Ofgem Review 2026: What the Proposed Reforms Mean for Energy Businesses 

The Department for Energy Security & Net Zero (DESNZ) published the Ofgem Review: Final Report on 22 April 2026, setting out significant proposed reforms to how the energy sector is regulated in Great Britain.

For energy suppliers, investors, infrastructure providers and third-party intermediaries, these proposals could materially affect how regulation is developed, how quickly rules change, and how enforcement is applied. In particular, the review signals a shift towards greater regulatory flexibility alongside increased accountability for both organisations and individuals.

In this blog, we explore the key proposals from the review and consider the implications for participants operating in a heavily regulated and fast-moving sector.

Why Ofgem’s culture may determine whether regulatory reform succeeds

Perhaps surprisingly, our main takeaway is not a legal one. Many of the legal reforms proposed make sense on paper. The biggest obstacle to their success may be what industry stakeholders perceive as “persistent challenges in Ofgem’s skills, capability, and organisational culture”.

DESNZ reported that industry described Ofgem as “opaque, risk averse and resistant to change”, and “adversarial”. The Department concluded that there was “low trust between parts of industry and regulator”.

Most of DESNZ’s legal proposals can be described as giving Ofgem greater agility and latitude. If DESNZ is correct in its description of a “low trust” environment, this may not be well-received by industry. If the proposed new powers are in fact wielded in an adversarial manner, this has the potential to stifle innovation and investment.

This would suggest that the reform programme needs to lead with the cultural and skills-based transformations recommended by DESNZ.

The proposed timeline for implementation (figure 4 of the report) suggests that this was DESNZ’s conclusion as well, with a Cultural and Capability Transformation Plan expected to be commissioned in roughly the second half of 2026, ahead of substantive regulatory reform to follow.

What Ofgem’s new objectives could mean for energy companies

One of the most significant structural changes proposed by DESNZ is a reshaping of Ofgem’s statutory objectives. A new set of three equal principal objectives will be introduced, focusing on the interests of existing and future consumers, net zero and growth.

The energy system is complex and becoming more so. The existing web of duties — difficult though it is to navigate — reflects the various competing interests and trade-offs involved in regulating such a system. DESNZ acknowledges this when it says that giving the new duties equal weight is “intended to enable Ofgem to take a more balanced view of wider consumer and societal benefit”.

However, it is not clear that the current structure of Ofgem’s duties is the real issue. The increasing politicisation of energy creates an incentive to “chase footballs”. That reduces the scope for the systems thinking needed to unlock complex, long-term regulatory challenges.

Why Ofgem is refocusing on economic regulation and consumer protection

Alongside redefining objectives, the review also seeks to refocus Ofgem’s role on its core regulatory functions.

DESNZ argues that the increasing breadth of Ofgem’s responsibilities has diluted its focus on economic regulation and consumer protection, and that its remit therefore needs to be refocused on those core functions. This means Ofgem should no longer be involved in scheme delivery or in progressing policy initiatives outside regulatory decisions.

This is likely to be welcomed by industry. Over the last 20 years, Ofgem has taken an increasingly broad, arguably activist, role in setting policy under the heading of protecting consumer interests. This can create a heightened sense of regulatory uncertainty, which is not conducive to the investment necessary for the energy transition.

How Ofgem could regulate new parts of the energy value chain more quickly

The review also considers how Ofgem’s remit should evolve as the energy system becomes more complex. The boundaries of energy sector regulation and Ofgem’s oversight will be defined through an Energy System Value Chain (ESVC).

This will map the activities involved in producing, delivering and using energy, from generation and infrastructure to consumer services and installation, providing a framework for defining what “could be” regulated. DESNZ will then, following consultation, be able to prescribe new areas for regulation within the ESVC.

The new power is likely to be a double-edged sword. Regulation can spur investment but, as we note above, it can also deter it.

Recent examples of sudden and unexpected redistributive market interventions — such as the network-funded debt relief scheme and proposals for progressive energy bills linked to household income — mean that “rapid regulation” may be something industry initially approaches with caution.

Will Ofgem gain stronger consumer enforcement powers?

A recurring theme throughout the review is an expansion of Ofgem’s enforcement toolkit.

The CMA was granted direct enforcement powers for consumer law infringements under the Digital Markets, Competition and Consumers Act 2024. Following that model, DESNZ proposes that Ofgem will be granted direct consumer law enforcement powers.

There is likely to be some trepidation in response. DESNZ notes that industry perceives Ofgem to have an “adversarial” approach. Additional enforcement powers are unlikely to be welcomed while this perception remains.

Could senior managers be held personally accountable under new Ofgem rules?

This expansion is particularly evident in proposals around personal accountability.

DESNZ proposes that licensees will be required to designate senior management functions, and that individuals could be personally accountable for the areas delegated to them. This would apply even after an individual has left the licensee and, in the most serious cases, could result in individuals being barred from working in the sector.

The report is clear that Ofgem is expected to consult on any such framework before it is introduced, and that Ofgem should specifically:

• set out how it would identify individual roles and the relevant elements of compliance and performance;
• consider the proportionality of any such regime, including the size of licensee and the specific roles to which it should apply; and
• consider lessons learned from the financial services and water sectors.

When could Ofgem claw back executive pay in the energy sector?

In an echo of the Water (Special Measures) Act 2025, DESNZ proposes that Ofgem should have powers to stop the payment of performance-related pay to the most senior staff where performance fails to meet specified standards.

