Regulating the unpredictable

The UK has announced hugely ambitious plans - clean power by 2030. This will involve a massive roll-out of wind, onshore and offshore, solar as well as an expansion of grids and storage. A challenge, certainly. But not impossible, according to Jonathan Brearley, the chief executive of Ofgem, the UK's energy market regulator. The CEO also explains why the watchdog thinks zonal, rather than national pricing is the best way forward for the country. 

In the first episode of Plugged In: the energy news podcast we discuss how the country can meet its targets, the obstacles that stand in the way and why the UK is not close to running out of gas. In fact, the UK will need gas in the future, albeit in a significantly less dependent way, according to Ofgem.

Host: Richard Sverrisson - Editor-in-Chief, Montel News.

Guest: Jonathan Brearley, Chief Executive Officer, Ofgem; Laurence Walker, Deputy Editor-in-Chief, Montel News. 

Podcast editor: Oscar Birk 

Transcript

Richard Sverrisson - Editor-in-Chief, Montel News: 0:05

Hello and welcome to this, the first episode of Plugged In: The Energy News Podcast. We're building on the solid foundations of the Montel Weekly podcast. We'll be bringing you more headlines. We'll be bringing you more in-depth analysis and insights from across the energy sector. Our reporters will help us set the scene. Our first guest this week is Jonathan Brearley, the CEO of Ofgem. But before I talk to him, here's Laurence Walker, our deputy editor in chief.

Laurence Walker, Deputy Editor-in-Chief, Montel News: 0:38

I'm stood here on Romney Marsh in Kent on the south coast of England. Behind me are 26 massive wind turbines. Each capable of generating up to 2.3 megawatts of power. They're playing their part in a bigger plan. Arguably one of the most ambitious energy plans in Europe through the doubling of onshore wind capacity like this, the tripling of offshore wind and a myriad of other measures. Britain aims to achieve a clean power system by the end of this decade, but is a country facing an energy squeeze long before then? UK Energy Giant Centrica recently warned that the lights could go out if you don't invest in gas storage. And while this could be considered alarmist, there's no doubt that a diverse and reliable mix of base load capacity will be needed to compensate for this growing share of intermittent generation. The government's ambition is, of course, a monumental task, requiring huge investment in the tune of some 40 billion pounds a year, along with the new generation capacity, more than twice as much transmission network needs to be built by 2030 and over the past decade. Britain also needs to reduce his reliance on fossil fuels, which has always provided the bedrock of our energy security. With the closure last year of the Ratcliffe on Soar power station, coal in Britain is dead. But for how many more years do we need to burn gas, which is also polluting, while being open to global price and supply volatility? How will the government attract the investment it needs to achieve its targets? And in the meantime, should we take Centrica warnings of a supply shortfall? Seriously. Whereas simply tilting up windmills in this case, wind turbines.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:19

So that was Laurence, Jonathan. And here's Jonathan, CEO of Ofgem. Warm, welcome to you.

Jonathan Brearley, Chief Executive Officer, Ofgem: 2:23

Thank you. Great to be here.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:25

Great to have you. Now, Laurence was highlighting some of the issues here and one in particular that's been in the news early in 2025 was the issue of supply security for gas. So is the UK anywhere close to running out of gas?

Jonathan Brearley, Chief Executive Officer, Ofgem: 2:38

Look, we have one of the most secure and resilient systems in the world, and we've just been through a two year crisis when there were genuine concerns around the gas market. So I point to what National Gas have already said, which is that no, we are not close to running outta gas in the system we have right now. Now remember. We do have storage in this country. We have some storage, but we also rely on a very diverse market to produce what we need. So we are the main importer of LNG, for example, and that's been a big sort of mainstay of the last few years. And of course we have access to European markets and European grids as well. So you can never say no to any security supply question. I've learned that in my last 20 years. But am I deeply concerned about it? Not right now.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:18

Does the UK need to invest though in, in more storage, gas storage, or is it sufficient?

Jonathan Brearley, Chief Executive Officer, Ofgem: 3:22

As Ofgem, we are open to this. You think the government are having ongoing conversations about storage. But as I say, you don't look at one way of producing the capacity. You look at all the different ways you might be able to get gas into the country. So the decision has to be taken in the round. What I would say though is remember as we begin to transition to new forms of generation, so carbon capture and storage or hydrogen, then new questions come up. So one question will be if we start getting more hydrogen generating power stations or hydrogen fuel power stations, how do we store that and how do we make sure we have security supply and hydrogen? So there's a long term question, but I think in the short term you've gotta weigh up a whole set of factors.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:57

I'd love to talk about hydrogen with you as well, Jonathan.'cause that's certainly a very interesting topic. But, you know, if we stick to, you mentioned LNG and obviously the UK is very reliant on LNG. We've basically weaned ourself off Russian gas. Is there a danger that we're becoming too dependent on another source of gas, which is the US and a very kind of, not so predictable president in place at the moment. But is there a danger that you swap one dependency for another?

