In late April 2026, the UK Department for Energy Security and Net Zero (DESNZ) published the final report of the first comprehensive review of the energy regulator Ofgem in its 25-year history. The review was launched in December 2024 with a public call for evidence and was completed after receiving approximately 20,000 submissions from consumer organizations, licensed market participants, investors, and expert bodies.

The purpose of this summary is to provide the Bulgarian expert community with a structured overview of the regulatory transformation in the UK —a market that has traditionally served as a reference model for energy liberalization, but also as a case in point for the systemic weaknesses that a regulatory architecture built up over decades can create.

The Ofgem review is part of a broader UK government program for regulatory reform, announced in the 2025 Regulation Action Plan, and is proceeding in parallel with the review of the water sector. The common thread is the pursuit of a regulatory framework that simultaneously supports economic growth, attracts investment, and protects consumers—a trio of priorities that is proving increasingly difficult to balance in sectors undergoing fundamental transformation.

For Bulgarian regulatory practice, the review is particularly relevant, as the energy sector is in a period of prolonged transformation, involving the integration of variable renewable capacity, the development of battery storage systems, the establishment of a flexibility market, the start of CBAM implementation, and reform of regulatory methodologies and tariffs, all in response to changes in the European market model. This once again requires strengthening the role, mandate, toolkit, and capacity of the Energy and Water Regulatory Commission (EWRC), something EMI has been advocating for years. These are all issues that the British regulator is proactively seeking to address. Ofgem’s experience offers an empirically proven catalog of the problems that arise when the regulatory framework lags behind market realities.

Context of the Reform and Why Ofgem Needs Modernization

A Regulatory Architecture Built for a Market That No Longer Exists

Ofgem was established in 2000 under the Utilities Act as an administrative body serving the Gas and Electricity Markets Authority (GEMA). Its initial mandate was to protect consumer interests—“where appropriate, by promoting effective competition”—in the newly liberalized market. This approach reflected the prevailing regulatory philosophy at the time, in which promoting competition was seen as the best tool for protecting consumers.

Over the past 25 years, however, the market, consumer expectations, and the development of clean technologies have changed fundamentally. In 2000, over a third of UK electricity generation came from coal, while wind and solar energy accounted for less than 1%. By 2024, onshore and offshore wind energy and solar energy already account for 34.2% of electricity generation, and by the second quarter of 2024, installed or committed wind and solar capacity exceeds 70 GW. New technologies are also being added—electric vehicles, heat pumps, storage systems, smart meters, and dynamic tariffs—which are fundamentally changing the relationships between consumers, suppliers, and system operators.

In response to these changes, Ofgem’s mandate has expanded beyond recognition. According to the report, the number of core regulatory responsibilities has tripled between 2000 and 2023. In addition to the original responsibilities of protecting consumers, meeting demand, ensuring the financial sustainability of licensees, and promoting competition, new responsibilities have been added regarding sustainable development, security of supply, reducing emissions, compliance with carbon budgets, promoting economic growth, and a host of others. This accumulation, implemented piecemeal through separate laws (the Energy Acts of 2004, 2008, 2010, 2013, and 2023), creates a complex and sometimes internally contradictory regulatory framework.

The Energy Crisis as a Catalyst

The 2021–2022 energy crisis served as a starting point for reassessing the regulatory model. During the crisis, 30 energy suppliers went bankrupt, including Bulb, which entered a special administrative regime. The review categorically states that the crisis “revealed vulnerabilities in market oversight and consumer protection,” and public trust was “damaged by poor outcomes and the perception that risks were not identified early enough.”

The figures illustrate the scale of the problem. In 2000, the average dual-fuel (gas + electricity) bill for a household paying by direct debit was under £641 (about £1,000, adjusted for inflation). By the end of 2025, the same bill, measured against the price cap, reached £1,755. The total financial burden of household debt and overdue payments exceeded £4 billion. These figures explain why the political prioritization of consumer protection is increasing significantly—the government’s manifesto contains an explicit commitment to “a stronger regulatory system that puts consumers first.”

