannot be certain about how we will want to use the system in future either, as new technology and developments will require us to react quickly to unforeseen challenges. This is another reason as to why flexibility is so important. Creating an environment where it can play a much bigger role in meeting supply and demand is essential.”
Divisive ban on acquisition-only tariffs retained
Next on the list of Ofgem announcements is its decision to retain the divisive BAT following a consultation phase.
Acquisition-only tariffs are a way for energy suppliers to entice new customers to move suppliers by offering them cheaper prices. A ban was enforced in April 2022 to protect consumers during the energy crisis, which left 3.2 million people without electricity.
The regulator said it has decided to retain the BAT to “better understand its impact on the retail market”. This follows a consultation phase, which included “concerned consumer groups and the majority of suppliers demanding fairer treatment for existing customers”.
The regulator emphasised that the long-term future of the BAT will be examined as part of Ofgem’s comprehensive review of the energy sector. Ofgem is currently reviewing responses to a call for input that explores the future of price protection.
Bolstering regional energy market support
An interesting development this week is the development of independent Regional Energy Strategic Plans (RESPs) that will map how clean energy and flexible grids can be tailored to meet the energy, economic and demographic needs of regions across the UK.
The RESPs will work in tangent with organisations at a local level, such as local governments and gas and electricity networks, to improve the understanding of what infrastructure is needed to boost net zero prospects and ultimately attract investment for projects.
This could catalyse regional investment and help steer the UK towards its net zero target.
The introduction of the RESPs follows an extensive consultation Ofgem conducted last year reviewing the operation of local energy systems. From this, it was stated that Ofgem was “considering RESPs to ensure plans were cohesive, coherent and clear to all”.
Ofgem opens consultation on DSI governance
The final announcement from Ofgem comes in the form of a new consultation into the governance of the data sharing infrastructure (DSI), seeking views on an interim governance framework for the minimum viable product (MVP) of the DSI.
In its Future Systems and Network Regulation Decision, published in 2023, Ofgem committed to developing a pathway to the delivery of a DSI. This consultation, which will run for eight weeks and end on 20 September, sets out the regulator’s vision for who will oversee DSI from the consultation until 2028.
The need for a DSI comes as the energy sector transitions to renewable generation sources, meaning its operation, planning and dispatch will be more complex. Ofgem is focused on improving access to sensitive data that cannot be shared openly but must still be available across the system.
Indeed, data relevant grid security and grid infrastructure is regularly exchanged between energy sector participants to fulfil their roles in the energy system. However, it is Ofgem’s opinion that currently dataset sharing is a “manual, inefficient and uncoordinated process”.
That process currently requires complex legal agreements on an organisation-by-organisation basis, resulting in data siloes and inconsistent data standards, as well as an increased risk of duplicated or misaligned information.
It is important that data standards employed in the DSI do not deviate from internationally recognised data standards to ensure interoperability and adoption. Work is ongoing to build a DSI Pilot and MVP, and we are coming closer to the reality of a DSI in the energy sector.
Ofgem proposes an Interim DSI Coordinator as the central body in the governance structure. Its responsibilities will include overseeing the evolution of the DSI architecture from MVP to steady-state, including extensions of governance areas, and producing a forward-looking statement on staffing levels.
Its preferred option is to appoint National Grid ESO as the interim coordinator, given that it is already responsible for developing the DSI pilot and MVP.