Jonathan Brearley, Chief Executive Officer, Ofgem: 4:22

Yeah. Look, I should say as a regulator, it's a bit beyond my remit to talk about the President of the United States, but I think. I think you make a good point, and I think we should step back and look at the situation we find ourselves in today. So the vast majority of our energy depends on the gas market. Now. If you go back five years, when I started in this job, in my previous job, that was a very stable market and in fact, quite un under examined actually, in terms of how it was working and who the main players were, because it always worked so well. So we had a relatively low, relatively stable price. Now, what's happened in the last few years is geopolitics has firmly inserted itself into the gas, into our energy system as a whole, but into the gas market, and actually regardless of where your gas comes from. We do have a market that depends on decisions that are made by other global leaders. So I'm absolutely with the Secretary of State when he says, we need to get to a different system. We need to get to a system that is clean, powered by 2030. Not just because environmental enthusiast like me, want us to tackle climate change. But because it's good from a price point of view and a secure to supply point of view. So strategically, should we move to a different system? Absolutely.

Richard Sverrisson - Editor-in-Chief, Montel News: 5:27

Absolutely. No, that's not even touching on the way the, it's been, it's been criticized in certain parts of Europe about the how price, the wholesale price is formed with gas playing a major part in that. But I'm not gonna touch on that with you here Jonathan. But I think the clean power by 2030 as Laurence mentioned in the scene set, and as you've highlighted here, is massively important for security of supply. Also for greening the economy and the energy sector.

Jonathan Brearley, Chief Executive Officer, Ofgem: 5:48

And for cost, I'd argue look for price getting stability rather than the volatile markets we're in.

Richard Sverrisson - Editor-in-Chief, Montel News: 5:53

Absolutely. But is it achievable? These are really, these are massively ambitious targets. How ambitious is it? Is it, as Laurence said in the intro, is it tilting it to wind turbines or windmills?

Jonathan Brearley, Chief Executive Officer, Ofgem: 6:04

Look I've been around energy for nearly 20 years now, and the number of times I've heard things are. That are impossible, that turn out to be possible are more than I care to mention. I'll just mention a couple of examples in a moment. So without a doubt, it's a massive task. Building the amount of transmission infrastructure, which we are intimately involved in with the network companies is a huge task. We have 80 projects altogether that need to be done roughly on time to get to where we need to get to. By 2030, we've got a huge amount of. Generation build that needs to happen. And we've got to redesign our markets so that people can use this power in a very different way to when we get there. And by the way, we've got new technologies like long duration storage that we need to both scale up and create the regulatory mechanism to support 'em. So without a doubt, it's a really, really big job. But you know, as I say before, so I remember I, for those who dunno, I led electricity market reform and the introduction of contracts for difference, which now the industry love. And indeed the brought a huge reduction in offshore wind prices. Now two things to say. First of all, people told me at the time that this was too disruptive and this wasn't gonna be good for investment, and it drove a huge increase in investment. But I remember in 20 13, 14, receiving emails from analysts, from equity analysts telling me they'd surveyed their members, and it will be impossible to meet our offshore wind goals by 2020, both on cost and on delivery. Now what we saw was two things. First of all, we saw the auctions drove a phenomenal reduction cost. So I remember we were setting up a task force to get offshore wind down to by, in 2012 prices to a hundred pounds of megawatt hour by 2020. We introduced the auctions and within three years it was down to around 55 pounds. So all my experience suggests that when you set clear goals, when you work with the industry properly. You can achieve far more than you imagined you can. And look, I'm optimistic when I talk to the network companies and I look at how they are gearing up to deliver this, everyone is pointing in a similar direction. I think the thing that 2030 for me has done more than anything else is it's brought clarity. It's brought clarity around what it is we all need to do. So if you leave the world to economists like me, we'll have a thousand different options and we'll be spending our entire time trying to optimize between them. But the goals that we have quite a focus to do list as an industry. And I think off gym has quite a focus to do list itself. That makes a huge difference. And if we can deliver that, I think it's a huge win for British customers. So can I guarantee it? No. Is it impossible? No.

