MULTI-LEVEL GOVERNANCE STRUCTURE OF THE UK ENERGY SECTOR

Introduction

The UK energy sector operates through a multi-level governance structure in which powers and responsibilities are distributed among the UK Parliament, UK Government, devolved governments, independent regulators, system operators, local authorities and private energy companies. The structure is not based on a single institution controlling the entire energy system. Instead, energy governance involves interaction between different governmental and regulatory levels.

The principal legal framework is derived from legislation such as the Electricity Act 1989, Gas Act 1986, Utilities Act 2000, Energy Act 2013, Climate Change Act 2008 and Energy Act 2023. The Energy Act 2023 has particularly strengthened system-wide governance by establishing the National Energy System Operator (NESO) and reforming energy-code governance.

1. UK Parliament – Primary Legislative Level

The UK Parliament occupies the highest legislative level in the energy governance structure. Parliament creates the statutory framework within which energy markets and regulators operate.

Important legislation includes:

Electricity Act 1989;

Gas Act 1986;

Utilities Act 2000;

Energy Act 2013;

Climate Change Act 2008; and

Energy Act 2023.

The Energy Act 2023, for example, introduced reforms concerning the Independent System Operator and Planner, energy-code governance, electricity storage, network competition and energy-market regulation.

Parliament therefore establishes the legal authority, duties, powers and accountability mechanisms applicable to the energy sector.

2. UK Government and DESNZ

The Department for Energy Security and Net Zero (DESNZ) represents the principal central-government policy level for Great Britain.

Government is responsible for setting the broad energy policy direction and regulatory framework, including objectives concerning:

energy security;

decarbonisation;

net-zero transition;

consumer protection;

energy affordability; and

investment in energy infrastructure.

The Strategy and Policy Statement recognises a division in which government establishes policy direction, Ofgem acts as the independent economic regulator, and NESO performs whole-system planning and operational functions.

Thus, the government generally establishes the strategic framework, while independent regulatory and operational institutions perform specialised functions.

3. Ofgem – Independent Regulatory Level

The Office of Gas and Electricity Markets (Ofgem) is the principal independent economic regulator for gas and electricity markets in Great Britain.

Ofgem regulates energy companies through licensing, price-control arrangements, enforcement powers, market rules and consumer-protection mechanisms. Its statutory responsibilities derive principally from the Gas Act 1986 and Electricity Act 1989, together with subsequent legislation.

Ofgem's principal statutory objective is broadly concerned with protecting the interests of existing and future consumers in relation to gas and electricity. Its responsibilities therefore operate at a level between government policy and individual market participants.

The current governance framework also provides that Ofgem is regulated through statutory arrangements while retaining independence in its regulatory decision-making.

4. NESO – Whole-System Governance Level

A major recent development is the creation of the National Energy System Operator (NESO).

The Energy Act 2023 created the statutory framework for an Independent System Operator and Planner, subsequently implemented through NESO. NESO became operational on 1 October 2024.

NESO performs functions involving:

electricity-system operation;

strategic energy-system planning;

forecasting;

coordination of electricity transmission;

gas-system planning;

advice to government and Ofgem; and

support for security of supply and net-zero objectives.

The current framework identifies NESO as a whole-system planner and operator, while Ofgem remains the economic regulator. NESO is publicly owned, with the Secretary of State as shareholder, but its operational functions are subject to an independent regulatory framework.

This creates an important distinction between political accountability, economic regulation and technical system operation.

5. Devolved Governance – Scotland and Wales

The UK energy sector also contains a territorial/devolved dimension.

Certain energy-related matters fall within the legislative competence of the Scottish Parliament and Scottish Government and the Senedd/Welsh Ministers. However, important areas falling within Ofgem's principal regulatory remit remain reserved to the UK Parliament and UK Ministers.

Consequently, UK energy governance is neither completely centralised nor completely devolved.

This produces a shared-governance model, where:

UK institutions → national energy regulation and reserved matters

while

Devolved institutions → devolved policy areas and territorial implementation

This arrangement is particularly important for renewable-energy development, planning, environmental policy and infrastructure deployment.

6. Regional and Local Governance

Energy governance increasingly operates at a sub-national level.

