As with any change, there are opportunities and risks – and across the sector and within the national network, much attention has been paid to the post-ESO era. In this blog, I would like to focus on what I believe to be many new opportunities for ETO through legal separation, especially in the client domain. He says interview evidence – with Ofgem conducting more than 30 interviews with industry experts and stakeholders for the report – suggests that while legal separation has „somewhat” helped mitigate perceptions of conflicts of interest, it has not created enough trust for ESO to effectively assume and execute potential net-zero system roles. Legal separation will officially begin later this year when National Grid applies for permission to transfer ESO`s functions to a new entity under section 7A of the Electricity Act 1989. Ofgem will discuss it and decide whether to accept or reject it. An independent operator could also take on more comprehensive planning tasks for new infrastructure, such as designing and building an offshore network linking offshore wind farms in the UK, Ofgem added. We reported in February 2017 on Ofgem`s consultation on how to separate the role of the electricity grid operator from the rest of the national electricity grid. see our article Separation of the role of the national network operator. Ofgem has just published its response and a working document on the future legal framework.
Ofgem has confirmed that National Grid should move forward with plans to create a new legally separate company to exercise its role as an electricity grid operator within National Grid plc. The conflicts continued beyond April 2019, according to Ofgem, when NG-ESO`s network management functions were legally separated from its transmission activities. The new operator could make independent recommendations to the government and Ofgem on investment proposals for gas and electricity networks to move the UK towards a net carbon-free electricity grid at the lowest possible cost, the regulator said. This could save consumers between £400 billion and £4.8 billion between 2022 and 2050. In the electricity sector, a TSO is an operator that transmits electrical energy from generating facilities via the electricity grid to regional or local electricity distribution operators. The function of system operator may be held by the transmission system undertaking or be completely independent.  They are often owned in whole or in part by state or national governments. In many cases, they are independent of power generation companies (upstream) and electricity distribution companies (downstream). They are financed either by the States, by the countries, or by a toll proportional to the energy they transport.
Ofgem has called for National Grid to be stripped of its role after 30 years of balancing the power grid, as the energy company also owns power grids. Ofgem National Grid ESO National Grid Regulation Energy System Electricity System Operators Government In the spring, regulator Ofgem expressed concern that the London-listed company could face growing conflicts of interest between its boards on running the grid outside Northern Ireland and its ownership of electricity transmission companies that will benefit from each other`s investment plans. The FSO will have to provide impartial data and an impartial judgment between commercial interests, the document stresses, because the network is changing rapidly and radically and is no longer recognized. As part of the report, FTI Consulting created a number of alternative SO models that differ depending on the degree of separation from National Grid. The first option – the status quo – represents the current regulation, without further separation. The second option – extended legal separation – represents additional obligations for ESO to further reduce conflicts of interest. The last option – Strategic Planning Body – provides for a series of power and net-zero system roles to be decoupled from the national grid and transferred to a strategic planning body, with the control centre operated by National Grid Electricity Transmission or National Grid Gas Transmission. National Grid plc will make a voluntary application under section 7A of the Electricity (Transfer of Licences) Act 1989 to transfer the ESO functions of its existing licence to a separate legal entity within the National Grid Group. This includes the proposed licence amendments required to facilitate the transfer.
If Ofgem agrees, it may amend the licence (after consultation) and impose reasonable conditions on the transmission – including any costs National Grid may incur. Despite the legal separation of National Grid Electricity Transmission and National Grid ESO in April 2019, potential conflicts of interest in asset ownership could be an obstacle to the effective execution of electricity and gas roles by electricity and gas SOs. Ofgem is currently developing options for the detailed design of ESO`s new incentive programme later this summer and will undertake more formal activities for stakeholders in the autumn. ESO`s new incentive programme is expected to be in place by April 2018 (one year before ESO`s separation in April 2019). Legal separation has created a crucial new platform for this step. There are different views on how codes should transform or whether they are necessary. There is no doubt that this requires cooperation with industry and, whatever its evolution, there are two key requirements: In April 2019, National Grid operator ESO became a legally separate company within the National Grid PLC Group. Fintan Slye, Director of the Electricity System Operator, National Grid, will join ENA`s Board of Directors with immediate effect. Once separated, final changes are confirmed by changes to ESO and NGET licenses, using the default license change path. Legal separation has given National Grid ET more responsibility to customers than ever before.
Thus, the old maxim „The customer is always right” must be taken more seriously. ETOs can no longer be asset and engineering companies, they must be customer service organizations. Decentralised generation, coupled with distributed storage and trade of clean electricity from devices ranging from millions of interconnected electric vehicles to grid-scale batteries, will define Britain`s radically different „future” systems. A future network operator must be competent and appropriately structured to meet its challenges. „As our legal separation matures, we are taking on more roles and responsibilities in the energy sector and are excited to become an official member of the Energy Networks Association. I believe that the biggest opportunity that legal separation has brought to ETOs, and to National Grid ET in particular, is the opportunity to be closer to customers and build and deliver better value propositions. In this new industry model, all ETOs have the opportunity to express the value of their brands and bring them to the consumer. To achieve this, they need to refresh perspectives, start pushing for collaboration in the industry, and start developing in-house skills.
Creating and enhancing customer capabilities is at the heart of all the transformations that ETOs should initiate. Safety and reliability are a crucial issue for transmission system operators, as any failure of their grid or electricity generation sources can spread to a very large number of customers, causing personal injury and property damage. Natural hazards and imbalances between production and consumption are of concern. In order to minimise the likelihood of network instability and outages, regional or national transmission system operators shall be interconnected. National Grid has already legally separated the power grid operator business from the FTSE 100 Group, but Ofgem`s proposal would result in the disconnection of all connections and the establishment of a new independent grid operator. On 1 April 2019, the UK electricity industry learned that a major transformation programme had been implemented. The national grid electricity system operator (ESO) had formally and legally separated from the electricity transmission operator (ETO) and had become an independent ESO. „We look forward to continuing to work in partnership with ENA and its members. By working with network owners and operators and taking a holistic systems view of the challenges ahead, we can accelerate progress towards a zero-carbon grid and the UK`s net-zero emissions target. NGET suggested the separation would cost £54.8m in one-time costs and £8.5 million a year thereafter. However, Ofgem considers exceptional costs of GBP 49.3 million and operating costs of GBP 9.1 million per annum to be reasonable.
On April 1, 2019, Electricity Transmission became a legally independent company within the National Grid Group. Fintan Slye is director of the power grid operator, National Grid. Prior to joining National Grid, he was CEO of EirGrid Group, the electricity transmission system operator and market operator in Ireland and Northern Ireland.