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Jonathan Brearley: State of the Market keynote speech

Agendas, minutes and presentations

Publication date: 15 April 2025
Industry sector: Carbon capture and storage; Distribution Network; Generation and Wholesale Market; Long duration electricity storage; Offshore Transmission Network; Supply and Retail Market; Transmission Network

Introduction / state of the market report

I want to start by saying how brilliant it is to see all of you in this room today.

I have been in this industry for almost two decades, and I have worked with many of you in this room for almost all of that time.

You are the people who are going to drive this transition, and take this country’s energy system where it needs to be.

So I want to just start by saying how fantastic it is to be in this room with you today and talk about that energy system we are all trying to build.

But before I talk about energy, I would like to talk about the situation we find ourselves in as a country. I started as CEO at the start of 2020, a month before we faced the pandemic – I was told by my predecessor this would be a good and quiet time to become Ofgem CEO.

Since then, we have faced a number of crises – Covid itself, the Ukraine War, the consequent gas crisis and now, this month we face deep uncertainty through the changes we are seeing to global trade.

I know that our energy sector is vital to our success as a country:

for living standards through household bills
for economic growth – through our ability to attract investment into the sector, its supply chains, and across the wider economy
and, yes for our environmental future through the government’s Net Zero goals.

The events this weekend with British Steel show the importance that industrial energy costs and connections will play in our economic future.

Without a doubt we are at a pivotal point in the energy transition.

As a country, we are very exposed to the international gas price, and with gas prices high, this has left us in a difficult place when it comes to both our industrial and domestic costs, which means we operate in a challenging international and domestic environment.

Without the Energy Price Guarantee, household bills would have quadrupled in 2022 and even today – principally through the high gas price – our industrial costs mean we may struggle to compete internationally when people look to the UK to invest.

But as well as risks, there are big opportunities.

For example, the economics of renewables and the need to get away from gas setting the price, to provide cost effective and secure energy have never been more aligned. When I started we faced a choice between the environment, cost and security – those things are now much closer together.

Where there is global uncertainty, Britain offers a stable regulatory regime, including CfDs and a safe haven for international investors.

My view is that we need to drive the energy transition as fast as possible and to make sure, along the way, we support those households and businesses worst affected by this current situation.

In this speech, I will outline what we need to do over the next 5 years to achieve this.

Very specifically:

a new compact on retail – building on significant progress we have made since the crisis
full focus on delivery to meet the government’s 2030 goals combined with market reforms that make the best of the new energy system we are building
regulations that help maximise the economic opportunities of energy investment and make the UK energy system a positive driver of wider international investment in the UK
and ultimately reform of ourselves, Ofgem, to create a regulator for the new energy economy

Starting with retail

Starting with retail. Today we are launching a report, which we intend to publish every six months, on the state of the energy retail industry. It shows we have made significant progress.

Domestic customer satisfaction is at 81%, the highest it has ever been, and is increasing for prepayment meter customers – relied on by many of the poorest customers.

Domestic customer complaints are at their lowest level since early 2020.

So I’d like to start by all of those who work in the industry to make the progress we have made possible.

I have met so many of you.

I remember meeting gas engineers, digging up the road during Covid while many of us were working from home. They made light of the risks they had taken but simply loved the fact there was no traffic so they could dig a lot faster.

I have sat on calls with call centre workers almost in tears when they were able to help someone, out of credit, get themselves back on supply.

It is this sense of service that runs through the best in our industry, and that keeps me passionate about energy and, yes, passionate about the way we regulate it.

Equally, though, as you would expect me to say as a regulator, there is still far more to do.

For example, when I look at the UK Customer Satisfaction Index, across all industries, energy appears very few times in the top rated organisations.

So we do need to keep striving: to improve customers lives, drive the economy and ultimately for energy companies to regularly be at the top in any comparison with any sector.

Affordability

Now let’s talk about where customers are today.

Despite progress we may have made in services, life remains extremely hard for many customers.

Recent polling by YouGov shows 40% of respondents say energy is their top concern and debt and arrears have reached a record high of nearly £4 billion in the domestic sector.

This was exemplified when I recently spoke with a 70 year old disabled woman. She was happy in every other way with her energy company, but simply said – if there’s anything you could do for me, it is to bring bills down – I simply can’t afford the life I used to.

We can do better for customers like her.