Richard Sverrisson - Editor-in-Chief, Montel News: 8:24

Okay. That that's very reassuring, I think. But one of the, one of the, one of the issues, one key obstacles, if you like is rolling out the, that the transmission grid. Absolutely. And but how do you get local populations, local people involved and to accept that? The, the nimbyism the local accept acceptance is very hard to get when you have a series of reviews and, court cases, et cetera. That whole permitting process will need to be speed speeded up, won't it?

Jonathan Brearley, Chief Executive Officer, Ofgem: 8:50

Absolutely. And look. There's, I should say one thing, I'm from the countryside. I'm from deep in the heart of the southwest. I know how my neighbors and my friends there would think about big infrastructure going through what is beautiful parts of the country, and I think. The first thing I say is that the companies themselves have to get better in the way they engage with communities around the projects that they're developing. So I watch some of the schemes across the country, and there's a real difference between companies that are engaging early, giving clearly defined choices, not pretending things are possible when they're not possible, and genuinely asking community, how can we optimize this for you? Accepting there's this big national need out there to make it happen. The second thing is I'm a big fan of community benefits. I think. Finding ways to give back to communities who are ultimately giving something up is a really good way to try and make sure we can support projects. But equally, I am really pleased to see that we are looking at changes to the planning system itself. I care deeply about diversity. Diversity, I care deeply about climate change, but we have to make those trade offs more quickly if we're gonna deliver this infrastructure. So with all of those things. Absolutely. I think this is possible, but we have to engage. Well, and that isn't just a policy issue, it's not really a regulatory issue. It's about how companies are working with the people whose lives they're changing.

Richard Sverrisson - Editor-in-Chief, Montel News: 10:03

Absolutely. Is it easier to build that grid infrastructure at sea? I mean, for fish don't vote. So is that is that easier in some ways?

Jonathan Brearley, Chief Executive Officer, Ofgem: 10:11

In some ways from certain perspectives, it is clearly there's a cost element to all of this that we have to keep an eye on. But I've been, I've seen projects that have been resisted locally where they're landing in for offshore sites, for example. So I don't think it's a kind of panacea to the sorts of problems that we face. And even, I used to at one point work. Developing Interconnectors. So there are a lots of environmental rules and regulations rightly around what you put in the marine environment.'cause of course that's highly sensitive to changes. But it comes back to a more general point that I'd like to make. Which is this, I've been CEO for Ofgem for five years. I was leading networks another five, roughly another four or five years before that. And in a sense, there is a phenomenal opportunity for the whole sector. But let's just take the network sector right now. All investors and the companies that they're investing in need to think hard about. Two things, what is life like out for customers out there, and how are we all doing our best to make sure we're delivering a service for them? But also when we think about the communities or who are affected, how are we working with them to make sure we understand their perspective? We adapt what we can, and we're working in a way that compensates that for some of the change they're making. So there is a very positive place for the industry in this country, in my view, where businesses can grow, where we see huge expansion and huge build out. But to sustain that and do that properly, do not forget who we all work for and how we need to manage this change across the country. Ofgem can't do it. Frankly, the government can't do it. It's going to take the industry.

Richard Sverrisson - Editor-in-Chief, Montel News: 11:35

Absolutely. And the population at large, isn't it, that their acceptance and their involvement in these projects. And I think, it's also another thing to add with the interconnectors. Now obviously with what's happening in the Baltic there's, there are severe, there, there serious defense con and security considerations as well with any of that cabling, but you've been in place here for five years, Jonathan. What have been the biggest challenges and what would you say has been your biggest achievement so far?

Jonathan Brearley, Chief Executive Officer, Ofgem: 11:58

Look, let's start. Let's start with the challenges and let's start. I am my predecessor, and I joke about this when I came into this job. He said to me, things are quite calm now. And don't worry about the retail market. We've had the CMA investigation and, I teased him about this now. Now, clearly when I came in 2020, the world was very different. I arrived a month. Before COVID, and so working through the COVID crisis and then the gas crisis, there have been huge events that have changed the course of what I expected this five years to be. But I love the fact that Ofgem has been proactive through that, where we've had to learn lessons, we've learned lessons, and we've done things differently, and we've shaped a market very differently from when we started. So if I go back to some of the highlights, we said to government in 2020, we would like the creation of an independent system operator. It's fantastic now to see Niso set up. And I'm a big fan of the work they've done so far to get us through 2030. I'm a big fan of the institution that we've created. I think that's a step change in the way we're building out this infrastructure. The fact that you and I can talk about a strategic plan for networks that we can talk about the scale of generation that we need in quite direct terms, is a massive contrast to when we started five years ago. Equally. Despite all the challenges of the gas crisis, I'm incredibly proud of the work off Jim did to make sure everyone was kept on supply, everyone was looked after and everyone kept their energy at the level of the price cap. Even though, to be honest, there were big things we had to learn around how we regulate the retailers and how we perceive risks in the market. I think a change for me over the last five years is, yes, let's make sure we have vibrant markets. Let's make sure those markets are working well. But let's also make sure we are hearing customer concerns. And I come back to this point I made before, which is, it's not just about me. All of us need to keep our ears open to what people on the ground are telling us, because at the end of the day, public confidence is what sustains this industry, and this is an essential service for those customers.

