Over the last few years, public, political and industry confidence in Ofgem has looked increasingly shaky. This can be attributed to several factors, not least concerns it has failed to keep pace with emerging green technologies; questions over its handling of supply chain pressures; and, most notably, criticism of its regulation of the energy market in the wake of the 2022 energy crisis.
The Ofgem Review: final report, published in April, was frank about the challenges facing the regulator and the need to restore confidence among various stakeholders. Report authors were told that Ofgem was “opaque, risk averse and resistant to change”, with staff “not always empowered to take decisions at the right level”.
DESNZ proposes to rectify this situation by charging Ofgem with three equally weighted statutory objectives: focusing on the interests of existing and future consumers, net zero, and growth. A reformed Strategy and Policy Statement (SPS) will provide clearer strategic guidance from the government, while allowing Ofgem to seek advice without compromising its independence. Put simply, the government would determine the “what” – desired policy outcomes and priorities and Ofgem would take responsibility for the “how” – the regulatory approach used to achieve them.
Dermot Nolan, CEO of Ofgem from 2014 to 2020, thinks the review is less revolutionary than some suggest. The government describes it as a “significant package of reform”, but he says it “didn’t radically change its remit” or give the regulator a fundamentally different set of powers.
He is also sceptical of giving consumer protection, net zero and economic growth equal weight. Ofgem’s previous framework, Nolan says, had a clearer purpose to protect consumers in both the short and long term. The problem with making all three objectives equal, he argues, is what happens when they point in different directions.
“You’ve got a load of issues now with the electricity system,” he says. “Do you want to build more networks? That’s going to be expensive, but it will also be better for economic growth? Or do you want to do more demand response, which might be cheaper for the consumer?”
Nolan argues that giving Ofgem three equally weighted primary objectives could be a “recipe for confusion”. Since the regulator makes hundreds of regulatory decisions each year – many of which can be challenged in court – he believes ministers must also recognise the risks they are asking the regulator to take: “What happens afterwards, when I’m sort of told I’m an idiot by a select committee?”
Neil Kenward, interim director general of markets for Ofgem, rejects Nolan’s concern that the regulator’s new objectives will make its job harder. “I don’t think it is confusing. I think it simplifies,” he says. The new framework replaces what he describes as a “more complicated system of subsidiary duties”, leaving Ofgem to make the trade-offs between consumer protection, net zero and growth.
These trade-offs are harder to assess because Ofgem does not, reportedly, provide medium-term forecasts for bills or infrastructure costs to the public.
Tension between Ofgem’s three objectives is likely to grow over the coming years owing to the huge investment required in Britain’s electricity networks, which will receive a potential £80bn over the next five years to fund the “biggest expansion of the electricity grid since the 1960s”. The outlay is expected to add about £104 a year to household network charges, but Ofgem estimates that savings elsewhere will offset this to a net increase of around £24 annually.
Is Ofgem now a delivery body? Kenward says its role is to make sure infrastructure is delivered as cheaply as possible for consumers: “We’ll still make sure that they’re being built at least cost, and use our regulatory regimes to bring costs as low as possible for consumers.”
But several of the review’s reforms, whether consumer or industry, are dependent on legislation working its way through parliament. Kenward says the plan is to put the measures requiring legislation into the Energy Independence Bill, announced in the King’s Speech in May and expected to be introduced into parliament in September. But even if the bill is prioritised, he cautions that parliamentary passage will take time – not that this should halt any progress being made in the interim. “Some are dependent on legislation, but we’ve got a number of work streams underway,” he says.
For Nolan, the question is what Ofgem will prioritise when its objectives conflict. Under the proposed framework, the regulator would have to weigh long-term investment, such as grid upgrades, against immediate pressures to keep energy bills down. Yet the cap on gas and electricity is now the equivalent of £1,723 a year for an average British household, with some families forced to spend more than ten per cent of their income on energy expenditure.
To help consumers, Ofgem is set to gain direct consumer law enforcement powers, including the ability to hold individual executives personally accountable and, in serious cases of wrongdoing, claw back bonuses. The real test will be whether the changes make a difference to households.
Few people have been more vocal about that disconnect than Martin Lewis. “I’ve felt like I am banging my head on a brick wall,” Britain’s unofficial personal finance laureate tells Spotlight.
On top of the myriad of consumer advice he gives his loyal subscribers, he says the biggest issue stuffing his mailbox is standing charges. Currently, consumers pay a standing charge for gas and electricity even if they use none. Last September, Ofgem announced plans to require all energy suppliers to offer at least one low standing charge tariff to all customers by early 2026. But, aside from a few limited trials, this is yet to materialise. And it is an urgent matter. Households in Britain could owe their energy suppliers as much as £7bn by the end of the year.
