Ofgem is the regulator for the energy sector in Great Britain, ensuring the private companies that operate within this sector, act in a way that protects the interests of domestic and non-domestic consumers.
This guide explains what Ofgem is, how it regulates different parts of the energy sector, and its role in areas such as business contracts, complaints, and net zero.
What is Ofgem?
Ofgem (Office of Gas and Electricity Markets) is the independent regulator for the gas and electricity markets in Great Britain.
It’s responsible for protecting the interests of consumers, including businesses, by regulating the companies that operate the gas and electricity networks.
Its remit covers licensing suppliers and network operators, setting price controls, regulating supplier conduct, the domestic energy price cap, wholesale energy trading, environmental and renewable schemes, net zero and security of supply, and more.
Is Ofgem a government department?
Ofgem is a non-ministerial government department, meaning it’s headed by a senior civil servant, and not a government minister.
This lets it make regulatory decisions independently of political interests and the energy companies it regulates.
Ofgem works on behalf of the Gas and Electricity Markets Authority (GEMA), the statutory body that holds its formal powers, and is sponsored by the UK Government’s Department for Energy Security and Net Zero (DESNZ).
What does Ofgem do?
Ofgem’s role covers several distinct areas of the energy market, from licensing and network regulation through to consumer protection and net zero delivery.
- Licensing energy companies: Ofgem grants and enforces the licences that suppliers and network operators need to operate, setting the conditions they must meet to remain licensed.
- Regulating network charges: It sets price controls for the companies that own and operate the gas and electricity networks, the pipes and wires that carry energy to homes and businesses, since these operate as regulated monopolies.
- Setting the domestic price cap: Ofgem sets and reviews the price cap that limits what suppliers can charge domestic customers on default tariffs, though this cap doesn’t extend to business energy contracts.
- Monitoring supplier conduct: It enforces standards suppliers must meet, investigates breaches, and can take enforcement action, including restricting a supplier from taking on new customers.
- Managing environmental and renewable schemes: Ofgem administers schemes such as REGOs and Fuel Mix Disclosure, and supports delivery of the government’s renewable energy schemes.
- Supporting net zero and system security: Ofgem holds a statutory net zero duty, working with government and industry to support the transition to cleaner energy while balancing this against cost and reliability.
- Handling supplier failures: If a supplier goes out of business, Ofgem manages the process of moving affected customers to a new supplier.
Which parts of the energy market does Ofgem regulate?
Ofgem’s regulation spans the full journey of gas and electricity, from generation through to the point of supply, rather than any single part of the market.
- Generation: Ofgem oversees generation licensing and connection arrangements, including how generators connect to the transmission or distribution network depending on their scale.
- Transmission: It sets price controls and standards for the high voltage electricity transmission network and the National Transmission System for gas, including TNUoS charges for using the network.
- Distribution: Ofgem regulates the distribution network operators (DNOs and IDNOs) and gas distribution networks that carry electricity and gas from the transmission system to homes and businesses, funded through DUoS charges.
- Interconnectors: It licenses and regulates the interconnectors that link Great Britain’s gas and electricity networks to those in other countries.
- Supply: Ofgem licenses and regulates energy suppliers, setting the conduct standards, price protections, and obligations they must meet when dealing with customers.
- Metering: It sets the rules suppliers must follow for installing and maintaining meters, and regulates the Data Communications Company (DCC), which manages the infrastructure connecting smart meters to suppliers.
- Storage and emerging infrastructure: Ofgem’s remit has expanded to cover areas such as electricity storage, heat networks, and carbon capture and storage, reflecting the changing shape of the energy system.
Ofgem regulation of business energy contracts
Non-domestic energy contracts are not protected by Ofgem’s price cap, which applies to domestic customers only. However, Ofgem does regulate supplier conduct, and provides some protections, depending on the size of the business consumer.
Protections that apply to all businesses
A core set of protections applies to every non-domestic energy customer, regardless of size:
- Standards of Conduct: Ofgem’s Standards of Conduct apply to all non-domestic customers regardless of size, requiring suppliers to act fairly, honestly, transparently, and professionally.
- Clear contract terms: Suppliers must set out core terms, such as price, contract length, and renewal terms, clearly and in a way a business customer can reasonably understand.
- Broker fee transparency: Suppliers must disclose broker fees within a contract’s principal terms, a requirement extended to all non-domestic customers from October 2024.
Additional protections for micro and small businesses
Smaller businesses receive further protections on top of these, reflecting their closer resemblance to domestic customers.
- Renewal notice periods: Microbusinesses can’t be tied into rollover terms without a maximum 30 days’ notice.
- Dispute signposting: Suppliers must direct small and micro business consumers to the Energy Ombudsman for support with unresolved issues.
Unlike the domestic market, there is no regulatory protection over out of contract rates. This means businesses can make significant savings by using our business energy comparison service to find a competitive fixed energy contract.