Richard Sverrisson - Editor-in-Chief, Montel News: 13:46

Absolutely. Yeah I think, the energy sector. Generally in the UK and elsewhere as well, hasn't always been seen the best light. Yeah. And how in, in a sense, and we've seen a lot of failures of suppliers, obviously no one, but no one saw the energy price crisis coming. But how do you secure these kinda retailers? How do you ensure that their hedging strategies are in place so that they don't go under and that other big supplies don't take them over. How do you get that in place? How do you have those guarantees in them?

Jonathan Brearley, Chief Executive Officer, Ofgem: 14:13

Well, look, this is a big change in perception from us actually. So if I go back to 2020, we were quite an economic regulator in the sense we were like retailers run themselves. We don't really need to get involved. If they go bust, then you know, someone will take the customers. Therefore it's fine. And to be fair, at the time, the cost of failures was relatively low compared to the size of the industry that's out there. What we learned and what we had to learn painfully is that isn't good enough in a market that carries so much public risk. So my argument is not just based on what we saw in the crisis, but it's really based on what should be have on an ongoing basis. So right now we've. We've pretty much done what the banking regulations did after the financial crisis. We say two things. So we do monitor retailers hedging strategies, particularly around the price cap. So if you have customers on the price cap, you need to make sure that you're able to buy energy forward sufficiently so that you're insured against the sort of price rises we're seeing right now. But also we're saying to retailers, you need to hold a certain amount of capital so that if things do spin out of control, you've got reserves to call on when things go wrong. And look, I, as I said to parliament in January, we we can't guarantee every retailer will still survive. We don't have a market that's as resilient as we would like, but it is on a journey, and that's a journey that is being driven by regulation.

Richard Sverrisson - Editor-in-Chief, Montel News: 15:28

You can never make it risk free or a hundred percent resilient. There's always gonna be that's the element of the market.

Jonathan Brearley, Chief Executive Officer, Ofgem: 15:33

You need a market that functions in that way. If a company's not performing, there needs to be an orderly exit for that company. We're just much more thoughtful about that alert without extending into, in. Deeply into retail. The same is true really on the outcomes we want from the companies. So now we are much more clear around how they treat vulnerable customers, how they respond to customer queries, so that we're creating a sense where actually there's a shared vision between the regulator and retailers around where we're heading. A bit like I've described on the network side, and again, there's an incredibly positive place for a retailer in this country if you can generate services that allow me to move my demand over time. So I'm an EV owner, I'm a static EVO at the moment, I'm not as flexible as I should be, quite frankly. But if you could persuade people like me and others as they get them to be able to charge their cars when things are cheap, you've got a massive offer for your customers, but you've also got, very different markets from the more of regulated price cap. So what we wanna do in both areas is create this sense of the overlap between business success and customer need. And I think we're making progress on both.

Richard Sverrisson - Editor-in-Chief, Montel News: 16:32

I mean, flexibility is absolutely key here. There's a huge amount of flexibility in the market, as you said, batteries of EVs if you utilize that fleet. So there are meant plenty of possibilities out there in terms of ancillary services and the, what retailers and suppliers could provide.

Jonathan Brearley, Chief Executive Officer, Ofgem: 16:45

And look, we saw it in the crisis where we had the demand flexibility service, accepting that we paid quite a lot for that. We did have a lot of people adjusting their demand even manually. Now, imagine a world where that becomes automated, where we use AI sensibly to help customers. I think that's got huge potential. And again, in this world of 2030 where we are going to have millions of electric cars on our roads, we are gonna have heat pumps being rolled out. And indeed we are going to have a system that needs us to be more flexible and adaptable, that's gonna become more important.

Richard Sverrisson - Editor-in-Chief, Montel News: 17:12

Especially in the times of, that lovely German word called Dunkelflauter. Yeah, exactly. Yeah. Which is becoming more into the English vernacular now, isn't it? I think even seeing it in the mass media. But so how would you compare the supplier market now as compared to when you took over at Ofgem?

