Energy regulation is changing: are you ready for GAR?

DESNZ launched the review of Ofgem in December 2024 in order to address perceived regulatory weaknesses that were revealed because of the energy supplier failures of 2021-2022, clarify its role with respect to new institutions in the energy governance landscape, and to better align Ofgem’s role with the government’s growth agenda. 

There is a lot to take in from the Review’s conclusions. Much of the initial attention has focused on proposed changes to Ofgem’s statutory duties: alongside the existing principal objective to protect existing and future consumers, Ofgem would be given explicit and equal duties to facilitate net zero and promote economic growth. The Review also proposes to strengthen Ofgem’s enforcement toolkit, including through new powers to hold senior company officials personally accountable.

Yet amongst the Review’s 38 proposed actions, a less heralded decision has the potential to be the most consequential of all. DESNZ intends to grant Ofgem the powers to use ‘General Authorisation Regimes’ (GAR) as an alternative to the current licensing regime. GAR involves the regulator granting companies permission to provide a broadly defined category of activities, subject to a set of minimum criteria. It contrasts with a licensing approach, with tends to be highly prescriptive about the permitted activities and how they are performed.

GAR is already used in the regulation of financial services by the Financial Conduct Authority (FCA) and is credited with enabling FinTech innovation and the emergence of new business models. Introducing a similar approach in energy regulation could open the door to new propositions, investment and ways of delivering value to consumers.

GAR could be transformative for the energy sector 

Ofgem currently regulates the energy sector through licenses tied to specific activities. This approach has well-known drawbacks: obtaining a licence can be slow and administratively burdensome; compliance costs are high; licences conditions tend to be highly prescriptive and “one-size-fits-all”. All of this adds up to create high barriers to entry and constrain business model innovation. The result is weaker competition and, ultimately, a risk of poorer outcomes for consumers in the form of higher costs and limited choice.

GAR is seen as a way to break this dynamic by allowing greater adaptability in the regulatory approach, without compromising consumer protection. In particular, it could enable consumer propositions that do not sit comfortably within the traditional energy supplier model. 

One commonly cited example is “energy-as-a-service” or “heat-as-a-service”. Under these models, consumers pay a flat monthly fee that covers - over the life of a contract:

• the upfront cost of low carbon technologies such as heat pumps
• the electricity needed to run that equipment, and 
• in some cases, ongoing maintenance and servicing.

Under the current licensing regime, these bundled propositions are either impermissible or commercially unviable, even though they offer households greater convenience, cost predictability and protection from future energy price volatility. 

GAR was also previously considered as a potential alternative to licensing during the development of the regulatory framework for heat networks because the sector is made up of thousands of networks that vary widely in size, ownership and customer base. Although government opted for a licensing approach, the introduction of GAR is an opportunity to revisit that decision.

More broadly, GARs could enable new types of commercial arrangements that may be constrained in part by the current licensing and regulatory boundaries. One such example might be a data centre selling its waste heat to a nearby residential or commercial development. Models like this could unlock substantial new investment in clean energy infrastructure and help accelerate the transition to net zero. 

What we can learn from Financial Services

The FCA’s experience offers one of the clearest real‑world examples of how a GAR‑style framework can influence a regulated sector. Financial services moved gradually away from rigid, activity‑specific licensing through the 2000s and early 2010s, building on reforms introduced under the Financial Services and Markets Act 2000 and the EU’s Financial Services Action Plan. This shift became more pronounced with the creation of the FCA in 2013. The FCA inherited, and subsequently developed, a framework based on broad categories of regulated activity rather than narrow, prescriptive licences. From that point, firms were authorised to carry out a wider range of activities, provided they meet high‑level threshold conditions and comply with ongoing conduct requirements. This approach has enabled the FCA to supervise an increasingly diverse sector without creating additional, unnecessary barriers to entry.

In practice, the GAR model has helped reduce some of the friction associated with becoming authorised in the financial services sector. Although the process remains rigorous, the FCA has been able to streamline assessments, triage applications more effectively, and apply proportionality based on the scale and nature of a firm’s activities. 

Because the regime is built around principles and outcomes rather than detailed prescriptive rules, firms have more discretion in how they meet regulatory expectations. This has been particularly relevant for FinTechs and other innovators whose propositions do not align neatly with traditional regulatory categories – enabling faster market entry and allowing firms to scale once they demonstrate compliance with core standards. At the same time, the level of scrutiny required for certain activities or individuals can still be extensive, often taking many months. Delays are frequently compounded by poor‑quality submissions, which create bottlenecks. The FCA has recently committed to setting more ambitious timelines for authorisations in response to these challenges.

However, the FCA’s experience also shows that flexibility requires strong and adaptive regulatory oversight. Consumer harm has still emerged in areas such as high‑risk investments and poor treatment of vulnerable customers, prompting the FCA to strengthen its supervisory toolkit. This includes enhanced data collection and the introduction of the Consumer Duty, which places a clear obligation on firms to deliver good customer outcomes. 

The lesson for energy regulation is clear: GAR does not remove the need for robust supervision. Instead, it shows the need for a regulator that can identify risks earlier and intervene more precisely.

The FCA continues to evolve its regulatory model, investing heavily in data analytics, automated monitoring, and AI‑enabled supervision to detect harm sooner and reduce the burden on compliant firms. Specifically, the FCA is developing a new generative AI authorisations tool to support document review and speed up the decision making process. The FCA also has a statutory duty to support economic growth and international competitiveness. Taken together, the direction of travel is towards regulation that is more predictable, proportionate and innovation‑friendly, while still anchored in high standards and active oversight. This provides a valuable lesson for how GAR could work in the energy sector.

Getting ready for GAR

The FCA’s experience is instructive as to both the potential for GAR to transform the services provided in the energy sector in Great Britain and to what it would take to effectively regulate a sector with a far greater diversity of participants and offerings than is currently the case under Ofgem’s licensing regime. In particular, implementing GAR requires a careful balance of promoting competition and innovation, while maintaining essential consumer protections and stability of the energy system. Our expertise in both sectors can help energy sector players approach this change with eyes wide open.

To make GAR a reality in the energy sector would require primary legislation and time for Ofgem to consult on how it would implement this approach. So it may be late 2020s before GAR becomes a reality in the way that Ofgem regulates.

Businesses – both incumbents and potential new entrants – should be using this time to understand the implications of the GAR framework and help shape its implementation. We can help by helping design your strategic approach, as well as assessing the impact of different regulatory approaches on your business..

To discuss GAR and the implications of the Ofgem Review for you, please get in touch with Ben Shafran, Economic Consulting Director