Posted: 24 July 2017
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Embracing change: The FRSO

The Future Role of the System Operator (FRSO) programme comes at a time of unprecedented change in the energy sector, but what will it deliver exactly and how will it benefit electricity market participants and consumers? FRSO Programme Director Charlotte Ramsay takes up the story.

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Embracing change: The FRSO

Embracing change: The FRSO

Society is undergoing a seismic shift in the way we produce and consume energy.

"The enhanced roles for the ESO will make it easier for generators and other players to connect to networks and access markets"

Charlotte Ramsay, FRSO Programme Director.

Insight:

Since 2011 we have seen around 15GW of fossil fuel power stations come off the system.

Source: National Grid: The changing role of the electricity System Operator.

The ESO sits at the heart of the electricity system. In future, we’ll be taking on some new roles as well as our existing responsibilities in keeping energy flowing to millions of homes and businesses. In January, National Grid launched a two-year programme that aims to transform the way the GB electricity network is managed – The Future Role of the System Operator (FRSO) programme.

21 April 2017 might seem an insignificant date, but it was a landmark for Britain’s electricity sector – the country’s first ever coal-free day in terms of power generation.

This statistic symbolises the rapid transformation of the electricity market and why we’re striving to create a new enhanced role for the Electricity System Operator (ESO), one that is fully ready to meet the challenges of running the energy system of the future.

The transformation of energy

Charlotte Ramsay, FRSO Programme Director.

Society is undergoing a seismic shift in the way we produce and consume energy. A few examples: in 2016, demand for plug-in hybrid vehicles rose 42%; meanwhile, since 2009, around 10GW of wind generation has come onto the system, alongside more than 10GW of solar power. This equates to around one third of current installed GB generation capacity.

These numbers matter because they have profound implications for how we manage the GB electricity network. Fossil-fuel power stations are being replaced by smaller, distribution-connected renewable technologies. Traditionally, electricity flowed in one direction – from transmission to distribution – but today we have a much more dynamic picture, with far more generation connected directly to the regional distribution network.

At the same time, new technologies such as battery storage and demand side response are deploying at an increasing rate. We need to be able to integrate these technologies quickly into the network so that Great Britain can make the transition to a low carbon energy system that gives consumers best value. This rapidly changing picture sets the context for the work that is now under way through the FRSO programme.

Why the industry needs to change

The current markets and frameworks that govern the electricity system need to change. There are lots of new participants ready to play their part, but stakeholders tell us there are too many barriers to entering the market.

The way we manage balancing services and network charging both need to evolve so that they’re fit for the future. Equally, transmission and distribution resources must work in greater harmony. We see three key priorities:

  • Ensuring network and market access for all parties, regardless of their business model or where they are connected
  • Clearer investment signals for services required by the ESO, so that providers can plan with greater certainty
  • A revised balancing market design that reflects the changing energy system.

What the new ESO will look like

Earlier this year, Ofgem, The Department for Business, Energy & Industrial Strategy and National Grid released joint proposals on future arrangements for the ESO. Ofgem is due to report back this summer, confirming these arrangements. So, what’s likely to change?

Transforming markets and governance: We are working to revolutionise our balancing services with new commercial arrangements to improve market access and support fair charging.

Thinking across networks: Having a more joined-up view across electricity transmission and distribution. Finding solutions that foster future integration of electricity networks.
Improving investment decision-making: Changing the way we develop our network to reduce investment costs and lay the foundations for future competition.

Becoming more independent: Creating an impartial and transparent ESO within the National Grid Group that is trusted to lead industry change.

These are not four separate pieces of work – they fit together like a jigsaw with the aim of helping Great Britain make the transition to a low-carbon electricity industry model.

What we’re doing in the FRSO programme

We embarked on the two-year FRSO programme at the start of 2017. It draws together people from all parts of the ESO and we’re seeking to transform not only what we do but also how we work.

The first area we’re working on is Flexibility. As we transition to a system with more renewable and distributed sources of electricity, the System Operator requires more flexibility to ensure supply and demand continue to be balanced in real time. Stakeholders tell us that the way we buy balancing services to provide this flexibility is too complicated. It’s simply too hard to do business with the ESO. Over the coming months we’ll be making fundamental changes to the way we organise these system services and consulting with industry on how to make the whole process simpler. For example, we aim to reduce the number of balancing products from the current level of more than 20, down to fewer than 10.

The second area is Network Competition. We need to find the most efficient way to upgrade the electricity network and to achieve this we are changing our Network Options Assessment (NOA) process. This will allow us to look beyond solutions that are tied to the transmission network and instead examine a wider range of technical and commercial ideas, including working with Distribution Network Operators (DNOs) and other parties to find innovative and efficient solutions.

Thirdly, we’re focused on a Whole System approach. In partnership with the DNOs, we have Regional Development Programmes in place in areas such as the South East of England where distributed energy levels are higher and where we can test new concepts. This includes working more closely with DNOs to find ways of releasing capacity on the distribution networks and providing generators connected to local networks with routes to national markets.

Finally, we’re committed to creating a Level Playing Field. Working with industry, we will provide the support needed to manage significant charging reforms so that all parties are treated fairer. This will also ensure that all interested businesses can participate in the changes fully.

Benefits to customers and consumers

It’s right to ask what all this means for customers and the end consumer. The enhanced roles for the ESO will make it easier for generators and other players to connect to networks and access markets.

We will be able to give stakeholders more clarity on our investment priorities and where we expect to buy services, so they can formulate their own business models.

Consumers will also benefit, albeit indirectly. One of the main goals of the transformation of the ESO is to make sure we maximise the flexibility of the energy resources that are on the network. In other words, to do more with what we already have. In turn, this will reduce the need to invest in expensive, large-scale infrastructure if we can run a network that is even more efficient.

For example, the National Infrastructure Commission’s Smart power report estimated that by maximising smart flexible generation, GB consumers could benefit to the tune of up to £8bn a year by 2030.

A new level of independence

One of the cornerstones of the transformation is to create an ESO that is more independent from the Transmission Owner.

We propose to set up the ESO as a legally separate company within the National Grid Group, with its own Board of Directors. We recognise the potential for perceived conflict of interest in how we deal with different transmission owners and the distribution networks and distribution connected parties. Greater independence for the ESO is an important step in reinforcing our transparency and commitment to impartiality.

We expect to see the ESO operate as a legally separate company by April 2019. In reality, we’re already taking steps to begin operating as a more independent body, while minimising disruption for customers.

Final thought

Within the ESO, we’re excited about what lies ahead. We also know that we can’t achieve such a huge transformation in isolation. We are working with partners from right across the energy sector to create a new energy future together.

GFOP 2017: the future of gas