Ofgem tightens the rules for British energy storage operators. Strict penalties are coming in system services

The British energy market regulator, Ofgem, has approved a series of deep reforms to the rules governing the provision of frequency‑stabilisation services. The new regulations introduce a strict linkage between the balancing market and system services, and impose severe penalties for the unavailability of battery units. The changes will be implemented in two stages – in July 2026 and January 2027.

First wave of changes

For years, fast‑response services (including Dynamic Containment, Dynamic Moderation and Dynamic Regulation) have been the foundation of revenues for large‑scale energy storage systems in the United Kingdom. Although margins have fallen as the market has become saturated, these services remain an important element of the revenue structure for many batteries.

According to Ofgem’s decision, new, restrictive readiness‑reporting rules will come into force on 31 July 2026:

• Automatic disqualification – any unit participating in the balancing market that, for technical or formal reasons, fails to submit a correct declaration of planned generation or consumption will automatically be deemed unavailable for providing frequency services. This applies regardless of its actual physical technical capabilities at that moment.
• End of double accounting – the rules for combining revenue streams have been tightened. Storage units that simultaneously hold contracts for grid‑stability support will be required to use a new, pre‑guaranteed methodology for determining the baseline. The aim of the British system operator is to prevent double charging for the same operational readiness.

Second wave of changes

The next reform package, scheduled for 1 January 2027, will primarily hit smaller, distributed energy‑storage units and aggregators operating outside the main balancing market.

• End of abusing the “disarmed” status – until now, battery owners could mark their assets as “disarmed/disabled” (e.g., during maintenance), which protected them from penalties for failing to respond during frequency deviations. From 2027, reporting such a status without explicit instruction from the NESO operator will result in an immediate financial penalty.
• Public penalty register – Ofgem has given the operator the green light to publicly disclose data on penalties imposed on specific providers. Despite industry protests over alleged violations of commercial confidentiality, the regulator deemed this measure a proportionate way to increase market transparency.
• Continuous out‑of‑contract monitoring – entities operating outside the balancing market will be required to continuously send telemetry data, even during periods when they have not won auctions for service provision. To retain the right to participate in daily tenders, storage units will need to demonstrate at least 80% data accuracy over a rolling 28‑day period.

Four‑tier penalty ladder on hold

Not all of the operator’s proposals passed smoothly through the regulator’s desk. Ofgem rejected two NESO requests, including the controversial idea of introducing a permanent, four‑level escalation system of penalties for the weakest‑performing operators, as well as expanding the operator’s powers to immediately expel companies from the market.

The reason for rejection was the insufficient time allocated for public consultation with the industry. However, Ofgem emphasised that it supports the concept itself, and if NESO quickly corrects procedural errors, the progressive penalty tariff may still be implemented on the originally planned date – also in January 2027.