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Ofgem kicks off supply market overhaul with fresh call for evidence

Citing significant developments in the fields of decentralised generators, smart meters and big data, Ofgem has launched a consultation which could bring about the end of the conventional ‘supplier hub’ model in the UK.

In a consultation document published this morning, Ofgem has called for evidence from industry stakeholders that could feed into an overhaul of supply market arrangements.

The regulator has acknowledged that the roles and responsibilities of institutional suppliers have now been in place for more than 20 years, arguing that now was the time to explore whether or not the current model was still fit for purpose.

It puts forward evidence that the existing regulatory framework is constraining ambition to such an extent that the retail market could require a complete redesign if consumers are to benefit from potential savings.

Chief executive Dermot Nolan has published a blog accompanying the consultation, within which he openly and frankly discusses how the so-called ‘supplier hub’ model is being revolutionised by “exciting new developments”.

Nolan referenced peer-to-peer trading networks and vehicle-to-grid arrangements in particular, noting that innovations along this line had the potential to render conventional suppliers “less relevant – or even redundant”.

But these innovations remain constrained by regulatory frameworks that have appeared outdated.

“Today’s energy market arrangements are geared towards licensed energy suppliers being the sole supplier of energy to customers and complying with a complex set of rules which underpin the energy system,” Nolan wrote.

Ofgem’s regulatory sandbox allows such innovations to operate without the confines of its strict set of rules. Now the regulator appears keen to open this up further and consult on whether or not its regulatory approach needs to be re-thought.

The consultation outlines four specific questions that Ofgem is seeking responses to on topics such as supply market criteria, regulatory barriers that are preventing disruptive business models, supply market arrangements and the case for regulating energy market intermediaries.

Consultation responses are requested by 22 December 2017 – but will be accepted later – and will feed into a ‘way forward’ document pencilled for Spring 2018.

It follows a raft of warnings from Ofgem over the pace of change currently seen within the UK market. Last month Nolan addressed the energy industry at trade body Energy UK’s annual conference, stating that “change was coming” as he tackled a number of pressing themes, not least the prospect of government-enforced price caps.

Less than a fortnight later the regulator’s maiden State of the Market report warned that the traditional supplier hub model was at risk of breaking down as the UK power market decentralised.

Recommendations have also come from outside the regulator. Papers from renowned experts such as Laura Sandys and Dieter Helm have both called for a radical overhaul of energy market regulation in recent weeks.