The Energy Transition | Ofgem seeks industry views on reformed national pricing in Britain

This week's edition covers Ofgem's proposals for reformed national pricing, the government's energy digitalisation framework, the first approval of demand flexibility service "turn up" events, and more

Ofgem seeks industry views on reformed national pricing in Britain  

Ofgem has launched a call for input seeking views on how a new locational charging framework could be designed to guide investment towards locations consistent with long-term system needs under a reformed national pricing (RNP) model.

The call for input follows the government's confirmation in its July 2025 update to the Review of Electricity Market Arrangements (REMA) that the current national pricing arrangements would be reformed rather than replaced with a zonal pricing model. The RNP programme has since been launched to explore the viability of the various routes under which reform could be effected. A central element of RNP is the reform of locational charges for new assets, to ensure coordinated and more predictable market signals allow stakeholders to align investment decisions with the delayed Strategic Spatial Energy Plan (SSEP).

Ofgem's call for input sets out its initial views on how the transmission network charges regime could be reformed, setting out a range of options to introduce "interzonal" charges between distinct SSEP zones. These range from incremental refinements – including targeted changes to the current charging regime – to more transformative approaches, such as setting charges in each area by auctioning off SSEP-aligned capacities on a zonal basis. "Intrazonal" charges are also explored, which would provide locational investment signals on a more granular basis within SSEP zones as well as between them.

Ofgem also considers locational charge design for demand and storage assets and acknowledges that transitional arrangements for legacy assets will need to be addressed. It anticipates delivering reforms by 2029. The government will shortly issue its RNP delivery plan, setting out its strategic approach and forward timetable.

Responses to the call for input are due by 5pm on 26 May. Separately, Ofgem is inviting applications to join a locational charges design group, through an expression of interest process, with a deadline of 5pm on 22 April.

Ofgem has approved a series of amendments to the Demand Flexibility Service (DFS) following a proposal submitted by the National Energy System Operator (NESO) in January 2026. The reforms will commence operation on 14 April.

The DFS was introduced during the winter of 2022/23 as a seasonal system security tool to help balance electricity supply and demand, freeing up additional volume during periods forecast to experience negative margins. The approved changes introduce five principal reforms.

Demand turn-up  

For the first time, NESO will be able to pay customers to increase their electricity consumption, adding a demand turn-up (DTU) capability alongside the existing function of rewarding customers for reducing demand during peak hours. This makes the service bi-directional. DTU events are designed to help absorb surplus electricity during periods of excess supply.

Ofgem has approved the change as strengthening the role of demand-side response and reducing curtailment costs – payments made to generators to reduce their generation capability in order to preserve grid stability.

Locational procurement 

Introducing a locational dimension into the DFS enables NESO to procure flexibility from 12 specific zones, allowing it to direct expenditure towards the locations where it delivers the greatest system benefit and helps to manage network constraints by minimising congestion and redispatch.

Ofgem endorses NESO's position that locational procurement can support more economic and efficient procurement. The five DFS zones have been expanded to align with the 12 individual distribution network operator (DNO) zones, though NESO retains discretion to adjust these where needed.

Primacy  

Where shifting the energy demand of individual consumers within DFS zones risks causing congestion problems on local networks, DNOs will have the right to ask NESO to exclude those consumers from participating in DFS.

Ofgem confirmed that excluding specific meters from DFS participation, where necessary and justifiable, is an acceptable safeguard to coordinate actions across transmission and distribution networks, minimise congestion and conflicts, and maintain network integrity. Ofgem acknowledges that NESO will need to develop a transparent and consistent approach to primacy across the network.

Baseline methodology 

For domestic participants, NESO will retain the existing baselining methodology. However, NESO has introduced an optional self-nominated baseline for intermittent renewable assets and industrial and commercial participants, allowing those businesses to set their own baseline energy usage against which any increase or reduction in demand is measured. Ofgem has asked NESO to publish clear guidance and worked examples to support participants.

Reduced eligibility threshold 

Ofgem has endorsed NESO's proposal to lower the minimum bid size for DFS participants from 1 megawatt (MW) to 0.1MW, a change it considers a positive step in widening access for smaller flexibility providers. Businesses can now participate in the DFS provided they can deliver at least 0.1MW of measurable flexibility.

Next steps   

NESO is expected to publish the updated DFS service terms and DFS procurement rules, alongside an updated mapping document, by 9 April, ahead of the reformed service going live on 14 April.

