Ofgem scopes out fast-forward systems operation review

The Electricity System Operator (ESO) became a legally separate function within National Grid on 1 April, a move Ofgem says was designed to “minimise and mitigate conflicts of interest” and better position the ESO to “facilitate the electricity system’s development and transformation”.

In the gas sector, National Grid Gas is the system operator.

To imitate the commercial pressures that would apply in a fully competitive market, the two organisations are both subject to a wide range of performance incentives.

The regulator had committed to review the arrangements during 2020/21, but is accelerating the process for two reasons: the UK’s legal adoption of the 2050 net-zero target in June 2019, and the events of 9 August.

The review will look at the roles, functions and capabilities of the organisations in both systems, with one option being “combined gas and electricity models”.

It is due to be completed by “late spring 2020”.

According to Ofgem, the 2050 target will require “fundamental” change to both the gas and electricity networks.

It says: “This suggests a need to explore whether existing system operation arrangements can meet the challenge of delivering net zero in the gas and electricity network sector at lowest cost to consumers”.

The regulator’s completed review into the power outage of 9 August also “underlined the importance of having a proactive System Operator that is able to adapt to the complex and changing world it operates in”.

The review will consider the current and future challenges facing system operation in Great Britain, and assess the suitability of the current governance framework.

It will aim to provide the government with an objective, evidence-based assessment of system operation, in the context of decarbonisation.

The review will look at:

• current arrangements for system operation including functions, ownership and governance;
• the case for change;
• reviewing international models and relevant learning from other sectors;
• if appropriate, a range of alternative options to current arrangements, including combined gas and electricity models;
• assessing the suitability of the options identified and, if appropriate, routes for implementation; and 
• explore the potential risks and benefits of key options and what, if any, incremental steps may be required were they to be implemented.

The review will draw on data and modelling from the ESO Future Energy Scenarios and Committee on Climate Change emissions scenarios, and other sources, to identify the pace and scale of decarbonisation and other changes to the gas and electricity systems.

The regulator will also gather views and opinions from other stakeholders: while there will not be a formal consultation, it may instead opt to publish short, focused questionnaires to gather industry views.

To gather information, Ofgem also plans to interview international system operators and other stakeholders, to assess whether aspects of international models would be applicable to the GB system.

The regulator will analyse how changes to the current framework could be implemented and, if required, suggest a road map for change.

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