We have made progress. And I am delighted that Clare is here today. [Moriarty, CEO Citizens Advice] She and her colleagues are working incredibly hard, including with Ofgem, to help customers with vulnerabilities.

Ahead of winter, we will be working closely with government to accelerate proposals on a debt relief scheme.

If implemented, this will free up a pool of funding that will help those who are trapped in impossible levels of debt since the crisis.

This will be accompanied by an extension of the Warm Home Discount to 2.7 million more households.

And today I am delighted that we are launching our refreshed Consumer Vulnerability Strategy: setting out all our work and the outcomes we want to achieve for consumers in vulnerable situations.

However, I remain of the view that we need a more enduring and strategic approach to affordability. We need to target support at those who need it most and that support needs to change as the market changes.

Over the next few years, we do expect variable costs to come down, but the proportion of costs that are fixed will rise, which if unchecked, could exacerbate inequalities that we see today.

So, in the summer, we are launching a wide-ranging examination of how we best allocate costs within the energy system from first principles, we will look at the best way to share out costs, including the incentives they put on consumers.

As part of this work, we would like to raise the question of whether there is a more progressive way to pay, accepting that, inevitably there are big pros and cons and big operational challenges before any final decision could be made.

With this work, and beyond it, we stand ready to work with the government to build on the progress made with Warm Home Discount, and to find a better way to support those who need it most.

Financial resilience and pricing regulation

Equally, as we address affordability, we also need to reassess how we regulate prices and how we manage the financial health of the industry.

Responding to the energy crisis, we increased the frequency of change of the price cap to every three months, protecting customers by banning acquisition-only tariffs, and financially regulating the retailers.

The sector, as a whole, has now moved to a far more resilient place – from negative net assets during the crisis to around £7 billion Adjusted Net Assets now.

Financial challenges remain for some and, crucially, as we saw with Rebel Energy, suppliers will sometimes exit the market.

We are not putting a regime in place where no company ever fails – to do so would stifle the innovation that we need.

However, our rules aim to significantly reduce the risk of suppliers failing and keep the costs and disruption for consumers to a minimum if a supplier does fail.

Price cap

Equally, as we come out of the crisis, the time is right to look again at the balance between our pricing regulation and the dynamic market we need to get to 2030 and beyond.

During the crisis, the price cap became almost the only relevant price in the domestic market. In a more stable market, that should not continue to be the case.

We want an innovative and dynamic retail sector that can provide new tariffs and excellent customer service, particularly for the most vulnerable, and use new technology such as AI to radically improve the customer experience.

I recognise that this will take investment – and to bring that investment forward, we need to get the balance right between risk and reward.

While the price cap does do is provide a genuine backstop, it must not crowd out the innovation we need. Tariffs, better tailored to individual household needs, should be on offer for those who are able to choose.

Equally, for those on a price cap tariff, many consumer groups tell me that the frequency of change is something that increases uncertainty for households and makes it hard to plan financially.

Therefore, subject to market conditions remaining stable, we want to consider adapting today’s model. This might mean:

being clear with customers it is a backstop tariff and not the best price in the market
examining whether the time is right to move back to setting the cap every six months – accepting there are pros and cons there
looking at whether the current formula is too complex and could be simplified
increasing choice within the cap, such as considering low or no standing charges
and, over the longer term, look at how we can make the price cap compatible with a more flexible market, such as time of use tariffs

Our aim with the price cap remains the same as when it was introduced – to protect those customers who are unable to engage with the market, but in doing so we need to ensure that the market can flourish.

Flexibility

Ultimately, alongside potential changes to our pricing regulation, we need to build an entirely new market.

Now I as the regulator and the industry have been talking for decades about ‘flexibility’ and ‘demand side response’. Once in Ofgem we found a quote from 2020 where these things were mentioned.

Whenever, I use these terms in the real world, I get very blank looks.

But the idea is very simple.

If we can enable households and businesses to use electricity when it is abundant they will save money because it will be cheaper. Over time, if many of us do this, everyone will save, because we will need to build out fewer pylons and power stations.

The government’s 2030 action plan demonstrates that this is no longer a nice to have, but crucial.

By 2030 we need to deliver 10-12GW of consumer-led flexibility – a 4-5 times increase on where we are today: that is the equivalent of 12 large gas fire stations, or 12 million electric vehicles.

And by 2050, both Ofgem and DESNZ estimate that by £40-50 billion can be saved.

