Ofgem: Innovation should shape future energy market

Innovators say the current system of regulation, which includes industry codes, ‘is standing in the way’

The future energy market should be shaped by innovation responding to consumer needs and not by regulation.

That’s according to Mary Starks, Executive Director for Consumers and Markets at Ofgem, who believes while regulation will still be needed, it must be “flexible enough” to respond to innovation, “rather than constraining it”.

The feedback from innovators suggest the current system of regulation, which includes industry codes, “is standing in the way” – and therefore, Ms Starks says the regulatory framework should support change and create the conditions to foster the innovation that consumers want and need.

She adds consumer protection must be innovative and targeted to their needs in the future energy market and regulators will have to collaborate in new ways as consumer solutions may cross sector boundaries.

In addition, Ms Starks believes consumers should be able to produce and sell energy back to the grid, get the best deal through easier switching between suppliers and control their energy spend by shifting use to when prices are cheaper.

She adds a series of reforms are already underway that will underpin the transformation of the market – from the smart meter rollout and half-hourly settlement to the Targeted Charging Review that seeks to ensure network costs are shared fairly.

She said: “Getting there requires a complete rethink of how the energy system works, where it fits into the bigger picture of consumers’ lives and the role of regulation in supporting the future system. An expert report released last year called for a ‘managed revolution’ of the sector where regulation gets out of the way of innovation but doubles down where there are real risks to consumers.

“As we seek to foster revolutionary changes that benefit consumers, we are also thinking about how our role will need to evolve. The future market should be shaped by innovation responding to consumer needs, not by regulation. Regulation will still be needed but regulation that is flexible enough to respond to innovation, rather than constraining it.

“Ofgem will work with government to ensure appropriate backstop protections are in place to make sure no one – especially vulnerable consumers – gets left behind. However, our ambition is that by supporting innovative and inclusive propositions that empower many, those protections will be needed only by the few.”

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