The government has concluded its review of Ofgem, the independent regulator for the gas and electricity markets in Great Britain, setting out a significant programme of reform to modernise its role. The Department for Energy Security and Net Zero (DESNZ) has published a final report, setting out expectations and actions designed to ensure Ofgem can keep pace with an increasingly complex and fast-changing energy system.
These reforms, once implemented, will give Ofgem new powers, a broader remit, and a sharper focus on outcomes, consumer protection, helping to facilitate the clean energy transition, growth and innovation.
Below, we highlight five key takeaways from the final report, the timeline for implementation, and what energy sector participants should do to prepare.
Ofgem will shift from a rules-based to a principles-based, outcomes-focused regulator with stronger enforcement powers. The updated energy regulatory framework aims to clarify the roles of the three key bodies:
A new mechanism will allow Ofgem to seek a steer from government if needed. There will be a new Strategy and Policy Statement (SPS) process, with separate, specific SPSs for Ofgem and NESO, and a transition of scheme delivery away from Ofgem.
A notable change to the approach to energy sector regulation is the Energy System Value Chain (ESVC) model (set out at Annex E of the report), which maps all activities from generation through to consumer services and installation, supported by an Energy System Guidance Framework. This new model, overseen by Ofgem, aims to help Ofgem identify and close regulatory gaps as new technologies and business models emerge. DESNZ would have the ability to introduce regulation for areas after consultation with Ofgem, although the regulator could be Ofgem or a different regulatory body, if more appropriate. The Secretary of State will have the power to appoint Ofgem as regulator for new activities within the ESVC, avoiding the need for new legislation each time.
The report also sets out expectations for organisational and cultural change at Ofgem, including:
The government may consider changing Ofgem’s organisational status from a non-ministerial government department in the future. The Nuclear Decommissioning Authority and Financial Conduct Authority are referred to as examples of regulators with a different public body status.
Ofgem’s statutory framework will be updated to include three objectives of equal legal status:
This marks a shift from the current single overriding objective of protecting consumers, enabling Ofgem to balance short-term consumer interests with longer-term goals. The Ofgem-specific SPS and the ability to seek government guidance are intended to help the regulator navigate potential complex trade-offs.
In a notable extension of regulatory reach, Ofgem will be granted new powers to enforce accountability at both individual and corporate levels:
Ofgem’s consumer protection enforcement powers will be strengthened and its remit will expand:
To support innovation and investment, as well as moving to outcomes-focused, principles-based rules, Ofgem will introduce a more flexible authorisation toolkit, including:
Other planned changes include a faster licence modification process with reduced standstill periods (for use in exceptional, urgent cases), extending the deadline for completing provisional and final order processes (up to 15 months for the whole process from order to penalty) and reforming the penalty ceiling in cases where there is low or no turnover. The government supports quasi-automatic fines in relation to Third Party Intermediaries (TPIs), to penalise clear-cut rule breaking that does not justify a formal investigation, but not a general power to levy quasi-automatic penalties. There are further requirements to reduce administrative burdens.
The reform programme has two tracks in practical terms. The first can be progressed without legislation, and is focused on organisational and cultural reform, stakeholder engagement, and transparency. The second comprises reforms that require enabling legislation (principally primary legislation), focused on reform of Ofgem's duties and remit, aligning with the ESVC and the granting of new or amended powers.
Key areas of reform include:
Track 1: Changes without legislation – Ofgem and/or DESNZ to progress
Track 2: Changes that require legislation - no fixed timetable
There is no commitment to any specific timeline for the legislation, only references to "when parliamentary time allows". However, the government is clear in its expectation that Ofgem make progress on the first track of modernisation before the second track of reforms is implemented:
"Ofgem will be granted new powers once it has modernised and enhanced its skills and capability. Legislating for any new powers will take time, and the government expects Ofgem to make progress on wider reform before any new powers are used." – page 61, Final Report
A detailed table of 38 actions (at Annex B) and an indicative timeline (at page 62) are included in the final report. As action is required from both government and Ofgem to deliver the review outcomes, they are agreeing a joint implementation plan. The next step is the publication of Ofgem’s response to the final report, followed by the joint Ofgem/DESNZ implementation plan, and the Ofgem commissioned skills audit/Cultural and Capability Transformation Plan, with progress updates to follow in late 2026.
Ofgem is poised to become a sharper and more empowered regulator. In the future, it could gain new powers to hold individuals and interconnected companies to account and enforce consumer law directly. The ESVC will create a regulatory perimeter that can flex as the energy market evolves, enabling faster regulation of new activities or closure of regulatory gaps. The modernised toolkit would also offer future opportunities that could come with the lighter regulatory regimes, such as GARs and a more proportionate, outcomes-focussed regime.
While it is notable that there is no commitment to any legislative timeframe and a number of consultations and reviews are still to follow, energy sector participants and investors should follow developments, anticipate and consider preparation for the expected reforms. Integrating the reforms into business planning and risk assessments will need to happen as and when further details emerge and any future legislative action is confirmed. Actions can include:
Stephenson Harwood's Energy Transition and Infrastructure group advises suppliers, network operators, generators, investors, and innovators across the energy value chain, including on transactional structuring, regulatory strategy and licensing, governance, and enforcement.
For further information please get in touch with Kirsti Massie (Partner), Joanne Wallace (Senior Knowledge Lawyer), or your usual contact at Stephenson Harwood.