Jonathan Brearley, Chief Executive Officer, Ofgem: 17:26

So when I took over, we had 70 companies in the domestic supply market. So it was very diverse, very fragmented. And I, looking back, I think we, we took the perspective that because there were a lot of companies and because there was quite a lot of switching, these were signs of success and these were signs of a market that, that, that was working. I think what we have now is a much more concentrated market. So we do have a range of suppliers, but nowhere near that number. And we are beginning to see switching, increasing again but at lower levels, I think what we have now is a much more resilient set of companies. We have companies that I know because I speak to all of them that are genuinely thinking strategically about how we get to 2030 and how we get new services implemented. And when I look at some of the ones we lost, there were some very innovative companies there. There were also companies that were running a bit of a playbook, which was issue low tariffs and hope the market doesn't turn against you and that we've taken out. And I think that's a good thing.

Richard Sverrisson - Editor-in-Chief, Montel News: 18:20

Yeah, no, absolutely. That can only taking some of the some of those players out I think can only be beneficial for the market as a whole.'cause when they go under it does create

Jonathan Brearley, Chief Executive Officer, Ofgem: 18:28

cost and disruption and that's not what we wanna see.

Richard Sverrisson - Editor-in-Chief, Montel News: 18:30

Absolutely. Laurence, in his intro, and then when he set the scene there he mentioned Ratcliffe, on the Ratcliffe coal fire station. And that's quite a key moment for the UK closing off the last coal plant, for sad for some and a vision of hope and for the future, for others, I think. But how do you view it in terms of gas? Could, are we ever gonna be likely to wean ourselves completely off gas for in power generation?

Jonathan Brearley, Chief Executive Officer, Ofgem: 18:53

So just talk about Ratcliffe for a moment because it was a big moment. Actually, I was back in the energy department in government where we talked about coal coming off the system and it all felt very abstract and it was all on PowerPoint slides and spreadsheets. And we had long debates about whether we needed things like the emissions performance standard. And anyone mention remembers that? And Amber Rudd's commitment to, to take coal off by? By around this time. But it's a real mixed feeling I think, for me and for the industry because coal has provided this country with a backbone of its energy needs for over a century, longer centuries. So I can understand the mixed feelings, I can understand the emotions behind it and, there is a positive vision out there and, we do need to move to different sources, but I don't wanna to play the hard work and the incredible role that industry played in our history and getting us to where we are now. And when I look at gas, without a doubt we will need gas in the future and we're going to need gas to balance the system. We have CCS projects that are gonna allow gas to be used in a more carbon efficient way, but we need to be significantly less dependent on gas than we are today. And it all comes back to me to the experience we've had over the last two or three years where we've seen what those volatile markets can do. And in my mind, when I step back and think why is it. Collectively across Europe, actually, not just Britain, not just, certainly not just Ofgem did we end up so reliant on a market that was so dependent on frankly, a country that at any time could take a very aggressive stance towards Britain and Europe. And it is because I think we've lost a bit of the geopolitical thinking we used to have. So if I go back to when I started, even in the mid two thousands, but you go back. 10, 20 years before that, geopolitics was a big part of your energy discussions. People thought about long-term contracts, they thought about relationships with countries, and we all moved to a place where we relied on markets and market mechanisms, all of which are beneficial, all of which drive really good sort of short term cost savings for customers. But we are going to need to be a bit more strategic about this, both in terms of the way the gas market shapes up and as you mentioned, there are other countries that may or may not have a role in the geopolitics around that. We need to make sure we've got diversity while we need gas. But the principle thing is we need to move away from it as far as we can so we get to a more stable place. And look where I'm optimistic and where I think actually this industry is incredible is in its ability to innovate. So I think about heat pumps now, and we have debates about where heat pumps can be used, how they can be used, and how much they're gonna cost. I'm hopeful. Not only based on what we have in the technology today, but actually you are going to see technologies like that evolve and improve in the same way solar has the same way wind has and the same way all the technologies that are contributing to the low carbon sort of generation that we have.

Richard Sverrisson - Editor-in-Chief, Montel News: 21:29

Absolutely. I know you mentioned earlier the long range or the large, long scale, long term energy storage. That's gonna be absolutely crucial in the energy transition. But, what, does anything keep you awake at night, Jonathan, in terms of what's the energy situation, the market situation and we have at the moment in the UK and more, more generally.