Regulatory shortcomings identified by stakeholders

The review summarizes eight interrelated challenges identified through the analysis of approximately 20,000 submissions:

• A complex regulatory framework with numerous parallel and sometimes conflicting obligations, which hinders strategic decision-making.
• An evolving sector whose regulatory architecture is lagging behind—new market participants (third-party intermediaries, aggregators, flexibility providers) are falling through regulatory gaps.
• A changing context—the need for accelerated investment in clean energy adds a new dimension to the classic trilemma between affordability, security, and sustainability.
• An outdated approach based on detailed prescriptive rules, unsuited to a rapidly changing market and the promotion of innovation.
• A constantly expanding mandate, encompassing schemes, mechanisms, and policies that blur the focus on core regulatory functions.
• Insufficient accountability and limited transparency in decision-making processes, along with unclear feedback mechanisms.
• Insufficient expert capacity and an inadequate organizational culture—a shortage of specialized technical and financial skills, high turnover, insufficient industry expertise, and a reactive and procedurally complex organizational culture.
• Insufficient access to opportunities for direct application and activation of compensation—limited scope of automatic compensation, slow and complex procedures, insufficient powers of the Energy Ombudsman.

The Six Strategic Outcomes of the Reform

The review organizes its recommendations around six strategic outcomes, which together form a comprehensive package for modernizing the regulator. The approach is explicitly integrated, and the individual measures are designed to support one another and cannot be considered in isolation. Ofgem will receive new powers only after it has modernized its skills and capacity. A large part of the proposed changes require primary legislation, which will be introduced “when parliamentary time permits”—a phrase that traditionally does not signal rapid implementation.

Outcome 1: A Strategic and Results-Oriented Regulator

The most fundamental change lies in Ofgem’s primary objective and duties. The current framework provides for a single overarching primary objective (protecting consumer interests) with competition treated as secondary and a growing set of secondary duties. The reform replaces this model with three equal primary objectives:

• protecting the interests of current and future consumers (retained as a primary objective);
• facilitating the achievement of net-zero emissions (elevated to a primary objective);
• promoting economic growth (a new primary objective, encompassing investment and innovation).

This decision will have significant implications. First, the elimination of the hierarchy among objectives gives the regulator greater flexibility to balance short-term and long-term interests. The review found that the focus on a single overriding objective has sometimes led to the postponement of necessary network investments (to avoid short-term impacts on bills), which has naturally resulted in the accumulation of higher (and more unaffordable) costs in the future. Second, the current separate obligations regarding licensees’ financial capacity (financeability) and the promotion of effective competition are being removed. This step is legally significant, particularly for the network sector, as the financial stability obligation is fundamental to the architecture of the RIIO price control framework and to the investor attractiveness tests in appeal proceedings. The government’s intention is to ensure these considerations remain relevant through a reformed Strategy and Policy Statement (SPS).

The review introduces a new Ofgem-specific SPS, which replaces the current general SPS. In parallel, a separate SPS will be created for NESO—the national system operator. The two documents will be coordinated but separate, reflecting the different roles of the two institutions. The SPS will provide more targeted strategic guidance from the government, while Ofgem will retain the authority to determine “how” to achieve the outcomes set by the government. Additionally, a mechanism is introduced allowing Ofgem to request guidance from the government on specific issues without compromising its operational independence.

The reform also envisages a return of Ofgem’s focus to its core functions as an economic and consumer regulator. The implementation of various schemes to achieve policy objectives (e.g., for energy efficiency) will be transferred to specialized bodies, the most important of which is the new Warm Homes Agency, provided for in the Warm Homes Plan. Ofgem will not take on new tasks related to the implementation of schemes except in cases of proven strategic alignment or clear added value.

Outcome 2: A clearly defined system and scope

The second key conceptual innovation of the review is the introduction of the Energy System Value Chain (ESVC). This is a new policy concept that maps all activities involved in the production, supply, and use of energy—from generation and infrastructure to consumer services and installation. The ESVC covers three main segments and a total of twelve specific activities:

• Gas, low-emission heating, and electricity systems: energy generation or storage; distribution or transmission; providing access to public energy infrastructure; supply and balancing of demand and supply.
• Energy supply chain – “points of contact with consumers”: providing information to consumers; financing energy-efficient products; managing energy contracts.
• Consumer points of contact: installation of energy-efficient solutions and measures; operation and management of energy-consuming products; maintenance of energy-consuming products.

The ESVC will empower the Minister for Energy Security to impose regulatory duties on Ofgem for new activities within the value chain without the need for new primary legislation each time. This is a significant departure from the current model, under which any expansion of the regulatory scope (e.g., for heating networks, hydrogen, smart meters, or currently under consideration for third-party intermediaries in the retail electricity market) requires a separate law. The ESVC can be thought of as a framework for what could be regulated, rather than an immediate expansion of Ofgem’s mandate. The regulator will need to consult before expanding its scope to a new activity.

