Ofgem’s vision of a smart energy system in the UK

2 November 2017

A plan to give UK homes and businesses more control over their energy use, and to support the uptake innovative technologies such as smart grid and energy storage, has been published in a new report from regulator Ofgem. Staff report

The report Upgrading our energy system – smart systems and flexibility describes how the UK energy system is changing and how it can be made to provide economic benefits for businesses and households. Over a quarter of the UK’s electricity is now being generated through renewables such as wind and solar, much of it located close to homes and businesses. New technologies that help store and manage energy are emerging and the costs are falling.

These changes and the opportunities they provide for job creation and improvements to management of the energy system are expected to help the country save up to £40 bn on energy costs, according to research conducted for BEIS by Imperial College and the Carbon Trust. This is the belief also of Business and Energy secretary Greg Clark who commented: “Upgrading our energy system to make sure it is fit for the future is a key part of our Industrial Strategy to deliver a smarter, more flexible energy system. A smarter energy system will create new businesses and high-skilled jobs, while making sure our infrastructure is able to cope with demand.”

The intention is to complete the rolling out of smart meters, enabling suppliers to offer lower tariffs and making it easier for firms to develop smart appliances and gadgets, while allowing consumers to engage in demand side response and other saving measures.

The plan also recognises the role that energy storage can play in a smart energy grid and the opportunities presented by falling costs of battery technologies designed to store surplus energy. To allow industry to exploit these new technologies government and Ofgem have committed to removing barriers to the introduction of this technology and developing a business environment where new entrants to the market can compete.

The plan

The plan outlined by Ofgem includes a seriesoflegislativeactions(seeTable1fora digest of what Ofgem believes are the main issues at stake and how it plans to deal with them) and other measures in co-operation with industry to deliver a smarter, more flexible energy system by removing barriers to smart technologies, including storage, enabling smart homes and businesses, and making markets work for flexibility.

There are also fundamental changes taking place within the energy markets, in order to create a climate in which new sectors, technologies, and services can flourish. These include changes that improve access to the markets for smart businesses that will enable them to compete fairly and reduce costs for consumers, enable the opening of new markets, and improve co- ordination across the system.

Guiding principles

At the centre of Ofgem’s approach is ensuring effective markets and competition. It wants to see competition that is as far reaching as possible to make sure consumers benefit from a more efficient system.

This means facilitating competition between new types of flexibility, such as storage and demand-side response (including through aggregators); and new types of flexibility and other solutions, including interconnection, generation, energy efficiency or network infrastructure.

The policy ambition is for providers of flexible solutions to be able to realise the true value of their flexibility. In the current context, this means maximising access to the existing range of markets (capacity, wholesale, balancing and ancillary services), alongside new markets or revenue streams. In the future, it could mean more fundamental changes to market structures or signals, to make it simpler for providers to combine value streams.

Achieving this increased level of competition and a market-led system will require improved visibility and transparency between buyers and sellers of flexibility. This is needed to give buyers and sellers of flexibility improved understanding of the markets, and market signals which inform their long- and short-term investment and operational decision making.

Consumer control and security

Ofgem wants to help energy consumers gain control of their bills and how much energy they use, and make it easier for them to access the benefits of a smart system in whatever way works for them Smart technologies have a central role to play in this and can provide consumers with greater control and choice. Innovative businesses should to be able to offer new technologies and new services to consumers, many of which could build upon the smart meter infrastructure.

A smart system can deliver energy security at a lower cost than would otherwise be the case. As new smart technologies and solutions emerge, the System Operator and the energy market will have a more diverse range of options for balancing supply and demand. At the same time, it is essential that a smart system remains a secure system. A smart system will need to mitigate new risks, such as cyber risks, because it will be more complex and more driven by data and communication technologies.


A key role for the government and Ofgem is to create the environment for new ideas to flourish by removing barriers to innovation. Ofgem’s approach is deliberately adaptive, in recognition of the uncertainties inherent in long-term and fundamental changes in the energy system. That is why its approach is so firmly rooted in markets and competition where investment choices which offer the best value for flexibility providers, and ultimately consumers, will win out.

Regarding storage, Ofgem has heard the calls to modernise the regulatory environment and is reacting to them. Storage can open up many possibilities, helping to integrate low carbon generation, reduce the costs of operating the system, and help avoid or defer costly reinforcements to the network. But it needs a level playing field to compete. Ofgem’s plan intends to clarify issues around licensing, planning, connections and charging for storage, and around the business of enabling storage to locate on the same site as renewable generation.


Ofgem believes that in Great Britain the system operator, transmission owners, distribution network operators, generators, suppliers, aggregators, tech companies, local enterprise partnerships, local authorities, community energy groups, and consumer groups, amongst others, are already considering the challenges and opportunities smart technologies bring.

More widely, Ofgem recognises that smart energy is central to many other changes in the UK’s energy system and the wider economy.ItisanimportantpartoftheUK’s Industrial Strategy, given its potential to reduce energy costs, increase productivity, and put UK businesses in a leading position to export smart energy technology and services to the rest of the world.

It is therefore a central part of how the UK sets about decarbonising its power sector, as will be set out in the government’s forthcoming Clean Growth Plan.

The actions proposed by Ofgem are designed to work together with different potential approaches to long-term heat decarbonisation, including greater electrification. Finally, a smart energy system is part of the government’s wider digital strategy, as it uses digital technology and data, improving the energy system’s integration with related systems, eg heat, transport, utilities and buildings. 

Ofgem Table 1. Perceived issues and planned responses

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