National Grid could lose electricity system operator role under new BEIS and Ofgem plans

The UK Government and energy regulator Ofgem have outlined their initial views on replacing National Grid with a new independent system operator for electricity and gas, as part of a string of policy updates designed to accelerate the low-carbon transition.

Ofgem and the Department for Business, Energy and Industrial Strategy (BEIS) have today (20 July) launched a consultation on the management of energy systems operations in England, Scotland and Wales (Northern Ireland has devolved responsibilities here). They are proposing that the National Grid, which has balanced supply and demand to ensure electricity access for more than 30 years, is replaced with an independent “future system operator” (FSO).

This move, the organisations claim, could help accelerate the transition of the UK’s energy systems to net-zero at the lowest possible cost to domestic and commercial energy users. Ofgem stated earlier this year that National Grid would face a “conflict of interest” in advising on the future of the energy system because it is a FTSE100 firm that also owns and operates networks.

The consultation document proposes that the FSO should take on strategic network planning, long-term forecasting and market strategy functions for gas. It also outlines “new or enhanced roles and functions” including overseeing the UK’s hydrogen and carbon capture and storage (CCS) sectors, which are set to grow rapidly in the coming decades.

Five high-level characteristics for the FSO are then detailed: “It will need to be technically expert; operationally excellent; accountable to consumers and able to support the delivery of net zero on behalf of the public; independently minded; and operationally and financially resilient.”

National Grid has stated that it “welcomes” the consultation and will “work closely” with BEIS and Ofgem throughout. As the consultation concludes in late September, a phased introduction of the FSO is expected.

Separately, BEIS and Ofgem are consulting on proposals to reform the codes that govern electricity and gas markets, with an ambition to ensure that clean solutions are more affordable and high-carbon options increase in price.

Flurry of announcements

These consultations have been posted alongside a string of other updates from BEIS today.

As well as calls for evidence on large-scale and long-duration electricity storage and vehicle-to-grid (V2G)  technologies, a new Smart Systems and Flexibility Plan has been published.

The Plan stipulates that embedding a “flexibility first” approach could reduce the annual costs of managing the UK’s energy networks by £10bn by 2050 and increase annual profits by £2.7bn, creating up to 24,000 jobs in fields such as engineering, system installation and data science. Exports alone could create 14,000 jobs. These calculations are based on a situation in which the UK hosts around 30GW of low-carbon flexible energy capacity by 2030, doubling to 60GW by 2050. This is up from 10W at present.

For these benefits to be realised, the document states, technologies like electric cars, heat pumps, energy storage systems and renewable generation arrays “will need to be seamlessly integrated onto our energy system so that low carbon power is available in the right places and at the right times to meet our energy needs”.

Proposals covered in the Plan are divided into four key themes: supporting customers to provide flexibility; removing barriers to electricity storage and interconnection; reforming markets to reward flexibility (i.e. through the Capacity Market and Contracts for Difference auction scheme) and digitising the system. These proposals build on the Energy White Paper, published late last year. There are also recommendations on improving governance.

On digitisation, the UK’s first Energy Digitisation Strategy has also been published this week following collaboration between BEIS and Innovate UK.

Commenting on the Plan and Strategy, Ofgem’s chief executive Jonathan Brearley said: A smart and flexible energy system is essential to hitting the UK’s net-zero climate goal while keeping energy bills affordable for everyone. This plan is an important step in transforming not just how we generate energy but also how we all use and pay for it.

“As we change the way we fuel our cars and heat our homes, demand for electricity will increase from millions of new electric vehicles (EVs) and heat pumps. Being more flexible in when we use electricity will help avoid the need to build new generating and grid capacity to meet this demand, resulting in significant savings on energy bills.”

The Plan and Strategy have attracted many reactions across the UK’s green economy. The Energy Networks Association’s chief executive David Smith called the plans “a huge sign of progress towards the intelligent and adaptive energy system which the networks have already begun building”.

Smith said: “Transforming traditional energy networks with digital innovations is a foundational part of putting customers at the heart of the net-zero journey. It makes networks smarter, more flexible and more able to manage increases in local renewable generation, green gas, heat pumps and EVs.”

Regen’s policy manager and policy lead for the electricity storage network, Madeline Greenhalgh, said: “The Smart Systems and Flexibility Plan is one area of government strategy that is actually providing clear and concrete actions that will enable a smart, flexible, decarbonised electricity system. The progress made since the last iteration is clear, with big steps forward in long-duration storage and modelling the future system.

“The storage industry will be able to use these projections to invest and grow the industry, particularly in the long-duration space, where many innovative companies are coming forward with new ideas and business models. The Electricity Storage Network will continue to drive forward work to improve the supply chain for raw materials, and a robust health and safety regime.”

Ashurst’s energy partner Antony Skinner said: “The fact that the Government is focusing on the barriers to the development of battery storage projects and has published a call for evidence on the deployment of large-scale and long-duration storage is a very positive development.

“Battery storage is a key component of an energy mix that will have a high proportion of intermittent renewable energy and while some steps have already been taking to facilitate battery storage, more needs to be done to ensure that such projects have access to a reliable revenue stream, so the Government’s recognition of this fact is very welcome.”

Skinner’s colleague Adam Eskdale added: “The overriding principle of both the Smart Systems and Flexibility Plan and the Energy Digitalisation Strategy is that energy system data must be open and visible, shared and interoperable, in order to build in grid flexibility and unlock the new digital solutions we need to reach net-zero.

“This is the central tenet of the Energy Data Taskforce’s work in 2019 and it is encouraging to see the Government continue to build on it.

