Today the Electricity System Operator (ESO) publishes its first ever Forward Plan. The document sets out our priorities for the next year and highlights how the ESO will generate value for consumers and measure its performance under a new regulatory framework. Charlotte Ramsay, Future of SO Programme Director, explains more.
Publication of our Forward Plan for 2018/19 comes at a time of significant change in the energy industry. Great Britain’s energy system is undergoing dramatic changes. We’re seeing more renewables connecting to the network, together with a growing proportion of distributed energy sources and new business models emerging.
The ESO is about to enter a new world. April this year heralds the start of a brand new regulatory framework that radically transforms how we are incentivised and measured on our performance.
We are also creating a legally separate ESO within the National Grid Group. This will allow it to play its full role in facilitating industry transformation.
With so much change happening it’s vital that we are clear and transparent about our priorities for the year ahead, and the benefits we will deliver for consumers.
The Forward Plan is the next logical step on that journey: our blueprint for the next 12 months. It is also a way for our stakeholders to hold us to account.
Shaped by stakeholders
Since spring 2017 we’ve been engaging with stakeholders from across the industry to make sure their voice is heard in creating the plan. We’ve held workshops, attended consultation events and met with industry associations to listen to feedback and views on the specifics of the Forward Plan.
In February this year we published a draft version of this document and followed up with a webinar attended by 93 stakeholders. This provided a valuable opportunity to take questions on the draft and to shape our thinking further. We also received 21 written responses commenting on our draft Plan.
The feedback that we received was very useful. It drove us to make changes to our plan in key areas including the transparency of balancing services procurement, our ambition on code administration and our approach to stakeholder engagement. You can read much more about stakeholders’ views and how we’re responding in the Stakeholder Engagement Report.
A changing landscape
I want to explain more about the Forward Plan itself. But before I do that, it’s worth taking a moment to consider the background and why now is the right time to publish it. There are significant changes under way, both in terms of the wider electricity landscape and how we will be regulated in future.
Firstly, the whole landscape we’re operating in is shifting rapidly. We’re seeing more renewables connecting to the network. There is also growth in distributed energy sources that connect to the distribution network rather than directly to the transmission system.
We are seeing new technologies such as battery storage emerging all the time and a vast increase in the number of players in the market, both large and small. Each has its own specific needs in terms of interacting with the ESO.
The plan gives us a focal point to engage with this fast-growing stakeholder base.
The second big change is the new regulatory framework. Under a fresh regime which begins on April 1 this year, we will be judged on how we perform across the four different roles of the ESO and seven key principles.
The graphic below explains more about how this approach will work.
Five criteria will be used to gauge how we’re doing: Within year consumer value, Future consumer value, Progress against deliverables, Performance metrics, Stakeholder feedback.
An external ESO Performance Panel, convened by Ofgem, will assess our performance on a six-monthly basis, determining whether we receive an incentive or penalty payment of up to +/-£30 million every year.
What the Forward Plan covers
The Forward Plan explains the deliverables and actions we’ll be taking in every aspect of our work – from procuring balancing services through to ensuring efficient investment in the network. The document includes a detailed delivery schedule that maps out the work across each of our roles and principles.
We’re being ambitious in the goals we set for ourselves. We have stretching targets in place to measure progress in improving our efficiency, maximising competition in balancing services or making sure network investment delivers value for money.
There is a clear focus on outcomes. In other words, is the work we’re doing bringing value to the consumer?
Take network investment as an example. Are there ways we can lower the overall cost to consumers? Rather than building more transmission assets to support the development of a secure electricity system, is there a smarter solution?
This might mean working with the distribution networks in novel ways or increasing the use of demand side response (DSR). This is one of the topics where we’re collaborating via the Energy Networks Association’s Open Networks Programme, as well as using our own internal analysis.
We also give more detail on how we plan to address some of the other pressing issues stakeholders have highlighted. For example, how can we improve customers’ experience of connecting to the grid? And how can we ensure that the rules around procuring balancing services are clear, fair and transparent?
Meanwhile, in the performance metrics section of the plan, we set out the metrics that will be used to demonstrate to customers, stakeholders and Ofgem how we have performed.
What happens next?
We will be reporting our performance against the above criteria quarterly. We’ll also be working with stakeholders during the year to incorporate their views into our planning beyond the next 12 months.
It’s a time of change for the ESO. It’s also a time of excitement about what lies ahead. We’re ready to embrace the change of a new regulatory regime, we’re moving ahead with our plans to create a legally separate ESO and we look forward to collaborating with stakeholders to achieve the best possible outcomes.