Great Britain and Northern Ireland Regulatory Authorities Reports 2017
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Great Britain and Northern Ireland Regulatory Authorities Reports 2017 Regulatory Authorities Report pursuant to section 5ZA of the Utilities Act 2000 and section 6A of the Energy (Northern Ireland) Order 2003 Ofgem/Ofgem E-Serve 9 Millbank, London SW1P 3GE www.ofgem.gov.uk Great Britain and Northern Ireland Regulatory Authorities Reports 2017 Ofgem 2017 National Report to the European Commission Overview The Great Britain (GB) report covers: Developments in the GB energy markets in the calendar year 2016 and the first six months of 2017. In some cases, data is only available for a subset of this period (eg the 2016 calendar year only). Where this is the case, it is clearly stated. The regulation and performance of the GB electricity and gas markets along the themes of network regulation, promoting competition, and security of supply Our compliance with the Electricity and Gas Directives on consumer protection and dispute settlement. Since GB energy markets have been fully liberalised and the regulatory structures in place for a number of years, this report is intended as an updated version of the submissions made since 2007. Finally, for further information on Ofgem’s wider activities, please consult our Annual Report. The 2016-17 Ofgem Annual Report is available at the link below.1 Legal Basis All National Regulatory Authorities (NRAs) are obliged to report annually to the European Commission, in accordance with Directives 2009/72/EC (Electricity Directive) and 2009/73/EC (Gas Directive). The structure of the report is agreed at the Council of European Energy Regulators (CEER). Ofgem is the GB Office of Gas and Electricity Markets. It is governed by the Gas and Electricity Markets Authority (the Authority). The terms ‘the Authority’, ‘Ofgem’, ‘us’ and ‘we’ are used interchangeably in this document. The Northern Ireland National Report, from the Northern Ireland Utility Regulator, is in the second section of this UK Report. As the NRA for GB, Ofgem’s above annual reporting requirement is specified in section 5ZA of the Utilities Act 2000. The Utility Regulator’s equivalent requirement is specified in section 6A of the Energy (Northern Ireland) Order 2003. Contacts Ryan McLaughlin Donagh Cagney Head of European Wholesale Markets EU Coordination Manager 9 Millbank, London, SW1P 3GE 9 Millbank, London, SW1P 3GE 0203 263 9615 0203 263 9771 [email protected] [email protected] 1 https://www.ofgem.gov.uk/about-us/corporate-policy-planning-and-reporting/annual-report-and- accounts 2 Great Britain and Northern Ireland Regulatory Authorities Reports 2017 Contents Chair’s foreword ................................................................................ 4 Main developments in gas and electricity markets ............................ 5 Investment .................................................................................................. 5 Wholesale markets ........................................................................................ 8 Retail Markets ............................................................................................ 11 Compliance and Enforcement ....................................................................... 14 2. The Electricity Market .................................................................. 15 2.1 Network regulation ................................................................................ 15 2.1.1 Unbundling ..................................................................................... 15 2.1.2 Technical functioning ....................................................................... 16 2.1.3 Network tariffs for connection and access ........................................... 21 2.1.4 Cross-border issues ......................................................................... 24 2.1.5 Compliance .................................................................................... 29 2.2 Promoting competition ........................................................................... 33 2.2.1 Wholesale markets .......................................................................... 33 2.2.2 Retail markets ................................................................................ 41 2.3 Security of Supply ................................................................................. 56 3. The gas market ............................................................................ 63 3.1 Network regulation ................................................................................ 63 3.1.1 Unbundling ..................................................................................... 63 3.1.2 Technical functioning ....................................................................... 65 3.1.3 Network and LNG tariffs for connection and access .............................. 69 3.1.4 Cross-border issues ......................................................................... 73 3.1.5 Compliance .................................................................................... 77 3.2 Promoting competition ........................................................................... 78 3.2.1 Wholesale markets .......................................................................... 78 3.2.2 Retail market .................................................................................. 83 3.3 Security of Supply ................................................................................. 88 4. Consumer protection & dispute settlement in electricity & gas ... 89 4.1 Consumer protection ............................................................................. 89 4.2 Dispute settlement ................................................................................ 95 3 Great Britain and Northern Ireland Regulatory Authorities Reports 2017 Chair’s foreword There is no doubt that the period covered by this Report will be remembered within the UK, and indeed across Europe, as year of dramatic change. But at Ofgem, dramatic change is something we have been getting increasingly used to in recent years. The rapid evolution of both technology and markets mean that the GB energy sector is continuing to transform radically, with reports of new records being set, seemingly every other day. A recent case in point – on 8 June, for the first time ever, more than 50% of the UK’s electricity came from renewable sources. The challenge for Ofgem is how best to regulate in such a fast-changing environment. It can be a difficult and, at times, an unclear task. There are two core approaches that allow us to navigate the uncertainty and to continue to work effectively, in the midst of all this change. Firstly, in everything we do, we are guided by our primary objective to protect the interests of existing and future GB energy consumers. This will underpin the support we provide to the government, in their work to leave the EU and secure a new relationship with the UK’s European neighbours. But it equally informs our continued engagement on European issues. As stated by our Government, we remain full members of the EU until the time that we leave. So this year we have focused on the shaping and implementation of the European Network Codes, and have contributed towards the development of common- regulatory positions on the proposed ‘Clean Energy Package’. Secondly, we rely upon rigorous analysis, objective economic principles and in-depth consultation to shape our work. The more information and insight available to us, the better we are able to formulate strong regulatory responses. These approaches have informed our most high-profile initiatives over the past year – such as the pending separation of National Grid’s ‘System Operator’ and ‘Transmission Owner’ functions, our ongoing work on the charging arrangements for small distribution-connected generators, our joint preparations with the government for the needs of tomorrow’s flexible energy system, and of course our implementation of the recommendations of the Competition and Markets Authority. I would like to pay tribute to my team here in Ofgem, for all their work and commitment over the past year and a half. Working in such dynamic circumstances is exciting, but it can also be tough, and our staff’s resilience and ability to manage ambiguity has been an essential foundation to all of our accomplishments. Finally, on the subject of change, after many years our own Lord Mogg will shortly be stepping down as both President of CEER and Chair of ACER’s Board of Regulators. Lord Mogg’s leadership has been a cornerstone of European energy regulation, and he will be sorely missed. We wish him all the best. David Gray, Chairman 4 Great Britain and Northern Ireland Regulatory Authorities Reports 2017 Main developments in gas and electricity markets Chapter Summary This chapter shows some of the most notable work that we have done since the last Regulatory Authorities Report was published in August 2016. Further information about our activities is in our Annual Report and Accounts 2016-17. 2 We have grouped the main developments into four areas: Investment Wholesale Markets Retail Markets Compliance and Enforcement Investment Interconnectors Interconnectors are the physical links that allow the transfer of gas and electricity across national borders. We assess and regulate new electricity interconnectors through our cap and floor regime3. During the reporting period, we introduced licence changes to give effect to the cap and floor regime for the Nemo Link project to Belgium (our