Additionally, an Energy Systems Guidance Framework (ESGF) is being established to guide the interpretation of Ofgem’s duties and regulatory decisions, embedding desired consumer outcomes and defining clear roles and responsibilities for the various regulatory bodies.

The third element of this strategic outcome is clarifying the boundaries between DESNZ, Ofgem, and NESO. Stakeholders have consistently pointed to “blurred responsibilities” and “overlapping responsibilities” among the three institutions. The goal is a clear division of labor: NESO leads strategic system planning, DESNZ sets the policy direction and investment mechanisms and targets, and Ofgem regulates the monopoly networks and enforces consumer and market standards.

Outcome 3: A High-Quality and Expert Organization

The review does not spare criticism of Ofgem’s organizational culture and capacity. Stakeholders consistently point to:

• A shortage of specialized technical and digital skills, particularly in areas such as cybersecurity, artificial intelligence, and financial analysis;
• High staff turnover and loss of institutional memory and knowledge;
• Compensation that is uncompetitive compared to other regulators (FCA, CMA, Ofcom), making it difficult to attract and retain specialists;
• A hierarchical culture with a tendency toward reactivity, excessive caution, and cumbersome processes;
• Insufficient industry expertise—a small number of staff with direct experience in the energy sector.

In response, Ofgem will conduct a forward-looking skills audit and develop a Cultural and Organizational Transformation Plan in the second half of 2026. The Chair of Ofgem (GEMA) will appoint a board member to be responsible for skills and cultural change. The regulator will strengthen its industrial and technical expertise through external hiring, long-term secondments, and strategic partnerships, following the example of the CMA and FCA. It is recommended that the CMA’s “4P” framework—Pace, Predictability, Proportionality, Process—be applied as a starting point for organizational change.

The review leaves open the question of Ofgem’s future legal status. Currently, the regulator is a government department rather than a ministry, which imposes constraints on remuneration, working conditions, performance management, and recruitment. Some stakeholders propose a different status, following the example of the FCA or the Nuclear Decommissioning Authority, but the review does not take a definitive position on this matter. A change in status will be assessed after progress has been made within the current framework.

Outcome 4: An Empowered Regulator Protecting Consumer Interests

This is the most extensive and legally significant section of the reform. It introduces a significantly expanded arsenal of enforcement tools, many of which require changes to primary legislation. The key measures are:

