The OPEX Factor: What U.K. Power Networks Get Right

On February 25, Fatih Birol, the Executive Director of the International Energy Agency (IEA), reiterated that grids were “a major bottleneck to the age of electricity” and blamed the sluggish modernization of energy networks for a renewable project backlog exceeding 1,600 Gigawatts (GW) of capacity—an “economically criminal story,” in Birol’s words.

As 1Q 2025 ends, efforts to modernize and expand grids have become more urgent—and larger—than ever. However, as grids are extended, it has become increasingly apparent that capacity expansions alone are not sufficient—what capacity exists must also be more effectively and efficiently used. Operational innovations, often an afterthought, must now be front of mind.

Birol’s statement widely excoriated European grid operators, with one exception: the United Kingdom. This is not because the United Kingdom has installed more capacity than other European nations—it hasn’t.

Instead, what sets the United Kingdom apart is the operational innovativeness of its power grids, a unique advantage despite—or in fact because of—its physical restraints. For years, Ofgem, the national regulator, has emphasized the equal importance of Capital Expenditure (CAPEX) and Operational Expenditure (OPEX) approaches in handling grid limitations—a preference pushed onto network operators via incentive schemes and investment quotas. Consequently, operators that may otherwise disproportionately favor infrastructure expansions have turned to alternative methods for driving grid efficiency, dynamism, and interactivity.

The most direct example is the United Kingdom’s Demand Flexibility Service (DFS), which has become a blueprint for many other power networks across Europe. Introduced as a temporary measure in 2022, the DFS encourages households to change their consumption patterns by reducing or shifting demand during “DFS events,” i.e., periods when grid congestion is expected to spike. The program runs via electricity providers and aggregators, which are paid for providing demand flexibility and, in turn, financially reward consumers for altering their usage. The service is extremely successful, with over 3.3 Gigawatt-Hours (GWh_ of electricity saved in the 2022/2023 window, and has since become permanent; over 2.6 million households participated in the winter months of 2024/1025.

The United Kingdom’s regulatory environment has also proven conducive to private-sector power network innovations, many of which target grid inefficiencies and failings with market-based solutions. Notable cases include Britain’s strong flexibility markets, through which privately-owned Distributed Energy Resources (DER) assets are harnessed by system operators to mitigate grid congestion and boost efficiency—a topic explored in depth in our recent flexibility market report. Other private sector innovations use decentralized energy sources to bolster the grid itself. For example, Clean Energy Capital—a renewable energy operator—works with U.K. landowners to develop and operate renewable projects on their land, providing additional income for owners, while delivering reliable, geographically adjacent clean electricity for data centers via Purchasing Power Agreements (PPAs).

As Renewables-as-a-Service offerings proliferate and DER ownership spreads, nodal sources of electricity will become important contributors to overall supply. By creating novel means for connecting them to the grid—and to peer-to-peer marketplaces—today’s innovators are diversifying the U.K. energy network, reducing the demand pressure on conventional, centralized generation, and creating a more adaptive, resilient electricity system as a result.  

A strong regulatory ecosystem is by no means unique to the United Kingdom; energy remains one of the most tightly regulated sectors across all economies.

Yet, for now, the U.K. energy ecosystem remains at the forefront of operational grid innovations, thanks largely to the OPEX focus of Ofgem and its regulatory frameworks. At a time when efficient use of existing grid infrastructure is at least as important as building additional capacity, regulators, grid operators, and utilities should look to lay the foundations for similar operational innovations:

• Regulators: Grid operators are heavily regulated, with investment guided by effective incentivization. National regulators looking to foster strong domestic operational innovation should emphasize the importance of OPEX, and reward not only expansionary hardware development, but also efficiency gains made through engagement with DER owners, consumers, and entrepreneurial vendors in the private sector.
• System Operators: By engaging with regulators, being open to OPEX investment, and fostering engagement with innovators, system operators can extract more benefit from their existing assets, build the groundwork for more adaptive, future-proof, and resilient networks, and meet increasing demand with the support of local DER asset owners.
• Service Providers/Utilities: Service providers and utilities should participate in operational programs instituted by regulators. Involvement with demand flexibility services and active participation in local flexibility markets not only benefit the wider grid, and therefore the vendors within it, but providers also stand to gain financially from the new economic opportunities available.