Jonathan Brearley, Chief Executive Officer, Ofgem: 21:45

So look, the energy market is far more eventful than people like me would've imagined a few years ago. So we have to make sure we are managing risks. As I say, I do think. Collectively thinking about the geopolitical situation around us is important and we have to make sure that we are able to manage things that are unpredictable. You have to, as energy regulator accept that, particularly through the winter. Your job is quite short term as well as long term. You have to think about what's happening to people today, and you have to make sure that the system around you is resilient to much wider scenarios. Than I imagined in 2020. So I don't get kept awake by specific things or particular worries. But I do want us all to think much more broadly about what might undermine the energy system for British consumer. And I'll tell you one thing. I think we all understand now that security supply is paramount. Security supply is what this country relies on. So we have to make sure that any transition, any system has that as one of its bedrocks.

Richard Sverrisson - Editor-in-Chief, Montel News: 22:40

Yeah. It's always been one of the sort of tris in it, if you like, competitiveness security supply and also the environmental, the clean side. So it's always been there, but now it's, that's shunted to the fore if you like. Do you find as a regulator you're being pulled in all directions from fighting for consumers, but also, ensuring government policy and doing what TSOs or the market wants. And there are. Lots of different diverging interests there. And do you find, how do you cope with that?

Jonathan Brearley, Chief Executive Officer, Ofgem: 23:03

So look, that is the life of a regulator. That's the life of regulation. Normal times, let alone in the times we are in, which is you are always trading off the the consumer interest against what companies need to be able to deliver against wider government goals and objectives. So that feeling is not new. I mean, even when I came in 2016 into Ofgem and we had to reset the price controls, which in a sense meant. At that time, reducing returns for investors for networks. That was a tough process, but we handled it in the sense that we gave a lot of warning beforehand. We made sure the investment community understand where we were coming from and we made sure that we'd done enough work to land at. Big change like that for them.'cause we felt this thing wasn't balanced in favor of consumers. Now you are always gonna spend time having to weigh different things up. It's why we have regulators. What I'd say is different is the scale of those have changed and the involvement with government is closer. So we're an independent regulator when it comes to the cost of capital. We'll be in a darkened room with a towel around her head and we'll make our decision on our own. But when the government is laying out a plan for infrastructure, when the government is. Basically providing the incentives for generation to be built. We need to work closely with them, understand their vision, and make sure together we're providing a coherent sort of whole to what we're doing.

Richard Sverrisson - Editor-in-Chief, Montel News: 24:15

The key element here, you meant providing that incentive to get investment into energy infrastructure and generation gb. How do you do that? It's is in a way it's easier said than done.

Jonathan Brearley, Chief Executive Officer, Ofgem: 24:25

There's there's two things in my mind. One is the technical work. So I've got teams here who are running lots of financial models like the famous Cap Em model for those who know what that is around how you begin to set the limits around this. But the other is the relationship. And the thing I feel I've really learned in the last five years, which I've. I may have known a bit in 2020, but certainly not as much as now. It's actually, it's the relationship you have with the companies that, and the investors, which is gonna make this a success, or indeed, if this goes wrong, it's one of the main sort of failure risks that you have. And I think what I want companies to do, what I want investors to do is to hold the strategic positive vision. For the future, for the long term and all of us. For all of us, that's gonna mean perhaps giving up some short term commercial gain or indeed, from my perspective, being too short term is about customer needs, for example. But if we all hold that together and we all make sure we work closely on the issues that we're facing, and we have a principle of honesty more than anything else. I think we can make huge progress. I do look at other regulatory regimes and where that trust is broken down becomes incredibly hard to make progress. Do you liaise or talk closely with your colleagues elsewhere in Europe? Are you in? We do. Absolutely. So we spend a lot of time, well, as an organization, we are in constant dialogue with Europe, particularly around things like Interconnectors, but also more broadly about how we are all thinking about the transition that we're on. We have sort of private regulatory groups where we get together and we share both, what the challenges and what are some of the things that we've done that make us successful. And there is a vibrant community out there, actually, of people who are thinking about this, not just across Europe, but also in, for example, in the USA. We are well networked with our colleagues and as I say, there's two dimensions. There's pragmatic things we need to work on, so where are we gonna have interconnectors do they make sense for both countries, et cetera. But there's a lot more we can share in terms of the amount of change that we're seeing, transition we're trying to go through and how we're approaching it differently. The remarkable thing for me is, I've worked previously in India I've carried out work in the USA as well as working with colleagues across Europe. And although we have phenomenally different systems from state run, state backed energy systems through to liberalized markets like Texas, we are all facing very similar challenges. And actually the things that emerge are quite consistent between us and that's what we need to build on.

