Utility Week

UTILITY WEEK | MARCH 2021 | 21 Policy & Regulation ble when something goes wrong. How do you deal with the situation where National Grid blames the ISO and the ISO blames NationalGrid? "It is important that control and responsi- bility remain aligned," he adds. "If the ISO or National Grid end up with responsibility for something they don't control – or control of something they don't take responsibility for – that is likely to lead to problems in the end." Gibson says if an independent body is required to make decisions about system planning, then the regulator should ful- l that role itself: "If it needs an independent body then why isn't Ofgem su‚ ciently inde- pendent? If independence was the criteria, then surely it would sit with them?" Richard Nourse, managing partner at Greencoat Capital, shares Gibson's concerns over the dilution of expertise: "I guess one of questions that would absolutely need to be sorted out is how do you make it possible for people to move in and out of the two bits of the industry, recognising sterile periods and the issues created by moving employers." However, he also believes that con‡ icts of interest are a far greater issue: "We need to be able to have people we can completely trust to fearlessly make the right decisions for us based on the evidence as they see it." "I don't think there is a day-to-day con‡ ict of interest," he remarks. "I've been to meet- ings where you have National Grid, the asset owner, and National Grid, the system opera- tor, introducing themselves to one another – that is, they don't talk to each other the whole time." But he says National Grid's incentives are a "big problem" at the group level: "At the moment people are paying 1.3 to 1.5 times the RAV [regulatory asset value] for an electricity company." He says the company therefore has a strong motivation to increase its RAV, mainly by building more wires: "Every pound they can put in the ground is worth £1.3 to £1.5 to their shareholders, the minute it happens." Whole system operation Nourse says this is particularly problematic when it comes to the future of gas networks and their potential conversion to hydro- gen: "These guys are in an intense rear- guard action, basically to be relevant when the methane stops ‡ owing. They need to worry about maintaining the RAV to have a business." While refraining from taking a - rm posi- tion, Ofgem said the ISO could potentially absorb some or all of the functions of the sys- tem operator for gas, which is currently part of National Grid Gas Transmission: "An ISO with enhanced electricity and gas functions would create a new overarching strategic energy body. This body would be uniquely positioned to develop and apply whole sys- tem insight, make better, more coordinated decisions and enable e— ective optimisation across the energy system." Catherine Mitchell, professor of energy policy at the University of Exeter, thinks the creation of a fully independent system operator is long overdue, describing Ofgem's prior decision to legally separate the ESO from National Grid Electricity Transmission as a "total fudge". "I think it's absolutely vital that there is this independent system operator because we really have to move to a whole-system approach and an awful lot of this is going to happen at the distribution level," she tells Utility Week. Mitchell says the ESO would be perceived to be making decisions in the interest of transmission if it remained part of National Grid, meaning it would lack "any real credi- bility from the perspective of the distribution companies". For the same reason, she also thinks the new body should combine the system opera- tors for both gas and electricity to create an "integrated independent system operator". She says if the system operators for gas and electricity are not merged now, Ofgem will - nd itself doing so in several years' time, just as has happened with the separation of the ESO from National Grid Electricity Transmission: "They've just got to bite the bullet and do it". But while she supports Ofgem's proposals to give the ISO an expanded role in the tran- sition to net zero emissions, Mitchell says this will not be enough to ensure the target is met by 2050: "We're not going to get to net zero with slow incremental change." The University of Exeter's Energy Policy Group has previously called for the creation of an Energy Transformation Commission to coordinate the e— ort. Under its proposed arrangements, the Climate Change Committee would provide scienti- c advice to a cross-departmental Cabinet Committee on Climate Change, which would issue policy directions to the Energy Transformation Commission. On the basis of these directions, the Energy Transformation Commission would consult with all relevant stakeholders, including taking technical advice from the ISO, to develop and implement a strategy for decarbonisation. The commission would then issue instructions to both the ISO and Ofgem to deliver the strategy, with the latter acting purely as an economic regulator. "If it needs an independent body then why isn't Ofgem suffi ciently independent? If independence was the criteria, then surely it would sit with them?" Colm Gibson, managing director, Berkeley Research Group's London o ce "It's absolutely vital there is this independent system operator because we really have to move to a whole-system approach and an awful lot of this is going to happen at the distribution level. Catherine Mitchell, professor of energy policy, University of Exeter "I'm not sure the ESO should be responsible for the policy trade- off s that are needed around current consumers and future consumers and how the system needs to blend, let's say, heat and electricity." Laura Sandys, chief executive, Challenging Ideas "I think National Grid sowed the seeds of this separation a long time ago by being less transparent than it could be." Patrick Erwin, policy and markets director, Northern Powergrid continued overleaf

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