If new tariffs can be made to work, for some families the savings for flexibility could dwarf those of switching supplier.

To make this a reality, we have processes in train – including the roll out of smart meters and half hourly settlement. I would like to stress again how important it is that these are delivered on time.

Equally, suppliers need to repair faulty meters in a timely way for the credibility of this programme. If this does not improve Ofgem will consider moving from compliance to enforcement action.

But ultimately, if the economics do not work for customers in the early stages of growing this market, we may need to go further than this to stimulate the market, as we have done for renewable energy. Through the existing schemes that we administer and possibly through the government’s warm homes plan, we need to make sure that customers that need help the most do not miss out on the big opportunity that this new market brings.

So the combination of changing our market arrangements, and making sure people do not miss out is going to be a huge win for customers and indeed the system they rely on.

A more strategic approach to standards

But look – a healthy retail market is not just about the price that is paid, but about the way customers are treated.

To be clear, this includes driving up standards for non-domestic customers as well as domestic customers.

The fact is that over the last few years Ofgem has had to intervene in light of poor services and poor practice for some suppliers.

However, I also recognise that at times, our past approach has been unwieldy, potentially heavy handed and bureaucratic.

So building through our consumer confidence work, we want to change the way we regulate the retail market. To make it clearer what outcomes we seek, where there are minimum standards, and what will be left to the market. This will include:

Faster, more direct redress, such as on the guaranteed standards we have suggested for smart meters, where a compensation of £40 is made, if a range of interactions with customers do not meet minimum levels.

Where problems occur more broadly, early work with companies seeking swift resolution.

And reserving enforcement for serious cases only, with a robust response if rules are systemically breached.

However, for that to happen, we need more from the sector.

That means customers should not be spending hours rectifying incorrect bills or worrying about demands for money they don’t owe.

When issues arise, the sector needs step up and deal with them at pace.

And the industry needs to better represent itself in the discussion of public concerns.

So proportionate, intelligent regulation, with clear incentives for consumer protection, growth and innovation, is the clear goal of government, the sector, and indeed Ofgem too.

But in return, suppliers must do far more than the regulatory minimum, and build on the progress that we collectively, have made.

Ultimately, if we work together, we will get a retail market where the worst off are helped, our standards are as high as any sector, and energy retailers become a critical driver for Net Zero – making the system work better and driving down bills systematically for all customers.

Getting to 2030 and on to 2050

Turning now to Clean Power by 2030 and on to 2050.

To be clear, Ofgem is fully behind 2030 goal the Secretary of State has set out and overall, we are making progress.

The publication of the Clean Power Action Plan is a clear guide to what is needed.

But as stated in that Plan, this is a huge challenge, and one that will only be met by doing things differently, by prioritising pace and by working together across the industry.

The investment and project delivery task are huge: requiring the fastest deployment since the 1950s, involving an investment programme averaging £40 billion or more annually.

And it is great to see Simon [Maine, MD, Brookfield] here to talk about the opportunities and challenges of making those investments.

What is clear to me is that to deliver in customer’s interest, it will require full focus on the pace of delivery, cost control, and security of supply.

Strategic planning

When I started in energy policy 20 years ago, the assumption was that the market would set what is generated and where networks would be largely built reactively in response to market changes.

With the creation of NESO and the Strategic Spatial Energy Plan, our approach has fundamentally changed.

We are moving to a far more planned system at national level, and with the creation of RESPs at a regional level.

We have listened to the industry and adapted our regulations to facilitate this.

We have developed the Accelerated Strategic Transmission Investment, or ASTI, to bring forward investment at pace.

We will introduce an advance procurement mechanism to allow goods and services to be identified and ordered a long way in advance, cutting costs and supporting investment in the supply chain.

And last week we launched a new cap and floor regime to unlock billions in funding to build major Long Duration Electricity Storage projects in Britain, for the first time in 40 years.

We are building at pace the arrangements that will ultimately support nuclear power and carbon capture and storage.

The job for NESO and the industry is to develop and deliver against those plans at pace.

The framework and resources are there, and our role unashamedly is to hold the industry to account in delivering on time and on budget.

So Ofgem, with the 2030 Mission Board in government and NESO, will be setting up a detailed monitoring of progress on major projects to ensure we do indeed deliver on time, unblock problems when they occur, and make sure we can play our part in the delivery of our 2030 goals.