Richard Sverrisson - Editor-in-Chief, Montel News: 26:43

Bringing the discussion back to Ofgem and the relationship with government, I see that the UK government has launched. Its its first con comprehensive review of Ofgem. Yes. And the aim of that is maybe, if I'm interpreting correctly or not, is to see, to make you stronger as a regulator. I dunno if that's a correct interpretation, but how vital. Are those extra powers? If you, if they're granted to you? Jonathan.

Jonathan Brearley, Chief Executive Officer, Ofgem: 27:04

So we are, and I am a real enthusiast for the Ofgem review. Our mandate was set 25 years ago. Even in our name, we are regulators of any gas and electricity markets. And the reason why I'm keen that we go through this process is really I'd say broad for broad things. So first of all, in statute, what are we here for? So we have a primary. Cus customer duty in statute and we have something like 12 or 13 have regard to duties now. I don't think that really is a coherent legislative basis for a regulator to be able to make the sorts of decisions we're going to make in the next five or 10 years. And I think there are some genuine debates, parliament needs to have, for example, about our role in growth and economic growth and driving the economy given the sort of conversations we're having with Treasury right now. So there's something there about, looking again at what we are for and making sure we're all consistent, coherent, and happy with the direction that the regulator needs to go in on a principled level. But there are some very practical changes in this market. So the thing I say to government is, look, imagine you're a consumer in 2030 or 2035. Where's your energy coming from now? We hope. It'll be coming from potentially solar panels, potentially your battery that's installed in your home, potentially from your car, battery in, plugged in outside, or plugged into the street or indeed from all sorts of other sources like district heating and others, or from aggregators who are using all our equipment to try and optimize on our behalf Now. If you start with that customer and where they get their energy from. Ofgem doesn't have a lot of power to protect customers in some of those areas. So you won't have a consumer focused energy regulator unless you think about the sort of organization we need to be to protect people across the board. And look, I have seen some very poor behaviors in, for example, the solar market, that at the moment we have some powers to tackle. But I would like us to have a more. Comprehensive assessment of what we need going forward. And that might mean being a bit fluid about where our regulatory boundaries sits. So as new services come on, rather than waiting for the government to notice, consult and regulate and legislate, we could do something a bit more like the FCA does, where we identify on an ongoing basis where the boundaries of our industry are and where we think we need to extend our powers. Accepting. Look, we're trying to create innovation here. We're trying to get a market that works. We're not trying to be overbearing, but we know that, trying to address customer issues retrospectively. It's usually worse for everyone, including the companies involved themselves. So that's thing one thing. Two, out of the gas crisis, there are many risks that we have mitigated, including the financial risks we've already talked about, but I do think there are residual risks that at the moment we don't have the power to address. So I would like to make sure that somewhere in the system doesn't have to be Ofgem. There are powers that allow people to save. There is significant customer harm, so real customer detriment. Then we are able, and someone has benefited financially from that, then we're able to square that circle so we're able to make sure that yes, this sector is investible, but that all investors and all companies behave responsibly. And then third, I do think there is a debate about the role you want the regulator to play when the government is setting such a clear and strong strategic direction, like the 2030 plan. For those, like the spatial energy plan coming in 2026, what role do you want us to play in that and how do you want us to interact with the vision, which will be quite definitive, for example, around the sort of transmission we need in the country. And that can vary from writing a bit more clear policy statements for us, or something that allows us to operate perhaps in a narrower space around assessing how you. Best to most cost effectively deliver the plan that's there. So there's a lot there.

Richard Sverrisson - Editor-in-Chief, Montel News: 30:33

But the government's, one of the clear REITs for off jam is to spur growth or to be part of that growth engine. How isn't that's easier said than done though, surely. How do you see your role in, in facilitating that, Jonathan?

Jonathan Brearley, Chief Executive Officer, Ofgem: 30:43

Basically, first and foremost is being able to get investment into the sector. So something I'm very proud of over the last five years is we have completely changed our stance on in network investment. So now we accept the case for strategic investment. We accept the case for anticipatory investment, and we are building out at pace as we described to get to the 2030 goals that we have now. A few years ago, for example, you know when I was in, it's on the networks part of the organization. It would take two or three years to get one project through. So say we now have 26 main projects, but 80 projects in total that we are trying to get through the system at pace. And I don't think in the world we're in today that finance is going to be the problem, or regulatory finance is going to be the problem. Problem is around delivery and planning. And our focus right now with the industry is not only on. Unlocking the money it's on saying to the industry, for this money, you need to be on time and on budget. Which as we know in infrastructure in this country, it's not always the case. That's thing one. And then, there's a lot we can do with the retail market to make sure that we can improve the way that's invested in. But the other side of the house is making this sector fit for business. We've seen a lot of new rules coming into the business market to make sure that small businesses, for example, are able to operate in it. And we wanna make sure that factories, when they wanna be built in Britain can get connected to the grid quickly. So there's a lot we can do. Tough questions like how we address whole industrial costs need to be answered, but my, in my sense is you get the investment in the sector that you need and make this sector a support for the investability of the UK.

