Ofgem outlines strategic priorities for the UK energy market into 2025

Ofgem published its Forward Work Programme 2024-25 on 28 March 2024, outlining its strategic priorities and objectives for the upcoming year. The UK energy regulator has set out four strategic priorities along with 14 more detailed objectives explaining the steps it aims to take and when.

The work programme sits within the wider sector reforms under the Energy Act 2023 and on-going review of energy market arrangements (REMA) and outlines areas Ofgem is tasked with and focusing on under these overarching programmes.

Its second, third and fourth strategic priorities will be of particular interest to asset owners and managers looking at forthcoming developments in market regulation over the next 24 months.

Infrastructure for net zero at pace

Ofgem's second strategic priority focuses on enabling infrastructure to support the transition to a net-zero carbon energy system. It recognises the importance of developing and expanding infrastructure to facilitate increased generation from low-carbon sources. Within this priority area are Ofgem's objectives to progress strategic planning, expand electricity networks, facilitate the deployment of low-carbon technology and optimise network performance and connections.

The UK regulator's objective to "progress strategic planning" involves overseeing steps towards a new strategic spatial energy plan (SSEP) and a centralised strategic network plan (CSNP). The SSEP is intended to serve as a whole-system plan that bridges the gap between wider policy objectives and infrastructure development plans. It will provide a primary input into the CSNP and future price controls for electricity transmission networks. Ofgem will work over the next two years with the electricity system operator (ESO) and the newly established national ESO (NESO) (including new regional energy strategic planner roles delivered by NESO) to lay the regulatory groundwork for the plans, with consultations on proposals expected in 2024.

Ofgem will continue to work with government to support expansion of the network through the accelerated strategic transmission investment framework. Regulations are also expected in 2024 to govern the first competitive processes for an "early competition model" for private sector-led development of new onshore transmission network infrastructure.

Within Ofgem's objectives in facilitating deployment of low-carbon technology are plans to develop the carbon capture, utilisation and storage (CCUS) market, licence and codes in preparation for regulation of the first CCUS clusters and to support the government in developing policy and investment frameworks for long-duration electricity storage.

In order to "enable better and faster connections", Ofgem plans to work with the government and the ESO to implement connections reform towards significantly reducing connection timeframes. This will include an end-to-end review of connections incentives, obligations and requirements on ESO, distribution network operators (DNOs) and transmission owners. Ofgem also plans to examine whether a wider review of the regulatory arrangements for independent DNOs and independent transmission operators is also required.

Efficient, fair and flexible energy system

Priority three focuses on ensuring the right governance and institutions are in place, delivering effective and efficient market incentives and signals, enabling consumer-focused flexibility and making an energy system that is more digital work for consumers.

Ofgem's objective to "ensure the right governance and institutions are in place" will involve working with other stakeholders to establish and regulate the NESO, to play a crucial role in delivering a reliable and resilient zero-carbon energy system. Ofgem will also work alongside the government and industry partners to develop a regulatory framework for code reform to allow faster and more strategic code changes across the sector.

The objective to "deliver effective and efficient market incentives and signals" will see Ofgem continue its support to Department for Energy Security and Net Zero through the REMA.  

To "enable consumer-focused flexibility", Ofgem will focus on unlocking distributed flexibility and regulating load controllers. The regulator will continue to develop a flexibility "market facilitator" role for a low-cost transition and better coordinate markets. Decisions on which institution will deliver the market facilitator role and consultations on distributed flexibility strategy and common asset registers are expected by the middle of this year.

In targeting a more digital energy system that works for consumers, Ofgem will aim to set governance standards for digitising system data and improving data sharing in 2024. It will also aim to establish a framework for responsible use of artificial intelligence in the energy sector, with a call for input from industry having been published on 4 April.

Decarbonisation via low-carbon energy and social schemes

Ofgem in its fourth strategic priority has not set out plans to alter the operation of the existing low-carbon incentives schemes but has noted that publication of a consultation is expected in 2024 on moving the Renewables Obligation scheme to a fixed-price approach from 2027 onwards.

Osborne Clarke comment

Ofgem's 2024-25 Forward Work Programme sets out an ambitious schedule of planned policy development and implementation over the coming 24 months, a substantial amount of which will be of interest to asset owners and managers.

Much of the work programme aligns with wider sector review and reform. While there are no real surprises in Ofgem's announcement, it remains to be seen whether a forthcoming election and potential new government will impact the programme – and whether the UK energy regulator will be able to deliver the objectives in the ambitious timelines proposed.

Osborne Clarke's team will be monitoring progress of the workstreams within the programme and will share further updates as they develop.