Elexon’s response to Ofgem’s code reform implementation consultation: Reforms to drive best practice and benefits to industry
Elexon has published its response to Ofgem’s consultation on implementation of reforms to the energy code arrangements.
Background to the consultation
In January 2024, Ofgem proposed its approach to implementing the industry code governance reforms set out in the Energy Act 2023. The Act established that under the new framework Ofgem will licence code managers who will be responsible for code governance.
In the consultation, Ofgem proposed that the Balancing and Settlement Code (BSC), the Retail Energy Code (REC) and the Smart Energy Code (SEC) should each remain as standalone codes, a move which we fully support. Ofgem also proposed the creation of a unified electricity technical code and a new unified gas network code.
Ofgem’s reform will be implemented using a ‘phased approach’ to transitioning codes to the new governance model, and Ofgem is including the BSC and REC in the first phase.
Based on Ofgem’s current thinking, Elexon could be licensed as the BSC manager either at the end of 2025, or the start of 2026. Exact timing depends on the timescales for Ofgem and Government to finalise the licence conditions, and for secondary legislation to be passed to support the new regime.
Smooth transition to the licensed code manager regime
We will continue to work with Ofgem to shape the licensing regime and ensure the best possible outcomes from the reform. Moving to the new regime quickly is essential to prevent any disruption, and ensure the best outcomes.
Elexon believes that best practice among code bodies which is proven to be working well should be retained under the new regime.
The main objective of the reform should be not only be to simplify and rationalise the code arrangements but also to ensure that the new arrangements are future proofed and adaptable to the changes that will affect the sector in the coming years. This includes Market Wide Half Hourly Settlement (MHHS) and reforms that will result from the review of electricity market arrangements (REMA).
We are looking forward to delivering on the expectations of a licensed code manager, by working with the industry to speed up the BSC change process and providing better support to innovators.
We want a light-touch, outcomes based regime
Elexon has been a long-term supporter of simplification and consolidation of the codes. Overall, we want the code manager licensing arrangements to be light touch, and outcomes-based.
This will allow code bodies to find the best solutions, working collaboratively with the industry, and to be agile enough to adapt to manage new, unforeseen developments.
Clarity on scope of Strategic Direction Statements is needed
Ofgem plans to publish the first of its annual Strategic Direction Statements (SDS) next year, and has asked for views on the proposed process, scope and content. The SDS would take effect from 2025.
We support the introduction of the SDS, and we are eager for Ofgem to clarify the role that the SDS will play, before it is published for feedback. This will make sure that code bodies have a sound understanding how the SDS will impact and influence their priority areas of work. In Elexon’s view, the SDS should not be excessively prescriptive, supporting code bodies to have the latitude to come up with practical solutions to deliver against the SDS objectives.
Role of stakeholder advisory forums in decision– making
Ofgem plans to replace code panels with stakeholder advisory forums that have a fixed membership of impartial code party representatives, alongside paid members that are independent of industry. We support this and are pleased that the BSC Panel is recognised by Ofgem as a best practice model to follow.
In our response we ask Ofgem to provide more detail on what the stakeholder advisory forum’s role will be in the decision-making and appeal process for changes to code rules. We also look forward to working closely with Ofgem to clarify the future role of Panel sub-committees, which provide Elexon with vital industry expertise to help manage the BSC.
Next steps
In March 2024, Ofgem and Government published a consultation on the secondary legislation and regulatory framework for code managers. The closing date for this 5 May, and we will provide an update on our response once we submit it to Ofgem.