“This is good news for new and potential market participants relying on data-driven business models, products and services. However, larger incumbents will be keeping an eye on how this principle continues to be built into Ofgem’s pricing controls and further code changes. Equally, there is a question about the extent to which they will be expected to contribute their data to national registries, catalogues and systems maps, and how much impact the concept of ‘presumed open’ data, will have on their valuable information.”


BEIS and Ofgem look to overhaul the ‘complex and fragmented’ energy code system

A consultation has been launched on overhauling the energy code governance framework to help drive the transition to a clean energy system.

Published today by the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem, the consultation states that while the codes have thus far done a “remarkable job guiding the industry post-privatisation” they were not designed to deal with the increasingly decentralised and distributed energy system in Britain.

As such, the framework has become complex, fragmented and lacks incentives to innovate, and there is an urgent need to update it. This was identified in the energy white paper last year, when the government committed to consulting on options for reformation, building on a previous consultation in 2019.

The four areas in need of reform are; providing strategic direction, empowered and accountable code management, independent decision-making and code simplification and consolidation. The overarching nature of these areas will mean they cover all 12 of the current electricity and gas codes as well as relevant engineering standards.

Additionally, BEIS and Ofgem are proposing to bring central system delivery bodies into the scope, meaning it would also include the electricity systems operated by Elexon, the smart systems operated by the Data Communications Company (DCC) and the Data Transfer Service (DTS) operated by Electralink.

Building on the 2019 consultation, two potential models for delivering the desired agile code system have been laid out by BEIS and Ofgem. The first would see the regulator as a strategic body working with a separate code manager.

This would involve Ofgem developing and annually publishing directions for codes and ensuring their delivery by managers, approving material code changes and leading code changes themselves. Within this model the code managers would be selected through a tender process, replacing the existing code administrations after a suitable transition period. They would then be responsible for developing an annual delivery plan based on the strategic direction they receive from Ofgem.

Within the second proposed model, an Integrated Rule Making Body within the Future System Operator would be established. This would see the strategic function and code manager function combined, with one body holding most of the responsibilities detailed in the first model, although Ofgem would retain some oversight and decision making roles to protect against potential conflicts of interest.

BEIS and Ofgem launched a consultation on the creation of a Future System Operator today as part of an influx of calls for evidence, and would see an entirely independent operator take on much of National Grid ESO’s role in an effort to avoid any potential conflict of interest given its links to National Grid as the system continues to transition to net zero.

This builds on a report from Ofgem in January into system operator governance arrangements, which itself led Elexon to throw its weight behind a reorganisation of both the system operator roles and code arrangements to develop a ‘holistic’ system that can support net zero.

The consultation into code reform will act as an initial high-level insight into stake-holder views, allowing Ofgem to then work in consultation to develop elements of the reforms that do not require primary legislation. To ensure this is delivered as quickly as possible, the regulator will then look to review the options for code consolidation before the new governance structure is implemented.

This would see delivery of code consolidation begin in 2024 if model one is chosen, and in 2026 if model two is. The consolidation into the Design and Delivery of the Energy Code Reform opens today, and will run until 28 September 2021.


For more information and to respond to the consultation, see here.


National Grid ESO has warned of tight margins come winter due to supply uncertainty

ollowing the tight margins seen on the electricity system last winter, National Grid ESO has released an early view of its winter outlook.

It is expecting there to be similar or even slightly lower system margins over winter, and is predicting a base case de-rated margin of 4.3GW or 7.3%. While this is slightly lower than last year, it still falls within the reliability standard of three hours, with a loss of load expectation (LOLE) of around 0.1 hours/year.

There is some uncertainty, however, around this de-rated margin due to the availability of supply. Across the operators three cases – low, base and high – the margin varies between 3.1-5.4GW or 5.3-9%.

With nuclear and coal plants closing, supply over the last winter became more complicated. Both Dungeness B and Hunterston B nuclear power stations are now expected to be offline come winter 2021/22, and only coal units with capacity market agreements are expected to be available over the winter.

Additionally, Baglan Bay, Severn Power and Sutton Bridge combined cycle gas turbine (CCGT) power stations are all expected to be offline in the winter.

There is expected to be more interconnector capacity than last winter, however, with IFA2 to France available and NSL to Norway expected to be online from October. Renewables, storage and distributed generation is all expected to be in line with expectations set out in the Future Energy Scenarios.

A number of factors could impact the availability of supply. For example, within the low case, there is a margin of just 3.1GW, which could be caused by just two power stations going down, or a combination of higher demand and one outage. This would bring the margin to 5.3%, its tightest since 2015-16.

Average cold spell (ACS) peak demand is expected to be 59.5GW, and experience no suppression due to the COVID-19 pandemic. Last year, lockdowns across Britain led to demand being reduced by 3-4%.

Despite this reduction, cold weather and low winds pushed the electricity system on a number of occasions. As such, National Grid had to put out six Electricity Market Notices (EMN) in an effort to manage the volatility.

This volatility drove up prices with the day ahead prices jumping to almost £1,500/MWh, while Balancing Market hit a record breaking £4,000/MWh on Friday 8 January. EDF’s West Burton B CCGT plant, for example, achieved the highest daily revenue from the Balancing Mechanism, receiving over £7.5 million in a single day.

Despite the challenges seen last year, and the uncertainty around supply going into winter 2021/22, National Grid ESO said it had the tools available to manage the grid.

“We may see some tight margins again this winter, but we’re confident there’ll be enough electricity to keep Britain’s lights on,” it said in a statement.

Following this early look, the full Winter Outlook is due to be published in October 2021.