AI in the energy sector guidance consultation
Introduction
1.1 We are the independent regulator of Great Britain’s energy markets and networks. We also administer a range of environmental and social schemes for the government. Our powers, duties and objectives come from statutes enacted by Parliament.
1.2 Our principal guiding objective is to protect the interests of current and future energy consumers. These interests are taken as a whole and include their interests by:
a. supporting the UK government in meeting the 2050 net zero target and other associated targets
b. promoting sustainable economic growth
c. maintaining the security of gas and electricity supply
1.3 We must carry out our functions in the manner that is best calculated to fulfil our objectives. Wherever appropriate, we should do this by promoting effective competition. Before we do this, we must consider whether consumers’ interests would be better protected if we acted in other ways.
1.4 We conduct our work by following the regulatory principles of transparency, accountability, proportionality, consistency and other principles that we consider represent best regulatory practice. Our regulatory approach is to identify and mitigate risks to our objectives, including the use of AI by licensees and other regulated persons, and the harm that this potentially creates for consumers and the energy sector.
1.5 In our Forward Work Programme for 2024 to 2025, we identified that we would develop and publish a consultation on AI guidance. This guidance consultation fulfils that commitment.
Purpose
1.6 Throughout this document, the term AI describes computer systems which can perform tasks usually requiring human intelligence. This could include visual perception, speech recognition or translation between languages.
1.7 The purpose of this draft guidance is to encourage an ethical approach to AI adoption in the energy sector. Our approach to AI consists of four principles: safety, security, fairness and sustainability. Safety, security and fairness are directly taken from the five AI principles underpinning the UK government’s framework for AI regulation. Environmental sustainability is taken from our net zero duty. Our ethical approach chapter explains how we have determined this.
1.8 This guidance sets out good practice for stakeholders to consider when evaluating opportunities to engage with AI. These good practice expectations are intended to supplement and support the existing regulatory regime applying to the energy sector.
Scope
1.9 It is recognised a wide audience might require guidance on the deployment of AI in the energy sector. This guidance is therefore aimed at all stakeholders involved with AI in the sector which includes, but is not limited to, licensees, market participants, operators of essential services, dutyholders, technology companies, AI developers, consumer groups, other regulators and government.
1.10 Where there are certain expectations specific to organisations within Ofgem’s regulatory scope (for example, licensees), such expectations are signposted separately in this guidance.
Pro-innovation
1.11 In accordance with our growth duty, we have adopted a pro-innovation approach. The principle of proportionality informs our thinking and approach to AI, including any potential regulatory actions. As part of this, our expectation is that appropriate measures are taken by stakeholders which are proportionate to the risk associated with AI deployment. This approach stresses the importance of risk management, that is that the actions taken by stakeholders are informed by the identification and management of risk associated with the use of AI.
Effect
1.12 Based on our current understanding, Ofgem considers the regulatory framework to be adequate to govern the use of AI. This guidance aims to avoid placing additional requirements on licensees and regulated persons. Licensees are already required to comply with their standard licence conditions, for example Treating Consumers Fairly and Operational Capability. However, our regulatory approach may change as the use of AI expands across the energy sector.
1.13 This good practice document sets out key areas stakeholders should focus on. The guidance covers governance measures and policies to ensure effective oversight of AI, a risk approach to help stakeholders identify and manage risks associated with AI, and the competencies required for the ethical adoption of AI. The appendices provide information on the legal and regulatory obligations that stakeholders are required to comply with in the energy sector (Appendix 1), AI standards (Appendix 2), key expectations around AI supply chain management (Appendix 3), data use and management (Appendix 4) and AI and cyber security (Appendix 5). A glossary of key AI terminology is also provided.
Review
1.14 Ofgem will keep the existing regulatory framework and this guidance under review to ensure our approach continues to meet the needs of regulating AI in the energy sector.
Background
1.15 The government has set out what regulators should do to make sure that the sectors they regulate follow the UK’s AI regulatory principles in its ‘A Pro-Innovation Approach to AI Regulation’ AI White Paper.
1.16 As the energy regulator for Great Britain, we have taken the following approach to developing this guidance:
a. a call for input was published on 4 April 2024 on the safe and responsible use of AI in the energy sector, which closed on 17 May 2024
b. our high-level strategic approach to AI was published on 30 April 2024, which demonstrated our plan to have a robust method of regulation in the energy sector based on the UK government’s five AI principles
c. conducted qualitative research into how people felt about AI in the energy sector which is published alongside this consultation
d. the development of this guidance document which has involved the AI taskforce collaborating with the sector, academics, other regulators and government to keep abreast of regulatory developments, ensure consistency and tailor our regulatory approach to AI