DESNZ emphasises that such a power would have a “high threshold” for use and would be reserved for the most significant cases, where the relevant conduct can be linked to serious consumer detriment. This could include serious failings in financial resilience or compliance with regulatory requirements.

There is a risk that personal liability and remuneration clawback powers will deter people from taking senior, accountable roles within the energy sector. In our view, this proposal would sit more comfortably after the cultural and skills-based initiatives proposed by DESNZ have had time to bed in.

Where could Ofgem introduce faster or automatic penalties?

In parallel, several proposals aim to increase the speed and certainty of enforcement.

Although ruled out in respect of other activities, DESNZ considers that Ofgem does require the ability to enforce certain obligations in relation to Third Party Intermediaries (TPIs) more easily, due to the different structure of that sector. It gives the examples of failing to provide information to Ofgem, or failing to implement Alternative Dispute Resolution (ADR) service decisions.

Both suppliers and consumers are likely to support TPIs being better regulated. Once introduced, however, this type of measure may become harder to resist when proposed more broadly for equivalent failings by other regulated entities.

How longer timelines for imposing penalties could affect compliance strategies

The current timescales for imposing a penalty in connection with a provisional order or final order are relatively short. DESNZ proposes that Ofgem should have 15 months for the whole process from order to penalty, with the stated intention that Ofgem will use the power to impose financial consequences more frequently.

This means suppliers facing compliance engagement will need to factor in that financial penalties may become a more realistic outcome, in addition to “just” remedial steps.

How quickly could Ofgem change licence conditions under the new proposals?

Ofgem can currently modify licence conditions in fewer than the standard 56 days where it is considered necessary or expedient, but only for very limited purposes. DESNZ considers it proportionate to allow this expedited process to be used more widely.

There would still be a requirement for Ofgem to consult, but the implementation period could be shorter where Ofgem considers it necessary or expedient.

Suppliers may therefore need to be more agile in preparing to implement regulatory change, potentially starting earlier and taking “least regrets” decisions during the substantive policy process.

Could corporate groups face wider liability for regulatory breaches?

The review also raises important questions for corporate structuring and risk allocation.

DESNZ proposes that Ofgem should be able to transfer liability to interconnected companies, including foreign-owned interconnected companies, where they have had a direct role in causing the regulated entity to breach its obligations.

Ofgem would still be required to seek redress initially from the directly regulated entity, and there would be an appeal mechanism.

We consider this proposal likely to be problematic for the investment community, as it cuts across fundamental principles around separate legal personality and the segregation of risk within corporate groups.

What are General Authorisation Regimes, and could they apply to energy businesses?

Finally, DESNZ considers whether more flexible regulatory models could be introduced.

DESNZ describes General Authorisation Regimes, or GARs, as “a regulatory tool that allows Ofgem to oversee certain activities without requiring a full licence, instead applying proportionate requirements based on the level of risk”.

It gives the example of financial services, although we consider the stronger comparator to be telecoms, where entities can operate electronic communications networks, or provide electronic communications services, without a licence, provided they comply with the conditions of the general authorisation. If they fail to do so, they may be sanctioned and ultimately banned from operating.

However, we remain sceptical as to whether GARs will materialise in this form. The licensing regime for heat networks was originally described as a general authorisation regime but evolved into a site-by-site licensing requirement more akin to water than telecoms.

As with outcomes-based regulation more generally, a GAR requires the regulator to become comfortable with a less prescriptive approach. That may prove to be the harder reform.

What should energy businesses do now?

While many of the proposals set out in the Ofgem review will take time to develop, the overall direction of travel is already clear. Businesses operating in the sector may benefit from taking early steps to understand how these changes could affect both their regulatory exposure and internal governance.

In practice, this is less about responding to a single reform and more about preparing for a shift towards faster-moving, more flexible and potentially more interventionist regulation.

Key areas to consider include:

• Reviewing compliance frameworks to ensure they remain fit for purpose in a more dynamic regulatory environment.
• Assessing senior management accountability, including how responsibilities are defined, documented and overseen, given the proposed expansion of individual liability.
• Evaluating corporate structures and risk allocation, especially where activities are spread across group entities that could, in future, fall within an expanded enforcement perimeter.
• Monitoring the development of the Energy System Value Chain, to identify whether existing or planned activities could become subject to regulation.
• Engaging proactively with consultations and policy development, rather than reacting once reforms are implemented, to help shape outcomes and reduce uncertainty.

Taking a proactive approach at this stage may help organisations avoid more disruptive changes later, particularly as the pace of regulatory development appears likely to increase.

What the Ofgem review signals for the future of energy regulation

This is a proposal that members of our team have been arguing for over many years.

The review reflects an attempt to balance greater regulatory flexibility with stronger enforcement and accountability. Whether that balance can be achieved in practice is likely to depend not only on the legal framework, but also on how Ofgem engages with industry and exercises its powers.

The Ofgem review represents a significant shift in Great Britain’s regulatory landscape for energy. While many of the proposals remain subject to consultation and further development, the potential implications for businesses are wide‑ranging and, in some cases, material.

If you would like to explore how these proposals could affect your organisation, or to discuss how best to prepare for upcoming regulatory changes, speaking to an adviser at an early stage can help you plan with greater confidence and clarity.

This content is provided for general informational purposes only and does not constitute legal advice. It is not intended to address the circumstances of any individual or entity, nor should it be relied upon as a substitute for specific advice from a qualified solicitor. The information reflects the legal position as at the date specified and may be subject to change. If you require advice on a specific matter, please contact us directly.