The government’s Ofgem review cited standing charges as an example of decisions that, arguably, belong with ministers, highlighting the blurred lines between the government and the energy regulator.
For Lewis, standing charges are part of a broader problem with the way consumer protection operates in the retail energy market. He argues it has disproportionately benefited energy companies while failing to properly manage costs for consumers.
“Consumers are very angry about energy profits, but the truth is the margins for retailers that are regulated by Ofgem aren’t huge,” he says. “The bigger profits are made further downstream by energy producers and generators, yet their prices and profits are not Ofgem regulated, even when they’re part of the same firm”. Lewis says he would like to see lower prices across the board and argues policy costs should be substantially reduced on energy bills.
Lewis’s frustrations point back to one of the central problems identified by the review: where regulation ends and political decision-making begins. Standing charges, the price cap and the policy costs added to bills all affect what consumers ultimately pay, but responsibility for those decisions is divided between Ofgem and the government. Clarifying that boundary may prove just as important as rewriting the regulator’s objectives.
The challenge becomes more pressing in a changing energy landscape. Ofgem’s remit was built around conventional gas and electricity markets, but the energy transition is creating technologies and business models that do not fit neatly within those boundaries. The review argues that protecting consumers requires Ofgem to regulate the technologies and services emerging from the energy transition.
To do that, it proposes new powers under the Energy System Value Chain (ESVC), a framework intended to “close existing regulatory gaps”.
Under the proposal, emerging products such as heat pumps, solar panels, and heat networks could be brought within Ofgem’s purview by the government without the need for fresh legislation. The aim is to “future-proof Ofgem’s remit” to keep pace with an energy system changing faster than the laws governing it. Only 52,000 retrofit heat pumps were installed last year, an increase of seven per cent compared to 2024, but slower than the 56 per cent growth seen in 2023.
And it’s not just emerging tech and new energy sources. Kenward points to another area where Ofgem has limited powers to intervene: heating oil, which is not covered by the price cap and is instead overseen by the Competition and Markets Authority (CMA). Under the ESVC, he says, Ofgem could “establish a regime which would enable us to regulate that area”. The point, Kenward says, is to give Ofgem a way to step in when consumers face problems in parts of the energy market that currently sit outside its remit.
Adam Berman, director of policy and advocacy for Energy UK, the trade association for the UK’s energy industry, broadly supports this direction. “On the face of it, I think it feels sensible,” he says of the ESVC. With this new approach, Berman says, the regulator will need to make careful judgements about where intervention is justified and where it risks imposing costs that ultimately fall on consumers.
Climate risks are one of them. Ofgem could require generators and other energy assets to be upgraded to withstand flooding or extreme weather. The harder question, Berman argues, is one of proportionality. Should Ofgem push aggressively in this direction, he argues, the costs of preparing for such rare events could be passed on to consumers.
Berman also claims that Ofgem’s growing responsibilities should not automatically mean more regulation or a larger regulator. In 2014, figures show the regulator employed 890 full time staff. By 2025, it had jumped to 2,110 – a 137 per cent increase. From the energy industry’s perspective, he says, this institutional growth has often encouraged unnecessary, rather than better, regulation.
“If you hire more people to do regulation, people will do more regulation,” he says. “I don’t think anyone is saying that we should rip up regulation and just have a complete free for all.”
His wider criticism, however, is less about the size of Ofgem than about who is responsible for deciding how the regulator should evolve. Although it acknowledges shortcomings within Ofgem, Berman argues that the government’s report largely asks the regulator to reform itself rather than imposing meaningful structural change. “It’s probably wishful thinking to ask any regulator to regulate itself,” he says. “That is really the government’s responsibility.”
The industry being regulated should not necessarily be the one to dictate how this should be done. But, for all his criticisms, Berman insists Energy UK is not arguing for a weaker regulatory body. “Everyone wants Ofgem to be successful,” he says. The question, he argues, is whether ministers are prepared to let it become genuinely independent. “I really hope Ofgem feels the confidence to regulate in the best interests of all energy users […] to listen to political critique but ultimately to act independently.”
Does Kenward agree? While he accepts that the regulator has sometimes been too cautious, he says it now needs to strike a different balance. “Perhaps historically, we have sometimes been [too risk averse].” The sweet spot, he continues, is a regulator capable of being both predictable for investors and agile enough to respond to consumers’ needs.
As the government looks for ways to ease the cost of living, drive growth, and accelerate the energy transition, Ofgem will have to prove that those ambitions do not have to come at the expense of one-another.
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