We will now also start the distribution price controls, building on the advice from the National Infrastructure Commission, we will set the blueprint for how the local grids will respond to the challenge of decarbonisation, particularly in heat and transport.

We also want to examine whether there are wider roles that DNOs can play – including for example in improving energy efficiency.

Now we saw with the events at Heathrow airport the huge problems that comes when energy supply is disrupted.

So it is vital that households and businesses can have confidence in the resilience of critical national infrastructure: adequate defence against asset failures, or indeed the growing issues of cyber threats and climate impacts.

Therefore, once NESOs investigation is completed, we will want to examine whether the network companies involved have met their responsibilities, and of course we will take action if they have not.

And last week we published our climate resilience report, setting out the progress made and what further needs to be done for the sector to adapt to climate-driven shocks and stress events.

Connections

Now without a doubt, the symptom of a regime that has not been built at sufficient pace is the length of time to get connected to the grid.

This is a major blocker for 2030.

So today I am delighted we are abolishing the first-come, first-served connections queue by blocking and removing unviable, stalled, and speculative schemes – giving NESO tough new powers to fast-track clean power projects to expand grid capacity rapidly.

This is a huge task and it is not without its controversy. We know these reforms will create winners and losers.

However, they are vital to our delivery, and though in general they are welcomed by the generation industry, and we need to make progress,

And, to be clear, if they are blocked, government retains the option to change the law to make sure we can proceed. These reforms are vital for us to get to 2030.

Zonal pricing

Now a feature of any Net Zero electricity system is that system costs matter: if we build plants in the wrong place, if we operate our system inefficiently, and if our interconnectors flow in a way that is inefficient, consumers will pay more.

Frankly there is no option that works for consumers where the market is not significantly reformed.

We need to consider the trade-offs carefully – and I do know this is particularly controversial with the industry at the moment.

First of all, a system that continues to be based on national pricing will still need to change. System planning may need to become more directive, transmission charging may possibly need to change, and we may need special arrangements to make sure interconnectors are flowing the right way to make sure we deliver economic power to the British consumer.

Equally, zonal pricing brings many benefits but also brings risks. Any system that moves to zonal pricing will need significant protections for investors that maintain a low cost of capital and we will have to grapple with the question of whether the system needs to move to national or regional prices.

I recognise there are a lot of divided views about the way forward. There are clear benefits of a zonal system, but equally there are risks that any change undermines investment and drives up costs.

Equally, change always brings concerns.

For example, I remember when I led the policy of Electricity Market Reform policy, the reforms at that time were feared by the renewables industry, but many now accept they were foundational in setting up the successful sector we have today.

The choice of reform is a balanced judgement:

We loved trilemmas in this industry, and we have one here.

We need to balance system efficiency, with the lowest cost of investment, and the needs of the customers we serve.

I have my preference, but thankfully this decision that will be made by the Secretary of State.

And if we accept that both models mean significant change, then under either model, consumer interests can be protected.

So my message to the sector is this: let’s avoid the lobbying on polarised positions and let’s have an honest conversation about what will or won’t make each model work. And ultimately, when the Secretary of State decides, let’s get behind that and deliver for customers.

Growth

Turning now to the government’s growth mission.

The Prime Minister has laid out a challenge to all regulators, including Ofgem, to make sure we are fully behind this mission, and he is right to do so.

It is a personal frustration, that having made the economic case for decarbonisation way back when we developed the Climate Change Act in 2008, we have not secured greater industrial benefits in the UK.

I want us to play a big part in the growth mission and see strong synergies between economic growth and our core role of protecting consumers and supporting the transition to Net Zero.

And I am delighted that we have Shevaun [Haviland, Director General British Chambers of Commerce] to discuss this with us today – I am sure we will discuss this in further detail later.

As I set out in my reply to the Prime Minister’s letter late last year, to drive growth there are three broad things we need to do:

first, securing investment in the sector;
second, building UK supply chains and ultimately exporting our expertise and products globally.
and thirdly, creating a truly competitive energy offer to global investors across all industries wishing to locate here.

As I have laid out previously, we are already supporting investment into the sector and, where we can we are exporting our energy services, for example, some of our retailers are going global.

On supply chains, there is huge opportunity but much more that the government, Ofgem and the sector need to do.

I welcome the creation of Great British Energy, representing new forms of investment from the public sector. It will play a huge role in financing and de-risking clean energy projects, and scaling up new technologies and supply chains – and I look forward to hearing from Jürgen in a moment to tell us all about developing that and making that happen.

