Utility Week

20 | MARCH 2021 | UTILITY WEEK Policy & Regulation Analysis What would an independent system operator look like? Ofgem's proposal to separate the Electricity System Operator from National Grid have received broad support. But some question whether more fundamental change is needed to oversee the transition to net zero. Tom Grimwood speaks to experts across thesector. A mong the more signi cant commit- ments made as part of its Energy White Paper published at the tail end of last year, the Department for Busi- ness, Energy and Industrial Strategy (BEIS) pledged to spend 2021 consulting on the "institutional arrangements governing the energy system" to ensure they are " t for purpose". The department said these would include energy code governance, engineer- ing standards and the functions of system operators at both the transmission and dis- tribution levels. "We need the operation of national and local energy markets to be managed impar- tially, without con… ict of interest, ensur- ing they are fully open to competition," the paper explained. It also said there needs to be "greater coordination to drive collabora- tion between di‡ erent parts of the energy system which are currently too siloed". BEIS said this work would include a review of the organisational structure of the Electricity System Operator (ESO), which completed its legal separation from National Grid Electricity Transmission in April 2019. Ofgem made its thoughts on the matter known in January with the publication of its own review into system operation in Great Britain, revealing proposals to fully separate the ESO from National Grid to create an Inde- pendent System Operator (ISO). The regulator said it wants the ISO to pick up new responsibilities – providing advice to government and taking a more active role in designing and planning the energy system of the future: "This body will proactively run the day-to-day operation of the electric- ity system and provide strategic direction to support the transition to net zero." It continued: "A body responsible for both system planning and real-time balanc- ing would have the skills and capability to ensure the energy system develops e" ciently and safely. This is particularly important for the electricity system given the dynamic and real-time nature of electricity system balancing. "This body would be best placed to antici- pate the challenges of new technologies, identify cross-system solutions for operating the system and proactively consider oppor- tunities for developing energy markets and networks to facilitate them." But Ofgem said none of this can happen while the ESO remains part of National Grid: "We believe that full independence is cru- cial for the new organisation to make deci- sions that are impartial and in the consumer interest." It said the current structure may still result in "real or perceived biases" against decisions that would negatively impact the "signi cant value" of existing or future assets in which National Grid has a nancial interest. Con icts of interest The regulator conceded that: "At this time, we have no evidence of National Grid acting in a way that deliberately exploits any poten- tial con… icts of interest." At the same time, Ofgem said any mistrust in system operators' advice could "delay or constrain policy deci- sions required to achieve net zero at lowest cost to consumers" given their access to "key data, technical expertise and operational experience". "Perceptions of bias are damaging regard- less of whether there is any explicit evi- dence," it warned. Colm Gibson, managing director of Berke- ley Research Group's London o" ce, thinks otherwise. He argues that without "hard evi- dence" of con… icts of interest making a dif- ference to decision-making "there is a risk to changing it". He says there are several downsides to separating the operator from the owner. Firstly, it will dilute their knowledge: "It requires a lot of expertise to run an energy grid and if you start splitting things up you start splitting that knowledge. All of the expertise that moves into the ISO is no longer available to National Grid and all of the expertise that remains in National Grid is not available to the ISO." Gibson says this problem could be over- come by doubling up, but asks: "What happens if National Grid's experts say the ISO experts are wrong? And what happens when the ISO experts say National Grid's experts are wrong? Who do you go with? Who decides which group is right and which group is wrong?" He says splitting apart operation and ownership also raises similar issues around accountability: "At the moment, responsibil- ity clearly sits with National Grid. It doesn't matter whether a system operator makes an error or the rest of National Grid makes an error, you know where the responsibility sits. "If you split the system up, it's not going to be clear cut who is to be held responsi-

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