Consultation on preliminary SDS
Under the Energy Act 2023, Ofgem is required to publish an SDS each year, setting out how it anticipates industry codes may need to change to reflect government policy and wider developments in the energy sector. This obligation will begin once the first code managers are licensed and required to develop delivery plans in response to the SDS.
In advance of the SDS arrangements formally coming into effect, Ofgem has consulted on a preliminary SDS that code bodies will be asked to deliver, initially on a non-binding basis.
Many of the anticipated code changes will have cross-code implications. Consequently, relevant code bodies have been collaborating to share their thoughts on the proposals and, where possible, coordinate our approach to implementation.
Key time horizons for SDS changes
During our drop-in session, we summarised the SDS implications for the Retail Energy Code (REC). In short, Ofgem classifies required changes into three time horizons:
- Act Now: implement within two financial years
- Think & Plan: implement within two to three years
- Listen & Wait: implement within three to five years
We noted that many of the proposed changes – including some categorised as Act Now – remain subject to government or Ofgem decisions, limiting our ability to act at this stage.
We also highlighted examples where the impacted code(s) may change and/or the timings may shift, particularly where more recent government consultations suggest more ambitious timelines.
Proposals to support SDS delivery
To support successful SDS delivery, we’ve proposed several principles that we believe Ofgem should consider, including:
- Certainty for stakeholders
- Ensuring the SDS is realistic and deliverable
- Empowering code bodies to act efficiently
In particular, we’ve suggested that the SDS and delivery plan development process should be more integrated and iterative instead of purely sequential. We believe that delivery planning should both inform and be informed by the SDS to enable effective stakeholder engagement and realistic implementation timelines. It’s critical that Ofgem’s initial thinking on each SDS is shared early enough to inform the budget-setting process for code bodies.
Standardised prioritisation framework
We also discussed Ofgem’s plans for a standardised prioritisation framework across all codes. While supporting this approach in principle, we noted the importance of applying weighting to ensure the most critical changes are prioritised and aligned across code bodies. We proposed working with other codes to develop cross-code guidance to support consistent prioritisation.
Cooperation licence condition
In addition, we recommended producing shared guidance on the new cooperation licence condition, which will require all licensees to support code managers in delivering SDS-aligned change proposals. For example, this includes providing data for impact assessments. Ofgem will specify when this power can be used, but code bodies can help define how it is used proportionately and consistently. This includes identifying who it applies to and under what circumstances.
Drop-in session stakeholder feedback
Stakeholders engaged actively during our drop-in session and broadly agreed on the need for:
- Greater certainty in the SDS
- Development of guidance for both the prioritisation matrix and the cooperation licence condition
- Cross-code alignment in applying the prioritisation framework
- Proportionate and data-conscious use of the cooperation licence condition to avoid unnecessary burden
We also recognised that shifting from existing panel roles toward a Stakeholder Advisory Forum (SAF) model raises important questions about maintaining effective stakeholder input. Consequently, we will carefully consider how to ensure stakeholder views remain meaningfully reflected as the SAF is developed.
Next steps
Further to Ofgem’s publication on 3 April of its second consultation on the Implementation of Code Reform, we’re pleased to announce that we will host a further drop-in session in May to discuss the implication of those proposals, particularly for the REC Change Process.
Once the final version of the preliminary SDS is published this summer, we’d be happy to host a session focusing on the delivery plan for those SDS requirements.
- Access our first SDS drop-in session presentation slides
- Access our response to the preliminary SDS
- Email our Strategy team to express an interest and be added to the attendance and/or circulation list for our future drop-in sessions: recco_strategy@retailenergycode.co.uk