I talk to a wide range of investors across the energy supply chain who want to locate here, including developers who want to build cable factories.

Therefore, I am delighted that the Chancellor have asked the National Wealth Fund, GB Energy and Ofgem to work together to maximise the economic opportunities of the transition.

We will need a more proactive approach by the government to secure supply chain investment and we need network companies to adapt their procurement to allow new players to enter.

This needs to be done quickly because we are building quickly and Ofgem will consider flexibility in regulations, if needed, to support the government’s industrial strategy.

We have already succeeded in persuading Sumitomo to build a factory in Scotland – with the right conditions it is entirely possible that many many more will follow.

Moving to the role of the energy sector in wider investment.

Government acted this weekend to protect a vital national industry, which is relied on by thousands of people for their jobs and indeed in the supply chain. It demonstrates just how important our energy system is for industrial customers.

Equally, if we are to grow the economy, we need to look to new technologies. And as a member of the AI Energy Council, I heard first-hand the opportunity that new technology sectors can bring if we get the energy offer right.

When we consider the energy offer to global investors, we have to acknowledge that our offer is not yet as competitive as it could be, compared with other countries.

It takes an unacceptably long time for industrial projects to connect to the grid.

Equally, principally due to our reliance on gas, we have relatively high industrial prices.

So Ofgem, NESO and the government need to work on these issues.

We need to find a way to prioritise strategic demand, adapt our infrastructure and connect it to the grid more quickly. That is why today’s reforms are so important.

We need to continue to monitor the impact for strategic industrial connections and be prepared to go further if for any reason these do not meet investors’ needs.

We also need to factor the energy needs of Artificial Intelligence into our system planning and we will fully support the development of government’s AI zones.

To tackle our high industrial costs, government already runs a scheme called the ‘supercharger’ which allows some in industry to be exempt from all or part of their bill.

We are ready to work with the government if they wish to go further.

Done right, I believe that our energy sector and the regulations behind it can become a catalyst for growth and not something that will stand in its way.

Future Ofgem – Review

As I have set out today, the sector is changing, our regulations and market arrangements are changing too, but so too does the regulator.

That is why I see the Ofgem review as great opportunity to reset and redesign what it is we are asked to do.

I am pushing for significant change for the organisation that I lead.

There are four key areas the review should look at:

First of all, our duties need to be clarified and rationalised.

In my mind this goes beyond a narrow focus on customers to one that better expresses what the country needs from its regulator – fully incorporating net zero and economic growth.

Our sister regulator Ofcom is set up for citizens and consumers – maybe this is something Ministers could examine for Ofgem – with outcomes in support of this laid out in legislation.

Second, our scope.

Ofgem was designed at a time when energy principally came through the pipes and wires coming into our home and our current scope, although amended since then, has this at its heart.

We need to start with the customer of the future and we need to ask ourselves where might their energy services come from.

Energy services in the 2030s will come from a wide ranging and changing set of sources, for example solar panels on the roof, batteries, including in our cars, aggregated services, and district heating – will all be part of the future consumer’s picture.

Equally, the role of intermediaries and use of AI will grow.

The scope of the sector we regulate will change, and potentially quite quickly.

Therefore, the scope of the regulator should be able to adapt quickly also – there may be lessons we can learn from regulation of financial services – where scope is adapted through secondary legislation rather than needing slow moving primary legislation to drive change.

Third, we need to examine the powers the regulator will need to manage risk in a likely turbulent energy world – including looking across the experience of the gas crisis and making sure we can protect customers if something else equally disruptive, but different, to happen again.

Finally, in a world where the Secretary of State is laying out a strategic plan – should we and how do we ensure that the regulator always works in support of this plan?

Alongside the review, we will be thinking about ourselves as an organisation, and I will be working with the executive team and the Board to make sure we have the right skills, governance and organisational design to best deliver that new role.

Conclusion

So in conclusion – there is a huge program we need to pursue to get to where we need to be for our customers and indeed for the country. As I said:

a new compact for the retail market;
a full scale focus on delivery in infrastructure for 2030;
short and long term reforms to manage the energy transition, to ensure that our sector support wider economic growth;
and a reformed regulator, fit for the future energy market.

I look forward to working with government, the sector, charities and consumer groups to deliver all of this.

And I will finish where I started: I look forward to working with all of you in this room.