BEIS and Ofgem look to overhaul the ‘complex and fragmented’ energy code system

A consultation has been launched on overhauling the energy code governance framework to help drive the transition to a clean energy system.

Published today by the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem, the consultation states that while the codes have thus far done a “remarkable job guiding the industry post-privatisation” they were not designed to deal with the increasingly decentralised and distributed energy system in Britain.

As such, the framework has become complex, fragmented and lacks incentives to innovate, and there is an urgent need to update it. This was identified in the energy white paper last year, when the government committed to consulting on options for reformation, building on a previous consultation in 2019.

The four areas in need of reform are; providing strategic direction, empowered and accountable code management, independent decision-making and code simplification and consolidation. The overarching nature of these areas will mean they cover all 12 of the current electricity and gas codes as well as relevant engineering standards.

Additionally, BEIS and Ofgem are proposing to bring central system delivery bodies into the scope, meaning it would also include the electricity systems operated by Elexon, the smart systems operated by the Data Communications Company (DCC) and the Data Transfer Service (DTS) operated by Electralink.

Building on the 2019 consultation, two potential models for delivering the desired agile code system have been laid out by BEIS and Ofgem. The first would see the regulator as a strategic body working with a separate code manager.

This would involve Ofgem developing and annually publishing directions for codes and ensuring their delivery by managers, approving material code changes and leading code changes themselves. Within this model the code managers would be selected through a tender process, replacing the existing code administrations after a suitable transition period. They would then be responsible for developing an annual delivery plan based on the strategic direction they receive from Ofgem.

Within the second proposed model, an Integrated Rule Making Body within the Future System Operator would be established. This would see the strategic function and code manager function combined, with one body holding most of the responsibilities detailed in the first model, although Ofgem would retain some oversight and decision making roles to protect against potential conflicts of interest.

BEIS and Ofgem launched a consultation on the creation of a Future System Operator today as part of an influx of calls for evidence, and would see an entirely independent operator take on much of National Grid ESO’s role in an effort to avoid any potential conflict of interest given its links to National Grid as the system continues to transition to net zero.

This builds on a report from Ofgem in January into system operator governance arrangements, which itself led Elexon to throw its weight behind a reorganisation of both the system operator roles and code arrangements to develop a ‘holistic’ system that can support net zero.

The consultation into code reform will act as an initial high-level insight into stake-holder views, allowing Ofgem to then work in consultation to develop elements of the reforms that do not require primary legislation. To ensure this is delivered as quickly as possible, the regulator will then look to review the options for code consolidation before the new governance structure is implemented.

This would see delivery of code consolidation begin in 2024 if model one is chosen, and in 2026 if model two is. The consolidation into the Design and Delivery of the Energy Code Reform opens today, and will run until 28 September 2021.

For more information and to respond to the consultation, see here.