Ofgem has recognised the need for institutional arrangements dealing with:

regional energy planning;

flexibility markets;

distribution-network coordination; and

real-time system operations.

Ofgem's reform programme has proposed Regional Energy Strategic Planners (RESPs) for strategic planning at the sub-national level. Distribution Network Operators (DNOs) retain important responsibilities concerning real-time operation of distribution networks.

Local authorities also participate through planning, local development strategies, energy-efficiency programmes, transport planning and local infrastructure decisions.

Therefore, governance is increasingly structured around national, regional and local energy planning.

7. Network Operators and Market Participants

Another governance level consists of private and regulated market participants.

These include:

transmission network operators;

distribution network operators;

electricity generators;

gas companies;

electricity suppliers;

storage operators;

interconnectors; and

flexibility-service providers.

Although many are privately owned, they operate under statutory licences and regulatory conditions. Their activities are therefore subject to public regulatory oversight.

This creates a system of regulated private participation, rather than direct government ownership of the entire energy sector.

8. Energy-Code Governance

Energy codes form another important layer of governance. They contain detailed technical and commercial rules governing the operation of electricity and gas markets.

The Energy Act 2023 introduced reforms to energy-code governance and gave Ofgem additional strategic oversight functions. It also provides for more independent code-management arrangements.

Thus, governance operates not only through legislation and regulators but also through technical and commercial rule-making systems.

9. Important Case Laws

(a) Tate & Lyle Sugars Ltd v Secretary of State for Energy and Climate Change [2011] EWCA Civ 664

This case concerned the Renewables Obligation and government support for renewable electricity generation.

The Court of Appeal examined the statutory framework governing renewable-energy subsidies and the relationship between government policy and the regulatory system. The case demonstrates how renewable-energy policy is implemented through legislation, governmental decisions and regulatory mechanisms involving Ofgem.

Significance: It illustrates the interaction between central government energy policy, statutory instruments and regulatory implementation.

(b) Gas and Electricity Markets Authority v Infinis Plc [2013] EWCA Civ 70

The case concerned the historical Non-Fossil Fuel Obligation (NFFO) and its relationship with the Electricity Act 1989 and subsequent renewable-obligation arrangements.

The Court considered the statutory framework governing non-fossil generation and the role of the regulatory authority in implementing those arrangements.

Significance: The case demonstrates how energy governance evolves through interaction between Parliamentary legislation, government schemes and regulatory administration.

(c) SSE Generation Ltd v Competition and Markets Authority [2022] EWCA Civ 1472

This case concerned the methodology for setting electricity transmission charges and a decision made by GEMA.

The Court of Appeal considered important questions concerning the legality of regulatory decision-making in electricity transmission charging.

Significance: It demonstrates that Ofgem/GEMA's regulatory decisions are subject to legal scrutiny and judicial review, reinforcing accountability within the multi-level governance system.

(d) British Gas Trading Ltd & Others v Secretary of State for Energy Security and Net Zero [2025] EWCA Civ 209

This case involved the government's handling of the transfer of Bulb Energy's business following the company's financial difficulties. Ofgem had applied for an Energy Supply Company Administration Order, while the Secretary of State subsequently made decisions concerning the transfer of Bulb's business.

The Court of Appeal considered the legality of those governmental decisions within the statutory energy-supply framework.

Significance: The case illustrates the interaction between Ofgem, the Secretary of State, energy suppliers, statutory administration mechanisms and the courts.

Conclusion

The UK energy sector represents a multi-level and multi-institutional governance model. At the legislative level, Parliament establishes the statutory framework. At the policy level, the UK Government and DESNZ establish strategic priorities. Ofgem performs independent economic regulation, while NESO provides whole-system planning and operational coordination. Devolved governments exercise powers in devolved areas, while regional and local institutions increasingly participate in energy planning and implementation.

The resulting structure can be summarised as:

UK Parliament → DESNZ/UK Government → Ofgem + NESO → Devolved Governments → Regional/Local Institutions → Network Operators & Market Participants

The principal characteristic of this model is therefore distributed responsibility with institutional coordination. Modern UK energy governance increasingly seeks to combine democratic accountability, regulatory independence, technical expertise, regional planning and private-sector participation within a single integrated energy system.