Flexibility needed to deal with energy sector change says Ofgem

Energy industry watchdog Ofgem has said a more flexible approach to the UK’s energy system will be needed by policymakers and regulators amid rapid change in the sector.

In the first in a series of discussion papers, the organisation said that the pace of change and uncertainties over how the system will develop over the coming years meant forecasts could not be accurately made.

Ofgem said it was “impossible” to predict what the energy system would look like in 2030, let alone 2050.

Falling costs

Ofgem pointed to its own predictions over the development of solar power – in 2012, it forecast that it would take 18 years for the UK to deploy 6GW of solar, but the 10GW-mark was rolled out in just four years.

More broadly, “drastic” reductions in the cost of renewable energy were also highlighted.

The regulator said: “Even in the last few months, there have been astonishing developments: solar power in Chile was priced at £25/MWh in August, and then quickly overtaken in Dubai by a price of £17/MWh set in September.

“Offshore wind in Denmark was priced at £51/MWh in September.”

 ‘Clear principles’ needed

Ofgem said stakeholders wanted the UK Government to decide now on its preferred pathway for development, but the regulator said such a move would be unwise because it would cost more in the long-run by not taking into account unexpected technological developments.

The watchdog added: “Given the pace of change and uncertainty, we can no longer rely on three-to-four year projects to develop regulation that will set policy for the next decade but rather need to set clear principles and a direction of travel for regulation.

“This will provide a signal of predictability while still allowing us to be flexible to wider changes.”

Martin Crouch, senior partner for Improving Regulation at Ofgem, said: “We want to put consumers at the heart of the debate around the future energy system as it transforms in the coming decades. Our Future Insights programme will help us develop a strategic vision so we can protect consumers now and in the future. We invite stakeholders to join in the debate.”

Earlier this year, the regulator asked stakeholders for their views on how the energy system could develop in the decades ahead and have fed these views into the discussion papers.

As part of the Future Insights programme, Ofgem will hold stakeholder events to discuss the key issues in the coming months.

> Read Ofgem's discussion paper