Ofgem has lost much of its sector knowledge thanks to a high turnover of staff in recent years, Energy UK has warned.
The trade body was responding to the government’s consultation on the draft energy Strategic Policy Statement (SPS), which sets out the strategic priorities for the Future Systems Operator (FSO) and Ofgem.
In its response Energy UK expresses concern that the document doesn’t deliver the “fundamental shift” required from Ofgem and the FSO in order to deliver net zero, and it has urged the government to clarify the role that the FSO should play in the retail market.
Alongside the net zero duty proposed for Ofgem, the SPS could help to provide a strong steer away from short-term, least cost considerations toward longer-term strategic thinking, it says.
However the drafting of the SPS is “confusing” and there is a lack of clarity about how Ofgem’s role changes beyond business as usual as well as how the document fits with a wider review of the utility regulators being carried out by the Department for Business and Trade.
The response also notes that there is no mention in the document of how the government expects the Department for Energy Security and Net Zero (DESNZ), Ofgem or the FSO to resource the work required to fulfil the roles and responsibilities set out in the SPS.
In particular, the document highlights “high turnover in recent years” at Ofgem, which has “effectively lost much of its institutional knowledge across the sector”.
Without additional focus on recruiting and retaining staff, there will be significant delays as DESNZ, Ofgem and the FSO are forced to strictly prioritise their work.
It is also unclear in the document whether Ofgem, which Energy UK warns is already struggling to deliver its existing responsibilities, will be provided with further resource to speed up the process for approving upfront investment in grid infrastructure.
“Given the significant backlog of connections and the long timelines for connection of generation and demand assets, it must be clear whether or not Ofgem is expected to modify RIIO-2 frameworks to allow further investment in line with 2030 targets and net zero, or if existing mechanisms are deemed to be satisfactory in enabling anticipatory investment,” the response adds.
It also raises concerns that the SPS moots a role for the FSO to consider the extent to which energy sector participants are providing the products and services that consumers want.
Energy UK says this section raises questions about the role the government intends the FSO to play in the retail market and whether this may cross over with Ofgem’s existing responsibilities.
Adding that it is unclear why the retail market should be a specific responsibility for the FSO in the context of Ofgem’s existing duties, the trade body suggests giving this role to the embryonic systems operator merits reconsideration.
If this doesn’t happen, it calls for clarification on what such FSO assessments might cover and how they interact with Ofgem’s role regulating the retail market.
Overall, Energy UK says it has “little confidence” that the direction entailed in the SPS will be “sufficient to deliver either a timely or effective reform of the market”, which cannot continue to be progressed in siloes and a more strategic approach is required.