Ofgem’s Consultation on the governance of the data sharing infrastructure (DSI)

Open Energy

Renewables and distributed energy systems are being deployed at scale to decarbonise the UK’s power system. Assets such as electric vehicles (EVs), solar photovoltaic panels, heat pumps, grid scale storage, and others, are enabling flexible energy generation, storage and distribution while generating large volumes of data. Capturing, analysing and sharing this data is key for an efficient system-wide transition to net-zero.

The push for increased data sharing between energy companies and other market players is often referred to as ‘Open Energy’, a nod to ‘Open Banking’, the liberalisation of data sharing in the financial services industry. Open Energy promises to improve interoperability between assets on the grid; asset choice; installation; maintenance; pricing; service delivery; customer experiences; and help identify market opportunities.

Increased data sharing between energy companies also allows for grid-wide analysis of energy results and pro-active maintenance thus minimising downtime and optimising performance.

Ofgem – recognising the benefits of increased data sharing in the energy sector – has committed to developing a data sharing infrastructure (DSI) as part of its Energy system digitalisation programme. The DSI project focuses on “facilitating a secure, trusted and efficient exchange of data between different systems, organisations, or entities within the energy sector. [Promoting and enabling] greater collaboration and innovation across the energy sector.”

At present, Ofgem estimates that dataset sharing is a “manual, inefficient and uncoordinated” process which increases the risk of duplicated or misaligned information. Data sharing arrangements are legally complex and are carried out on an organisation-by-organisation basis, often resulting in intra-industry data silos and inconsistent data sharing standards.

The aim of the DSI is to improve market access to energy data to increase security of supply, ensure the proper functioning of energy markets through flexibility provisions, encourage greater energy efficiency, and increase opportunities for new green industries.

DSI

Ofgem’s proposed DSI takes the form of a decentralised technology solution allowing participants to exchange data in a secure standardised format subject to legal and technical common applicable standards. It comprises three components: (i) a data preparation node; (ii) a trust framework; and (iii) a data sharing mechanism.

Interim DSI Coordinator

Ofgem has identified the need to put in place an Interim DSI Coordinator to act as the central body in the DSI governance structure and bring the DSI from a minimum viable product (MVP) to a steady-state product.

It opened a consultation to this effect on 26 July 2024, which will be closing on 20 September 2024.

The consultation sets out a clear mandate for the Interim DSI Coordinator (IDC). It is proposed that the IDC would first be tasked with establishing provisional rules, roles and mechanisms to facilitate initial data sharing activities during the infrastructure development phase. Once data sharing on the preliminary DSI has begun, the IDC would gather information to produce annual reports on existing and proposed use cases of the DSI.

In addition to these annual reports, a more detailed report on the platform’s evolution would be produced following the first two years of operation.

Once the preliminary phase is complete, the IDC would conduct a forward-looking technology assessment to future-proof the platform, at which stage the role of IDC may come to an end to be replaced by a long-term governance structure.

Ofgem has put forward three candidates for delivery of the IDC role:

1. the System Operator (currently NGESO but soon to be NESO[1])’
2. Ofgem; or
3. an independent working group.

The consultation document weighs the ability of these three bodies to meet key criteria and deliverables.

The first such criterion/deliverable is interoperability and the development of common standards. It is crucial that the IDC works to develop a DSI that allows for seamless data sharing between a variety of actors operating at different levels of the power system. It is envisaged that the IDC would participate in international forums and contribute to proposed or established standards such that the UK DSI is embedded in international frameworks.

Secondly, the IDC must have the appropriate operational capability. It should convene members with internal digitalisation experience; cross-energy knowledge, perspective and resources; and it must have a good understanding of sector-specific use cases. It is also crucial that the IDC be able to allocate resources effectively, using external expertise where necessary.

The IDC must also be completely independent to foster an environment of trust.

Lastly, the IDC must have adequate measures in place to counter the serious cyber security risks that accompany the establishment of a DSI.

The consultation concludes that, on balance, the System Operator is best placed to act as Interim DSI Coordinator.

While Ofgem is independent and possesses pre-existing engagement routes, it does not currently have the operational capabilities to govern the IDC, nor does it have standards-setting experience.

The independent working group, on the other hand, is likely to bring together a pool of people with deep industry knowledge but would need to build engagement from scratch and would likely struggle to grasp key cyber security challenges.

It is expected that a second consultation will be published at a future date within the 2024 – 2028 interim period to consider how the initial governance framework will evolve into an enduring digitalisation governance solution.

International Perspective

Ofgem’s DSI initiative mirrors the approach taken in other jurisdictions.

The EU Commission’s European Strategy for Data provides for the creation of a common European data space and the new Community Research and Development Information Service (CORDIS) results pack includes research for the development of a Europe-wide DSI for new energy services. The research pack contains 15 EU-funded projects linked to energy digitalisation, many of which tie in with the concept of Open Energy.

In parallel, the Australian energy market operator’s Project EDGE (Energy Demand and Generation Exchange) has been testing methods for integrating distributed energy sources in the Australian energy market.

Regardless of the governance model that emerges from Ofgem’s consultation and the ensuing interim period, it is clear that the UK’s DSI coordinator will have to work closely with its international counterparts to develop an internationally interoperable DSI.

Preparing for the DSI

The consultation remains open until 20 September 2024. Energy sector actors will need to ‘buy into’ this trust framework to reap its benefits and this consultation offers the opportunity to guide its direction.

While the DSI’s initial impact is likely to be felt most keenly by network operators and system operators, all market participants will be quickly impacted – including installers, investors, local authorities, asset operators, suppliers and renewables developers. We therefore recommend that all companies operating in the energy sector should review the consultation and submit responses.

It is also recommended that organisations operating in the energy sector invest in the digital skills, talent and IT infrastructure needed to actively participate in the Open Energy transition. Legacy IT systems are likely incompatible with the large quantities of data that will be shared and the data-sharing interfaces inherent in the DSI. Similarly, knowledge of digital systems and data will be necessary at all levels to ensure active participation in the DSI. It is crucial that energy market participants consider what skills gaps they have and how these can be filled. It may be that a digitalisation partner can help them get the most out of the new era of open, interoperable data by gaining the necessary digital skills, expertise and training without taking new in-house staff.

Organisation-wide data governance policies are also a necessary precondition to successful participation in the DSI. Effective data collection and management is the cornerstone of consistent and reliable high-quality data. Organisations can start by identifying low-hanging fruit and developing pilot projects before scaling digital capabilities and data governance policies across the value chain.

How we can help

We are industry leaders in advising clients in the public and private sector on the transition to net-zero. Bird & Bird can help you capitalise on the opportunities provided by energy digitalisation and prepare you to meet its challenges head on. Our dual expertise on the cutting edge of the technology and energy sectors ensures that we can provide integrated legal and commercial advice to get you ready for participation in the DSI. Moreover, our tier 1 ranked privacy & data protection team has extensive experience in advising on developments in data governance and data privacy law, thereby ensuring a smooth and compliant transition into DSI participation. If you would like further information about what energy system digitalisation mean for your business, please get in contact with Michael Rudd and Ronald Hendrikx.

[1] The consultation uses the term “System Operator” throughout to refer to either the current electricity system operator (National Grid Electricity System Operator Limited (NGESO)) or the National Energy System Operator (NESO), as the context requires. NESO is the intended name of the company which will become the Independent System Operator and Planner (ISOP). Once established and designated as the ISOP, NESO will be responsible for operating the electricity system and the strategic planning of Britain’s electricity and gas networks. NESO will inherit all the existing responsibilities and functions from NGESO and have new additional functions including long-term planning roles related to the gas system.