Consultation on the draft second preliminary Strategic Direction Statement for industry codes

What this is about

The Energy Act 2023 gave Ofgem new powers to direct how GB industry codes develop. Instead of code changes being proposed bottom-up by industry participants, Ofgem can now set strategic priorities that code bodies must follow. The Strategic Direction Statement is the instrument through which Ofgem exercises this power — it tells code administrators what policy areas to prioritise and, implicitly, what to deprioritise.

Ofgem published the first preliminary SDS in August 2025. This consultation proposes the second iteration, with two substantive changes. First, it updates and categorises the policy areas that Ofgem considers may or will require code changes — effectively setting the agenda for code development across all 11 GB industry codes. Second, it proposes converting the SDS from a "preliminary" document (advisory, no binding force) to a "hybrid" document once the BSC and REC are formally designated under the Energy Act 2023, expected by end-2026. The hybrid SDS would bind designated codes while remaining preliminary for the rest.

The timing is driven by the designation timetable. Once BSC and REC are designated, Ofgem's direction-setting powers become enforceable for those codes. Ofgem needs the SDS ready to convert so that binding priorities are in place from day one of the new governance regime. The consultation closes on 28 May 2026, giving Ofgem time to finalise the document before the expected designation later in the year.

Options on the table

#### Content and categorisation of the second preliminary SDS

Ofgem proposes categorising every policy area that may require code changes across the 11 industry codes. Each area is assessed for whether code changes are likely, which codes are affected, and what priority it carries. This is the strategic agenda for code development — if a policy area appears in the SDS with high priority, code administrators must direct resources toward it. If it does not appear, it waits.

The consultation asks whether the categorisation is correct and whether anything is missing. This is not a neutral question. The SDS creates a hierarchy of attention. Policy areas that Ofgem categorises as requiring code changes get regulatory momentum. Areas that are omitted or deprioritised lose it. For code parties with specific interests — a generator wanting faster settlement reform, a network operator wanting charging methodology changes — the categorisation determines whether their issues move or stall.

The winners are parties whose priorities align with Ofgem's strategic view. The losers are parties with legitimate code change needs that do not feature in Ofgem's agenda. Under the old regime, any code party could raise a modification and push it through governance. Under the SDS regime, Ofgem decides what matters. The distributed knowledge of hundreds of code participants — who know where the operational pain points are — is subordinated to Ofgem's centralised strategic coherence.

#### Conversion from preliminary to hybrid SDS

Once BSC and REC are designated (expected end-2026), Ofgem proposes converting this same document from preliminary to hybrid status. "Hybrid" means the SDS would carry binding force over designated codes (initially BSC and REC) while remaining advisory for codes not yet designated (the other nine).

This creates a two-speed governance regime. BSC and REC code administrators would be legally required to align their work programmes with Ofgem's stated priorities. Administrators of CUSC, Grid Code, DCUSA, UNC, and the rest would face no such obligation — they could continue with industry-led modification processes. The gap could persist for years, depending on how quickly Ofgem designates the remaining codes.

The practical consequence is asymmetric power. Ofgem would have directive authority over electricity balancing and settlement (BSC) and retail energy (REC), but only advisory influence over transmission access (CUSC), system operation (Grid Code), distribution (DCUSA), and gas (UNC). Cross-cutting policy areas — like MHHS, which touches BSC, REC, and distribution codes simultaneously — would face split governance: binding in one code, advisory in another.

Code parties operating across multiple codes face increased complexity. A supplier subject to both BSC and DCUSA would have to navigate two different governance speeds for related changes. The risk is that binding SDS priorities in BSC drive changes that create misalignment with non-designated codes where equivalent changes proceed at industry pace.

The winners are those who want Ofgem to impose coherence on code development — primarily large parties and consumer groups frustrated by slow industry-led processes. The losers are smaller code parties and specialists who relied on industry governance to advance niche but important modifications that would never feature in a regulator's strategic priorities.

Questions being asked

#### Policy area categorisation

- Are the policy areas correctly categorised? [Ofgem is asking whether its view of which codes need changing, and for what, matches industry reality. This is the chance to add or remove items from the regulatory agenda.] - Are any key areas which may or will require code changes missing from the assessment? [If your issue is not in the SDS, it will not get regulatory momentum. This is the question that matters most for parties with specific code change needs.]

#### Hybrid document approach

- Is the proposed approach for converting the second preliminary SDS to a hybrid document appropriate? [Ofgem is asking whether the transition from advisory to binding should happen via document conversion rather than a fresh consultation. The subtext is speed — Ofgem wants binding powers in place as soon as designation occurs, without another consultation cycle.] - What are the implications of a hybrid SDS that binds designated codes but not others? [This is the two-speed governance question. Ofgem is inviting respondents to identify the practical problems of having binding priorities for BSC and REC while the other nine codes operate under advisory guidance. Cross-cutting modifications are the obvious pressure point.]

How to respond

Deadline: 28 May 2026

Method: Email responses to industrycodes@ofgem.gov.uk. A response template is provided with the consultation documents.

Documents: - Main consultation document (PDF, 234KB) - Draft second preliminary SDS (PDF, 980KB) - SDS spreadsheet with categorisation detail (XLSX, 622KB) - Response template (DOCX, 126KB)

All documents are available on the Ofgem consultation page. Ofgem invites responses from code administrators, code parties, central system delivery bodies, and consumer groups — but anyone with an interest in the energy codes can respond.