Does Ofgem regulate energy brokers?
An energy broker, or Third Party Intermediary (TPI) as Ofgem formally refers to them, is an organisation that helps businesses find and arrange energy contracts with business energy suppliers.
Currently, TPIs aren’t directly regulated, as they sit outside Ofgem’s direct licensing regime. However, suppliers are required to disclose any broker fees within a contract’s principal terms.
Here at Consultiv Utilities, we are a top rated business energy broker with a track record of arranging business energy contracts for over 5,900 clients.
Who governs Ofgem?
Ofgem is governed by its board, the Gas and Electricity Markets Authority (GEMA).
It is made up of professionals with experience across the public and private sectors, appointed by the Secretary of State at the Department for Energy Security and Net Zero (DESNZ) for terms of up to five years.
Where does Ofgem get its authority from?
GEMA’s powers and duties are set out by Parliament, built up through several pieces of legislation over time, each giving Ofgem a specific area of authority.
- Gas Act 1986 and Electricity Act 1989: The original acts that opened up the gas and electricity markets to competition, giving Ofgem its core licensing powers over suppliers and network operators.
- Utilities Act 2000: Established GEMA itself as the regulator’s governing board.
- Competition Act 1998: Gives Ofgem concurrent powers with the Competition and Markets Authority (CMA) to investigate anti-competitive behaviour in the energy sector.
- Energy Act 2023: Significantly expanded Ofgem’s remit, adding formal net zero duties and regulatory oversight of areas such as heat networks and carbon capture and storage.
What environmental and low-carbon schemes does Ofgem administer?
Ofgem administers several schemes on behalf of the government, supporting the transition to renewable and low-carbon energy, as well as social and environmental obligations across the market:
- REGO (Renewable Energy Guarantees of Origin): Certifies that a specific volume of electricity was generated from a renewable source, used by suppliers to back green tariffs and support Fuel Mix Disclosure.
- Fuel Mix Disclosure (FMD): Requires licensed suppliers to publish the mix of fuels used to generate the electricity they supplied over the previous year.
- Renewables Obligation (RO): A scheme requiring suppliers to source part of their electricity from renewable generation. Contracts have now replaced it for Difference.
- Contracts for Difference (CfD): Supports new low-carbon electricity generation by guaranteeing generators a set price for the power they produce, with Ofgem involved in cost recovery through the price cap and market data.
- Energy Company Obligation (ECO): A domestic energy efficiency scheme requiring larger suppliers to fund insulation and heating upgrades for low-income and fuel-poor households.
- Warm Home Discount: A domestic scheme providing an annual rebate on energy bills for low-income and vulnerable households, with Ofgem administering the industry initiatives element.
- Nuclear RAB: A scheme supporting the construction of the Sizewell C nuclear power plant, funded through the RAB nuclear charge.
What is Ofgem’s role in net zero and energy security?
Since the Energy Act 2023, Ofgem has held a formal statutory duty to support the UK’s net zero targets, alongside its long-standing responsibility for keeping the energy system secure and reliable.
Ofgem currently actions this role through the following areas:
- Net zero duty: Ofgem must factor decarbonisation into its regulatory decisions, balancing this against its other duties, such as keeping costs down for consumers.
- Security of supply: Ofgem requires network operators to manage security of supply as part of their licence conditions, including BSUoS charges for real-time balancing, and works with NESO and government to monitor risks such as commodity shortages.
- Controls investment in low-carbon infrastructure: Ofgem sets price controls for network operators, which indirectly determines their investment capacity for upgrading infrastructure to support renewable generation and electrification.
- Administering low-carbon schemes: Ofgem delivers government renewable energy schemes, such as REGOs, FMD, and CfDs, worth billions of pounds a year, supporting the shift towards renewable generation.
Ofgem FAQs
Our business energy experts answer commonly asked questions regarding Ofgem:
Can Ofgem revoke an energy supplier’s licence?
Yes, Ofgem can revoke a supplier’s licence. For example, when a supplier stops trading, breaches its licence conditions, or fails to meet the standards required to hold one.
Can Ofgem fine an energy company?
Yes, Ofgem can issue substantial financial penalties for breaches of licence conditions, consumer protection law, and competition law, including fines of up to 10% of turnover under the Competition Act 1998.
Does Ofgem regulate wholesale energy trading?
Yes, Ofgem is the regulator for wholesale energy trading in Great Britain under REMIT (the Regulation on Wholesale Energy Market Integrity and Transparency).
It registers companies that trade wholesale gas and electricity, monitors their activity, and can take enforcement action against market manipulation or insider trading.
Does Ofgem handle business energy complaints?
No, Ofgem does not normally investigate or resolve individual customer complaints; that’s the job of the Energy Ombudsman.
Ofgem’s role is to monitor supplier conduct and complaint patterns across the market as a whole.
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