Ofgem and the UK government set out a framework for energy digitalisation  

Ofgem and the Department for Energy Security and Net Zero (DESNZ) have jointly published their framework for energy digitalisation, following the proposals set out in their clean flexibility roadmap that they jointly produced with NESO.

The framework sets out a more aligned approach to digitalisation and is structured around five elements: a vision statement, objectives, delivery principles, data domains and governance.  

Framework objectives 

The vision is of an energy system that provides real-time responsiveness to supply and demand through informed data sharing. The framework identifies three objectives: greater consumer control, decarbonisation, and economic growth and innovation.

It aims to give consumers greater control and choice in how they engage with the energy system.  This includes simplifying consent for sharing energy data and building trust through security and transparency.

The framework is also intended to deliver the UK's decarbonisation goals in a cost-effective way while keeping the energy system secure and resilient during the transition. This includes the rollout of low‑carbon technologies and 51-66 gigawatt (GW) of flexible capacity, with the aim of reducing dependence on fossil fuels, limiting price spikes, and improving system reliability.

Digitalisation is expected to increase market competition by encouraging more innovative business models, remove barriers to entry for using data, increase investment into the sector, and enable new job opportunities by creating demand for digital skills.

The guiding delivery principles are that the system should be trusted and secure, interoperable, user friendly, accessible, efficient, cost-effective and competition-enhancing while remaining deliverable.

Domain-led model 

The government intends to achieve this through a domain-led model rather than a historically siloed initiative-led model, with three bodies serving as the primary technical data coordinators: NESO, the Retail Energy Code Company (RECCo) and Elexon.

Four functional domains will be introduced to achieve this coordination, with each coordinator responsible for setting data standards and ensuring data quality within its respective domain.  A "data domain" is defined as a category of related energy data, based on logical groupings of similar activities in the current landscape, such as asset data.

• Core energy system service domain. NESO will be responsible for network operational data; grid status; asset, technical, and infrastructure data, including capacity data; and planning and forecasting data.
• Behind-the-meter asset domain. Elexon will monitor core static asset data including heat pumps and electric-vehicle charge points, locational data, ownership and registration data, such as asset owner and standards compliance and operational data such as usage profiles, demand response capability and charging patterns.
• Consumer domain. RECCo will be appointed to monitor consumer data, including consent information, tariff data, and switching data.
• Metering data domain. Elexon has been provisionally assigned the responsibility of managing metering data, including meter reads and consumption figures.

Alongside data coordination, the framework addresses digital infrastructure, with data-sharing infrastructure coordination expected to be undertaken by NESO in its role as data-sharing infrastructure coordinator and RECCo, which has been appointed to deliver the consumer consent service.

Ofgem and DESNZ will operate the framework in two phases: the first, in the near term, will introduce the domain-based structure and coordinate alignment between delivery bodies through a digitalisation delivery group, chaired by Ofgem. A longer-term phase two will seek to establish the framework as a fully coordinated, overarching system. DESNZ plans to set out detailed roles, responsibilities, and governance processes for stakeholder feedback by the end of this year.

Chancellor commits to nuclear delivery timeline and considers infrastructure guarantees 

As part of a broader package of energy measures to protect domestic consumers from rising bills, the chancellor has committed the government to ensuring that all its reforms aimed at accelerating nuclear delivery will be in place by the end of 2027. The reforms seek to streamline approvals of new nuclear facilities, cutting down delays inherent in the current system. The chancellor also indicated that the government is considering offering guarantees for priority infrastructure projects where their economic viability is not undermined by consenting challenges.

Government plans to roll out plug-in solar this summer  

The government has announced plans to make plug-in solar available in shops by the summer. The announcement comes alongside changes to the Future Homes Standards to ensure that new homes and non-domestic buildings are built with low-carbon heating and high energy efficiency as standard.

The government hopes that  the use of plug-in solar will reduce household energy costs and contribute to the clean energy transition and energy security.

Plug-in solar panels are designed to be self-installed and connect directly to the mains without requiring planning permission. The devices are already widely available across Europe: the government has cited the example of Germany, where 500,000 new devices are being installed each year.

Work is underway with the Energy Networks Association, Ofgem and DNOs to update relevant regulations, including the G98 distribution code and wiring regulations. This will allow plug-in solar panels of under 800W to plug safely into domestic mains sockets without the need for an electrician – subject to tailored safety standards.

This article was written with the assistance of Osborne Clarke trainee solicitors Maggie Hudson, Elise Hill, and Alice Smith.