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Independent electricity system operator would lead British path to net zero

Out-Law News | 11 Feb 2021 | 11:57 am | 2 min. read

The UK’s energy regulator, Ofgem, has recommended the creation of an independent energy system operator to drive the transition to net zero carbon emissions.

Under the proposals, the body would be fully separated from the National Grid to avoid any perceived or real conflict of interest. It would manage the electricity system, with responsibility for designing and planning new grid infrastructure and providing independent advice to the government on how to hit its target of net zero emissions by 2050.

The proposal is a step beyond the 2019 creation of a legally separate function within National Grid to manage the electricity system, and follows Ofgem’s review of GB energy system operation (143 page / 2.2MB PDF). The review focused on the changes required to achieve net zero, the suitability of current system operation arrangements, and potential options for alternative system operation models.

Energy market regulation expert James Thornton of Pinsent Masons, the law firm behind Out-Law, said the new proposal went much further than previous moves.

“The creation of a new independent system operator would be a step change in the regulation of the electricity market and will be of great interest to consumers and generators alike. Whilst Ofgem’s press statements were focused on costs savings for consumers, generators would also stand to benefit from an independent system operator that could prioritise the twin policy goals of increased renewable generation and decreasing costs for consumers,” Thornton said.

Thornton said transmission connected generators currently paid for the cost of developing and maintaining a larger and higher capacity network through Transmission Network Use of System (TNUoS) charges.

“If an independent system operator seeks alternative solutions to expanding the network, as Ofgem suggests is likely, then this could minimise TNUoS charges, as well as provide generators with new opportunities,” Thornton said.

Ofgem said the new operator could take a more proactive role in the balancing of supply and demand across the electricity network. It said the body would have the skills and capability to ensure the energy system developed efficiently and safely, and would be well-placed to “anticipate the challenges of new technologies, identify cross-system solutions for operating the system and proactively consider opportunities for developing energy markets and networks to facilitate them”.

“The opportunities for renewable generators to provide balancing services is currently limited, although growing. Generators will welcome Ofgem’s latest statement as another step towards renewable generators playing a greater role in the balancing market, particularly as the existing technologies that the balancing market is reliant on are gradually phased out,” Thornton said.

Although the review focused on the creation of an independent electricity system operator, Ofgem said there was also a good case for separating key gas network planning functions from the gas transmission owner and combining to create a new independent energy system operator.

In December 2020 the Department of Business, Energy & Industrial Strategy published an energy white paper focusing on the drive towards net zero, which included a commitment to consult on system operation governance arrangements in 2021. Ofgem said it would work with government and industry to build on its recommendations and support this further governance review.