• Direct enforcement of consumer law: Currently, Ofgem must go to court to obtain orders to enforce consumer law—a process that is costly, time-consuming, and delays consumer compensation. Following the model of the powers granted to the CMA under the Digital Markets, Competition and Consumers Act 2024, Ofgem will be granted the authority to investigate, determine, and directly enforce measures against violations of consumer rights without going through the courts. This measure is particularly important for protecting consumers investing in low-emission technologies (heat pumps, energy-efficiency measures), where cases of substandard installations and unscrupulous traders threaten confidence in the clean energy transition.
• Individual Accountability Mechanism (IAM): The review rejects the idea of a full-fledged Senior Managers Regime modeled on the FCA’s as disproportionate for the energy sector, but provides for the creation of a light version of the IAM. Under this mechanism, licensees will be required to define the specific functions of senior management, and certain individuals will bear personal responsibility for areas such as customer service or debt management. Ofgem will be able to sanction these individuals personally, even after they have left the licensee, and in the most serious cases, restrict them from working in the sector. The implementation of this mechanism will be preceded by a consultation by Ofgem on the scope, proportionality, and positions covered.
• Recovery of bonuses: Following the example of Ofwat’s powers under the Water (Special Measures) Act 2025, Ofgem will be empowered to prohibit or require the recovery of performance-related bonuses in cases of exceptionally serious breaches. The threshold for application will be high, and the sanction will be used only following a full investigation that has established the licensee’s liability for the breach. The expected effect is to change corporate culture and ensure that senior executives place consumers’ interests at the heart of their decisions.
• Reform of the penalty cap: The current framework limits Ofgem to a total combined cap of 10% of the company’s turnover for a breach in the sector, covering both fines and consumer compensation. In cases where a company has little or no turnover (a documented scenario involving companies specifically created to participate in capacity market auctions), this cap prevents the imposition of an adequate penalty. The reform will ensure that no profit can be derived from a violation—even for companies with low or zero turnover.
• Enforcement against affiliated companies: This is one of the most radical and potentially most important measures for investors. The corporate structures of many regulated entities, often adopted for entirely legitimate commercial reasons, can lead to a situation where the regulated entity exists “on paper,” while critical decisions, assets, and value are located in unregulated holding companies further up the chain or in joint ventures. This includes, among other things, multi-layered structures involving holding companies, debt instruments, investors, and cross-border ownership, typical of SPVs holding wind farms, solar installations, and storage systems. The reform will give Ofgem the power to attribute liability to an affiliated company (including foreign-owned entities) where it has played a direct role in causing a breach or risk of a breach by the regulated entity. In practice, this amounts to “piercing the corporate veil.” The measure is accompanied by a mandatory memorandum on Ofgem’s policy and appeal mechanisms.
• Legally and practically, this instrument raises a series of delicate questions. What constitutes a “direct role”? To what extent can a shareholder’s exercise of positive or negative control (the right to impose or block certain actions through reserved matters in the shareholders’ agreement) be classified as a “direct role”? To what extent would the provision of asset management or construction and installation services by a related party be considered a “direct role”? The scope of the “corporate group” is also not precisely defined, nor is it clear whether it would include investment managers and portfolio companies, or a significant minority shareholder.
• Reform of interim and final orders: The current framework gives Ofgem only three months from the issuance of a final order or the confirmation of an interim order to impose a sanction. This timeframe has proven insufficient for a thorough assessment of the facts and justification of the penalty amount. The reform extends the entire process from order to penalty to 15 months, which will allow for more frequent and effective use of these tools.
• Accelerated procedure for amending license conditions: Currently, to amend a license condition, Ofgem must consult for 28 days and then wait a 56-day period before the amendment takes effect. An accelerated procedure exists but is limited to very specific cases. The reform expands the scope of the fast-track procedure, retaining the mandatory consultation but allowing the 56-day waiting period to be waived when Ofgem deems it necessary or appropriate. The standard procedure remains the norm, while the fast-track procedure is the exception, used in urgent situations.
• Quasi-automatic sanctions for third-party intermediaries: The review finds no compelling arguments for a general power to impose quasi-automatic sanctions for minor but clear violations. However, Ofgem will be granted such authority specifically for third-party intermediaries (TPIs) due to the distinct structure of this segment. This will allow for the sanctioning of clear violations (e.g., failure to provide information or failure to implement alternative dispute resolution decisions) without the need for full investigations.
• Improved access to compensation: Alongside strengthening enforcement tools, the reform enhances access to compensation. The current Guaranteed Standards of Performance (GSoP) are being reviewed, with Ofgem considering expanding automatic compensation and increasing compensation amounts. On January 30, 2026, new GSoPs related to smart meters came into effect—consumers are entitled to £40 for unsatisfactory initial installation timelines or the absence of a plan to resolve an issue. The Energy Ombudsman is granted enhanced powers, including the enforceability of its decisions and shorter response times.

Outcome 5: A regulator that supports innovation, investment, growth, and the clean transition

According to Energy UK estimates, the UK energy industry supports economic activity worth £258 billion, and £100 billion in investments in new energy sources is planned for the next decade. Maintaining investment attractiveness is therefore of systemic importance.

The reform introduces several specific tools in this regard:

General Authorization Regimes (GAR)

GARs are a regulatory tool widely used in other regulated sectors (including financial services) that allows the regulator to supervise certain activities without requiring a full license, by applying proportionate requirements based on the level of risk. The introduction of GARs in the energy sector will provide a more flexible alternative to the full licensing regime, support innovation through a lighter-touch approach for low-risk activities, and retain stronger tools where necessary. Ofgem will be able to adopt a hybrid approach combining public registers, background checks on individuals, targeted conditions, and more, depending on the risk assessment.

Targeted licensing exemptions

The current framework requires Ofgem to make constant changes to licensing conditions to provide flexibility for new services, with limited powers to grant exemptions. The reform will give the regulator broader powers to issue individual exemptions, for example for regulatory pilot test models (so-called sandboxes) or temporary modifications. This will allow innovators to test new products, tariffs, technologies, or delivery models without the need to amend market license conditions. The goal is controlled flexibility, not deregulation.

Rebuilding relations with the industry

Among the strongest messages from stakeholders is the need to reset the relationship between Ofgem and regulated entities. Key complaints include the unpredictability of regulatory behavior and sanctions, a perceived confrontational approach, reactive regulation focused on short-term issues, excessive use of formal Requests for Information (RFIs), and a large number of consultations. Ofgem will need to transform its approach to stakeholder engagement—shifting from confrontation to partnership and collaboration in achieving compliance. This includes clearer and more accessible guidance on expectations, proactive identification of future risks and opportunities, and more transparent decision-making.

