Expert viewpoints

With references to Ofgem being “incompetent”, to criticism of its “negligence” and “systemic failure to effectively regulate”, the House of Commons BEIS’ Select Committee’s latest report[1], on Energy pricing and the future of the energy market doesn’t pull any punches, writes Zoe McLeod, Sustainability First's Policy Director. 

But while it’s Ofgem’s turn in the spotlight, there are important lessons to be learned, and a warning, for all regulators and governments who oversee them. Time and time again, consumers and the environment are being failed by poor monitoring, slow enforcement and weak protections with often the most vulnerable worst impacted. This benefits no-one and leaves good companies tarred by the same filthy brush.  

The cross-party Committee calls for Ofgem to improve “its regulatory oversight, its decision-making processes, the use of its enforcement powers, and the quality of its governance.” With this we agree. A number of other regulators should also follow suit.

 

It is tempting in the light of Russia’s invasion of Ukraine to think we must focus on short term energy security. But the need to address the climate crisis and ensure a fair transition to net zero have not gone away. In fact it is more urgent than ever that we stick to our net zero targets. Accelerating action on climate change is the best way to improve our energy security.

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As customers face an ongoing energy crisis there is an urgent need for targeted financial support. But the crisis has also underlined the need for wider energy savings and efficiency including a push for home insulation. This would not only help households struggling this winter but is essential in tackling the pressing challenge of climate change and the net zero transition.

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With major changes ahead in energy and water there is a growing need to look across sectors. There have always been inter-dependencies but the focus on net zero creates new opportunities and risks. There needs to be more dialogue and joint planning. With Strategic Policy Statements being developed for water and energy the time is right to think afresh about these interactions and for the regulatory framework to evolve to support a cross sector approach

One of the mantras in regulatory circles at the minute is the need to focus on “whole systems”. Over recent years Ofgem has been expanding its thinking from simply “whole electricity system” to “whole energy system” to a position now where transport and heat are being brought into the picture. However, looking more widely still the strategic cross-sector issues between energy and water rarely get discussed. This Viewpoint aims to highlight where some of the important overlaps lie as a basis for encouraging more truly whole systems thinking.

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One of the challenges in tackling a long-term fundamental issue like climate change is to ensure that the approach taken is “fair” between current and future generations. To help us think about this we commissioned Frontier Economics on a pro bono basis to provide a framework for analysing the issue of intergenerational equity.

This Viewpoint summarises the key messages from that work as we see them, provides some of our own reflections building on the Frontier report and highlights where further work is required.

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The last year has seen a significant amount of CMA activity in the water and energy sectors.  This Viewpoint explores the differences in the appeals regime in these sectors, the basis for the recent appeals and their implications for purposeful regulation.  To address the challenges of net-zero and to facilitate the purposeful agenda, the appeals regime needs reform. 

To help reduce the focus on legal processes, and increase transparency and trust, this paper makes three suggestions for how the regime could be improved in terms of: cost of capital; social and environmental initiatives; and major investments and efficiency.

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