As the UK aims to become a clean energy leader, the regulatory direction of travel in the sector has never been more critical. It is clear substantial reforms are essential to ensure regulation supports innovation, investment and green growth.
The government’s focus on reforming regulation to make it growth-friendly is welcome and we have recently responded to its review of Ofgem, advocating for a revised regulatory approach in the energy sector.
The current framework, managed by Ofgem, is overly prescriptive and stifles innovation. By concentrating on detailed governance rather than encouraging competition and innovation, Ofgem’s approach is inadvertently pushing suppliers towards homogeneous offerings. This reduces consumer choice and hampers the development of tailored, innovative services for diverse customer needs during the transition. It can also undermine trust.
To truly support green growth, Ofgem’s role must be broader and more strategic. It should act as a guiding hand for the government’s Clean Power 2030 (CP2030) goal, facilitating investment across the entire energy sector and related products and services. This means creating a regulatory environment focused on desired outcomes, encouraging innovation and competition, and setting minimum consumer standards while allowing room for differentiation and service excellence.
We know we want to lower bills and reduce demand while keeping people warm and dry in their homes. However, markets don’t always deliver optimum outcomes. Even if we build a competitive supply of energy, we may still not achieve this goal. UK policymakers have limited influence over energy prices, which are heavily influenced by global factors.
Consequently, we could still end up with high demand (harmful to the environment), stubbornly high prices (bad for customers’ wallets) and damp and mould in homes (detrimental to health). This is where regulation should come in.
Instead of focusing solely on reducing energy prices, Ofgem can and should calculate the most efficient way to provide warm spaces. By looking at likely scenarios for energy prices, Ofgem can determine an efficient level of insulation and reflect that in building standards with the government as part of the delayed, but much needed, Future Homes Standard. Similarly, Ofgem should assess the efficiency of other appliances to ensure they are set at an appropriate level. Through these measures, we can achieve the same outcomes of reduced bills for consumers and warm, dry homes in a manner that also benefits
the environment.
The challenges of CP2030 and net zero 2050 require ambitious action from both Ofgem and suppliers. The latter need the headroom to innovate and develop new technologies and processes. We cannot be ambitious if we are struggling to keep businesses financially sustainable. Consequently, the retail energy sector must be made more investable. The stringent price cap, while intended to protect consumers, often leaves little room for suppliers to innovate and invest in new technologies. This is particularly challenging for smaller, specialist providers like Utilita that do not have the large balance sheets of legacy suppliers. It also harms customers who benefit from competition.
At Utilita, we have seen first-hand how engaged our customers are with energy efficiency and decarbonisation. It’s a misconception to imagine that customers from poorer socioeconomic backgrounds are disengaged with these issues.
Our customers who use smart prepayment meters are often more aware of their energy consumption because they can see how changes impact their credit balance in real time. This awareness drives them to adopt energy-efficient behaviours, such as switching off lights in unoccupied rooms, supported by our smart in-app functions and industry-leading energy efficiency campaigns. Many of these changes are likely to be permanent, contributing to long-term sustainability.
Utilita created the first demand flexibility service designed specifically for prepayment customers, the “Power Payback”. This awards customers instant credit on their meters for using energy outside of peak times during the National Energy System Operator demand flexibility events. The incentive is much more significant for smart prepay customers who can see this instant impact, rather than a few pounds’ difference on a monthly direct debit. We want to invest more in innovations like this and work with Ofgem to design a framework that will allow us to do so.
Building trust in the energy sector is paramount. Without trust, consumers will not be able to reap the benefits of advancements in the sector. The current regulatory approach often demonises suppliers, undermining public confidence. Despite this, Ofgem’s own research shows that satisfaction with the sector is at an all-time high. Ofgem must move away from prescriptive governance and set a framework that prioritises customer outcomes. This will foster greater trust and engagement.
Pushing for regulators to support growth is not a new concept. However, we have not seen Ofgem take sufficient account of the growth duty it already has. The government’s ongoing review of Ofgem must provide clear direction, streamlined duties, and a focus on enabling investment.
The path to a sustainable, green energy future requires bold regulatory reforms. There must be a real urgency from government and the regulator for Ofgem to shift its focus from prescriptive governance to a more strategic, innovation-friendly approach. By doing so, it can help create a competitive, dynamic energy market that supports green growth and delivers better outcomes for consumers.
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