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Ofgem Launches Review into Local Energy System Operation

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Ofgem has launched a review into how the energy system is planned and operated locally to ensure Great Britain is ready for a huge increase in green, more affordable homegrown power.

This could result in the creation of new independent bodies separate from network companies to oversee local energy systems across the country.

Local power grids will play a critical role in helping to reduce our reliance on expensive imports of gas, bring down energy bills and meet the country’s climate goals.

They will deliver electricity to charge millions of electric cars and power clean alternatives to gas boilers to heat homes and businesses.

To do this most quickly and at the lowest cost to customers will require a strategic, co-ordinated approach at a local level.

Currently, each electricity distribution network company is responsible for operating its local power grid and planning for future energy demand, for example by reinforcing the grid to connect new local electric vehicle charging points and heat pumps.

Local authorities also play an important role and need to make sure that these network companies meet the needs of local transport and housing.

Ofgem believes that the current arrangements have gaps, lack co-ordination and could create potential conflicts of interest which could add unnecessary costs to customers and delay the transition to net zero.

For example, new local markets could play a bigger role in future to balance power supply and demand flexibly and reduce the need for building expensive new grid capacity.

However, if electricity distribution network companies are responsible for these new markets, they face a potential conflict of interest as building new grid capacity would boost their revenues.

In today’s Call for Input, Ofgem has set out four possible alternative arrangements. These range from separating the local system operation function internally within electricity distribution network companies to setting up new fully independent regional bodies.

Charlotte Ramsay and Richard Smith, co-directors of energy systems, management and security of Ofgem, said:

“To reduce our reliance on expensive imports of gas and bring down customers’ energy bills, we need to accelerate our transition to net zero. This will require a transformation of our energy system, in particular at a local level.

“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.”

Polly Billington, chief executive of UK100, a network of local government leaders for delivering net zero, said:  

“This review is extremely timely and welcome.

“It is great to see Ofgem recognise the vital role of local communities and authorities in creating the kind of future-proof net zero energy systems we need, which have flexibility at their core. UK100 members are keen and ready to play their part.”