Reforming the Energy Industry Codes: consultation response

Published: 16 September 2019

Introduction

Energy Systems Catapult has responded to a consultation by the Department for Business, Energy and Industrial Strategy and Ofgem on the changes needed to energy industry codes.

The energy sector is experiencing a period of unprecedented change and it is imperative that the electricity and gas systems are governed in a way that allow them to respond quickly to the challenges and opportunities they face. Ensuring that there is effective and agile governance of the technical and commercial rules of the system is a vital part of delivering this in a way that ensures costs are efficient, customer choice is maximised, and consumers are protected.

Many of the detailed rules that facilitate the gas and electricity markets are set out in ‘codes’ or rules governed by industry-led processes and overseen by Ofgem. These codes have done a remarkable job of setting the rules of the industry post-privatisation, drawing on the expertise and engagement of industry parties to play a vital role in keeping the lights on, our businesses running, and our homes warm, for in some cases over 20 years.

But over that time, the gradual evolution of code governance has left the overall framework fragmented, complex and poorly co-ordinated, with weak incentives to drive timely change. Processes and accountabilities that may have been appropriate when individual codes were established over the last couple of decades, may no longer be best suited. The rules governing the energy system need to adapt much more rapidly to enable the transition towards a more flexible energy system with net zero emissions, while minimising costs and protecting consumers. Reforming the code governance framework could, therefore better facilitate strategic changes in the sector, unlocking innovation and significant benefits to consumers.

Key points

Energy Systems Catapult’s response to the consultation, includes:

  • There is a strong case to accelerate the timeline for implementing code reform, given the pace of change required to deliver deep decarbonisation.
  • Given the importance of multi-vector dimensions to decarbonisation the remit of the proposed body (either the IRMB or the separate Strategic Function and Code Manager/s) should be widened to include the hydrogen and heat industries and potentially carbon, capture, utilisation and storage (CCUS), in addition to electricity and gas.
  • Any new arrangements for code governance must deliver the technical coordination of new technologies and systems necessary to ensure the safe and economical operation of the grid and a sufficiently robust system security methodology;
  • Any new code governance body/s must be obligated to consider the operation of the whole system, including non-traditional actors and behind the meter technologies, systems and operations. Without considering these new elements of the system, system security could be jeopardised, and unnecessary costs added to the system.
  • Some of these actors will not be licensed and therefore not under the jurisdiction of the new codes. We suggest the IRMB or the Strategic Function and Code Managers should work with standards agencies to manage the effect of these new stakeholders on the system. If this proves insufficient, then the remit of codes may need to be extended.
  • The lack of power over non-licensees, who may affect system operation or security must be carefully considered to ensure problems such as those seen in the Accelerated Loss of Mains Change programme do not occur due to either lack of clarity of remit, or lack of direct powers. Active and appropriate stakeholder engagement will be a critical to the success of reformed code governance arrangements.
  • New code management and governance arrangements must be sufficiently and independently funded, independent of government funding cycles. The function of Code Management should be fully resourced and located in a single identified institution for each code. This will ensure code modifications are co-ordinated across different disciplines and the traditional industry structure is not entrenched in the new arrangements. Code management should not be delivered via tender as this would entrench traditional siloed operation in the new arrangements, could cause conflicts of interest and would reduce knowledge retention at the end of the tender period.
  • Codes will also need to be reformed to make them easy to understand, proportional to the risk of a stakeholder’s operations, outcome oriented and accessible digitally.