Richard Sverrisson - Editor-in-Chief, Montel News: 32:10

A final question, Jonathan, really, and that's on market trading arrangements. The big discussion has been on the regional node door versus, a market price, a national price. Could you highlight the pros and cons of each and what? When is a decision likely on that front, Jonathan?

Jonathan Brearley, Chief Executive Officer, Ofgem: 32:25

It's a big decision. I remember running electricity market reform four years ago, for almost four years to get contracts for difference and the capacity market up and running. So these are big decisions. They're for the Secretary of State rather than for Ofgem themselves. But in a sense I think the thing we need to be clear about is that with the amount of change that's in this sector, the idea we leave this market as it is I don't think is credible. The amount that you have to pay wind farms to get constrained off the amount that we end up with a system that's inefficient. If we do absolutely nothing, I think means that it is not economically credible for the British consumers to leave it as it is. I think you have. Two options broadly, leave the national market in place and find different ways using charging, using the balancing mechanism, et cetera, to try and make the economics work as well as possible. So in effects, try and get demand to locate in Scotland where there'll be a lot of wind and to find efficient ways to manage when. Demand is and supplies an excessive demand in places like Scotland as well. Or you go to a system that's much more flexible and adaptable that says, look, if there's a lot of wind generating in Scotland and the price in Scotland falls, and people can respond as they do now, we've had a. Robust debate within Ofgem. This is, for regulators, this is as passionate as it gets. If everyone was ever gonna come to blows in Ofgem, it'll be over zonal pricing or something else.

Richard Sverrisson - Editor-in-Chief, Montel News: 33:40

Yeah.

Jonathan Brearley, Chief Executive Officer, Ofgem: 33:41

And we have come to the view that zonal pricing we think is the best way forward. It's not unanimous view. There are people on my board, for example, who would say we might want to do things differently, but by and large we think that is the best way to create a system that's adaptable. We also accept, by the way, that you are likely to need. Protections for the investment that's going at in at pace to gets 2030, and you're likely to need to think about whether or not you need to ev even things up between regions and areas within the UK. All my experience suggests that if you get those economic mechanisms like we did with CFDs, where we move to auctioning, you get developers focusing on the thing that really matters, which is getting their costs down and getting their projects in on time. And also you get industrial customers thinking very differently. So we're gonna see an AI boom. In this country, in my mind, we are gonna see a huge growth in data centers, partly because the whole world is gonna see a growth in data centers. And partly because we have so much across the data world that is positive about Britain. So we want to see an AI boom. But if you have that, really, you want your data centers. If that fits with the latency needs and everything else that they have to be locating in those parts of the country where there's a lot of wind and taking advantage of that cheap power and it's available. I think something like zonal pricing gives the opportunity for that to happen. I look across at Texas and what is fascinating, even though they have a very liberal market and quite locational we are seeing a lot of industrial, all the industrial development from the kind of Biden in sort of interventions going to Texas. Because that market is delivering the best cost for customers like that. So I think there's a big synergy there. So as I say, big debate with an Ofgem, not finalized, but on balance, we think it's the right thing to do.

Richard Sverrisson - Editor-in-Chief, Montel News: 35:17

It's also very political as well as you're seeing.

Jonathan Brearley, Chief Executive Officer, Ofgem: 35:19

Absolutely.

Richard Sverrisson - Editor-in-Chief, Montel News: 35:19

With the bidding zone review in Europe, that's been delayed. Again, yes. And over. I've been waiting for it for the last 10 years, I think. But

Jonathan Brearley, Chief Executive Officer, Ofgem: 35:25

I didn't answer your question about when they're gonna decide.

Richard Sverrisson - Editor-in-Chief, Montel News: 35:27

No, exactly. Yeah, no, exactly. But hopefully fairly soon. But Jonathan, thank you so much for your insights. It's a fascinating discussion and best of luck for meeting the 2030 targets. They're certainly very ambitious, if I think as you say, they are, they're not impossible. You've been listening to, to plugged In: the Energy News podcast. Thank you and goodbye.

Jonathan Brearley, Chief Executive Officer, Ofgem: 35:42

Thank you. Thanks very much.