Simplification of regulatory processes

The review includes a number of technical simplifications, such as the removal of anachronistic requirements for paper-based document delivery (Ofgem will be able to deliver documents electronically without explicit permission), a requirement to publish a report on reducing administrative burdens by 25% by the end of the parliamentary term, and a commitment to continue implementing the Regulatory Action Plan.

Outcome 6: A Transparent and Accountable Regulator

The sixth set of measures strengthens Ofgem’s oversight and accountability mechanisms. As a non-ministerial government department, Ofgem reports directly to Parliament, but the review found that this accountability does not always provide a sufficiently detailed view of day-to-day performance. Key reforms include:

• An invitation to the Energy Security and Net Zero (ESNZ) Select Committee to review the findings of Ofgem’s internal audit, with the possibility of more in-depth oversight;
• Reforming Ofgem’s Annual Report and Accounts to include clearer data on performance against government mandates and priorities, regulatory decisions, regulatory boundaries, staff development, and organizational outcomes;
• Development of a meaningful set of key performance indicators (KPIs), including regulatory approval timelines and market data on consumer complaints;
• Introduction of a five-year independent external audit of Ofgem, with the first review no later than 2028;
• Publishing updates on the implementation of the review’s recommendations within 12 and 24 months of publication.

Implications for Market Participants

The reforms will affect different market segments in different ways. While many measures apply in principle to all licensees, the key specifics are as follows:

Generators (including RES, storage, and dispatchable capacity)

Generators should pay particular attention to the reform of the penalty cap, the more flexible regulatory perimeter based on the ESVC, and the strengthened powers against affiliated companies given the prevalence of broad corporate holding structures, related service providers, and EPC/O&M subsidiaries. Ofgem’s continued focus on networks, connection reforms, and strategic investments, reinforced by new net-zero and growth targets, is likely to be favorable for generation investments, though it will require a review of holding and resource structures.

Networks

The reform of obligations appears most significant for the network sector. The removal of the standalone financial viability obligation is legally significant, but the government’s stated intention is for it to remain a key consideration through the SPS, reinforced by the new equitable growth target. The direction of strategic, proactive network investments (RIIO, ASTI, strategic spatial energy planning, connection reform) remains firmly unchanged.

Suppliers and Retail Participants

Suppliers face the most concentrated set of new obligations: direct enforcement of consumer rights, IAM, bonus refunds, expanded GSoPs, reform of the Energy Ombudsman with binding decisions, an expanded regime for interim and final orders, and an accelerated procedure for license amendments. Financial stability rules (minimum capital requirements, financial liability principle, segregation of consumer credit balances) remain in place and will coexist with the scope of enforcement up the supply chain through the authority over affiliated companies.

Investors and Financial Structures

For investors, many of the reforms will be generally welcomed—clearer strategic guidelines, a new balanced growth objective, and continued regulatory support for network investments. However, the reforms also introduce new risks that will need to be accounted for in transaction structuring, corporate governance, and internal controls—the power over affiliated companies, IAM, and bonus clawbacks, as well as the possibility that new sectors could be rapidly brought within the scope of licensing requirements.

Most of the major reforms require primary legislation and extensive subsequent consultations by Ofgem, and their actual impact will depend on the pace of parliamentary work, the quality of the consultation processes, and Ofgem’s own ability to transform itself organizationally and culturally. For investors and market participants, the next 12–24 months will be critical for the formation of the new regulatory reality.

As is often the case, the British experience offers not only a catalog of systemic problems that every mature regulatory framework eventually encounters, but also empirically proven approaches for addressing them. Particularly valuable is the emphasis on the integrated nature of the reform: new powers are granted only after the regulator’s capacity has been strengthened; transparency and accountability are treated as prerequisites rather than consequences; and strategic clarity on the part of the government is recognized as an essential element of effective independent regulation. These principles have universal value and deserve systematic consideration in the Bulgarian context, both in the context of potential future amendments to the Energy Act and in the broader debate on modernizing the energy regulatory model in line with the evolving market and national decarbonization goals. For example, Bulgaria’s Energy Act has been amended 78 times since 2003, with nearly every other amendment adding new obligations to the Energy and Water Regulatory Commission (EWRC) without a comprehensive review of the hierarchy of objectives. This creates tensions between affordability, investment attractiveness, energy security, and the transition to clean energy. Similar to the British experience, new market participants often outpace the regulatory framework, and the EWRC faces challenges in attracting and retaining specialized technical, digital, and financial expertise, especially amid increasing market complexity (CACM, balancing, flexibility, dynamic tariffs).

The full text of the report can be found here.