On 20 July 2021, the Department for Business, Energy & Industrial Strategy (BEIS), in collaboration with Ofgem, published their consultation document for the proposed new Future System Operator (FSO). This comes following news that National Grid plc is to be stripped of its Electricity System Operator (ESO) role.

At the moment, there is still much to be decided. This is understandable given that plans for the FSO are still at the consultation stage. However, BEIS and Ofgem have made clear their high-level outline for the planned FSO, so here are some key takeaways from the document.

Why do we need a new Future System Operator?

Essentially, there are two reasons for the formation of the new FSO:

1. BEIS and Ofgem want the FSO to be independent of commercial energy interests.

In January 2021, Ofgem released its ‘Review of GB energy system operation’ report. The report recommended the creation of an independent body that could help deliver the upcoming fundamental changes our system needs. Both the gas and electricity system operators are currently part of National Grid plc, which has “significant wider commercial interests” within the industry.

BEIS and Ofgem are quick to point out that there is no evidence that any “potential or perceived conflict of interest” has been taken advantage of. They also note that there is no indication this would happen in the future. However, they claim that this perception could create indirect operational inefficiencies, and are keen to ensure this doesn’t happen.

2. The FSO will incorporate elements of the Gas System Operator (GSO) - and more - to create a more integrated system.

BEIS and Ofgem foresee an FSO which brings together multiple different strands of the energy industry. The belief is that greater integration will lead to greater coordination and efficiency in the drive towards our net zero target.

Currently, NG ESO and National Grid Gas (NGG) are two legally distinct entities. The consultation document suggests that this makes “coordination between gas and electricity functions and roles challenging”.

What will the FSO look like?

The roles and functions of the FSO

The plan is that the FSO takes on the roles and responsibilities of the ESO, and certain GSO roles. These GSO roles include:

Strategic planning.

Long-term forecasting.

Market strategy functions.

(A second option suggests the FSO could take on all GSO roles and functions. However, this option “presents significant risk, complexity and potential cost, without equal benefit”. It is unlikely, to say the very least.)

The FSO will also take on a host of new or enhanced functions: providing policy advice and technical insight; a streamlined dispute resolution system; enhanced system planning and network distribution advice (with Ofgem to take investment decisions); and enhanced driving of competition (e.g. running tenders, and considering non-network alternatives to traditional network solutions).

It will have the potential to take on a number of wider energy strategy roles and functions in the future. These could include (but are not limited to) the management of: heat and transport decarbonisation; hydrogen; carbon capture, utilisation and storage (CCUS).

What about the immediate future?

As outlined above, the plan is for the FSO to merge the ESO with parts of the GSO (with scope to branch out further in future). In the immediate future, what will this actually look like?

In short, the baby will not be leaving with the bathwater. Due to the proposed scale of the FSO, there will be a phased integration. Initially, the existing capabilities of NG ESO (and NGG, where applicable) will form the basis of the FSO. This means people, processes, systems, and assets. BEIS and Ofgem recognise the “technical expertise” and “operational excellence” of the ESO, and intend to take advantage of their existing structures.

The phased introduction of potential new roles will follow, based on the outcomes of the consultation.

Summary

The Future System Operator will be an independent body. It will take on the roles and functions of the ESO, as well as some gas responsibilities. There is scope for it to encompass other aspects of the changing energy system moving forward. This is not a complete upheaval, rather an attempt to achieve greater system integration.

The closing date for the FSO consultation is 28 September 2021, and you can tell BEIS your views on the proposals here.