Ofgem, the energy regulator, has unveiled plans for explicit rules governing the use of artificial intelligence (AI) within the energy industry, amid growing apprehensions about the risk of tacit collusion among companies. The regulator intends to publish a formal framework during the summer to address these concerns.

While acknowledging the potential benefits of AI in enhancing the management and operation of the energy system, Ofgem warns that algorithms pose a risk of facilitating tacit collusion, enabling companies to conspire without formal agreements or direct human interaction.

Although Ofgem believes its existing powers are adequate to oversee the current use of AI by suppliers and generators, the proliferation of automated decision-making processes presents new challenges. Algorithms responsible for pricing decisions could obscure accountability, ownership, and competition in various energy markets, including retail, wholesale, generation, and infrastructure.

The application of machine learning extends to various functions within the energy sector, such as renewable energy generation forecasting. However, concerns persist about ensuring fairness and preventing discriminatory outcomes, prompting Ofgem to develop regulatory principles aligned with government directives.

Ofgem advocates for a risk-based approach to regulating AI, prioritizing transparency and accountability. Systems featuring autonomous, complex, and adaptive AI are deemed higher risk, particularly in critical functions like balancing supply and demand on the electricity grid.

The government has allocated significant funding to support regulators and advance AI research. However, a fraction of this budget will be dedicated to enhancing regulators’ capacity to address AI-related challenges in their respective industries.

Akshay Kaul, Director-General for Infrastructure at Ofgem, emphasizes the pivotal role of AI in building a smart, digital energy system conducive to achieving net-zero emissions. However, he underscores the importance of establishing a clear regulatory framework to safeguard consumer interests and maximize the benefits of AI applications in the energy sector.

As Ofgem strives to navigate the complexities of AI integration in energy, ensuring consumer protection and fostering innovation remain paramount. Business Matters examines the implications of Ofgem’s proposed regulations and their impact on the evolving energy landscape.