Finding NESO | Deciphering the myriad roles of the future system operator

In the first of a new series analysing the creation of the National Energy System Operator (NESO), Utility Week looks at the roles and responsibilities this new organisation has been tasked with delivering and whether it risks being overburdened.

At the end of last year, the regulator Ofgem was forced to clarify its proposals for a Centralised Strategic Network Plan (CSNP) after it was accused of handing too much responsibility to the future system operator.

In addition to representing a significant change to their roles, transmission owners warned that Ofgem’s proposals risked over-burdening the new body – since given the official title of National Energy System Operator (NESO) – which could put the delivery of the CSNP at risk.

But industry’s concerns go wider than just the delivery of the CSNP. Some fear that the task facing the NESO when it comes into existence later this year is too great, and its main purpose of undertaking strategic planning could be compromised.

In addition to the Electricity System Operator’s (ESO) existing roles and responsibilities, from day one the NESO will also be taking on long-term planning, forecasting and market strategy for gas, and fulfilling a wider strategic advisory role. It has also been handed the responsibility for creating the CSNP, been named the regional energy strategic planner and will also fulfil the role of onshore electricity network competition tender body.

In the future it is being lined up to take on a leadership role on core digitalisation principles, and to become the hydrogen production allocation body, among many others.

As one respondent to the government’s consultation on the NESO in April 2022 stated: “…adding a plethora of additional responsibilities to an organisation that does not have proven capabilities in these areas is risky, potentially leading to delays or safe, short-term decisions.”

Similarly in July last year Octopus Energy told the Environmental Audit Committee that: “At all costs, we must avoid placing too much on this organisation during the transition period, as this could result in a hiatus in a number of policy areas so crucial to bettering GB’s chance of meeting our decarbonisation targets.”

Such fears are not unfounded. For example, the ESO, the organisation faced with the task of evolving into the NESO, has already had to delay the Holistic Network Design follow-up exercise.

The ESO itself has admitted that the biggest challenge it faces in its evolution is ensuring it has the capacity and capability to “stand up and deliver” from day one.

Speaking at Utility Week’s Future Networks Conference on Tuesday 20 February Colm Murphy, head of transformation at ESO, admitted: “Whenever I speak to people about NESO they tell me, it doesn’t matter what the question is, we’re the answer.” He added: “I want to reassure everyone that we have put a lot of thought into what the organisation can do from day one and how that can evolve over time. We’re very focused on ensuring this organisation can fulfill the value we all see it having in the market place.”

Although the company has been keen to reassure industry that a strict set of criteria is being used by itself and government to determine if more roles should be handed to the NESO, its remit continues to increase.

Murphy has acknowledged that there has been “a lot of chatter” about additional roles, adding that some of these roles “absolutely make sense but we need to ensure we don’t inadvertently overload the organisation”.

He told the conference: “When we’re looking at these new roles we have three key tests to apply. Is there a genuine gap that needs to be closed and that will generate significant consumer value? Do we need an independent organisation to do that and are we the right organisation? And, finally, is this the right time? We want to be very honest and thoughtful about that. This isn’t about building an empire or grabbing land. It’s about whether we’re genuinely best placed to do this and can we do it in a way that doesn’t harm any of the other roles we need to perform.”

However, as Energy UK pointed out in its submission to Ofgem’s consultation on the future of local energy institutions and governance in May, a lack of clarity over what new roles will deliver in practice has made it difficult for others in the industry to determine if the NESO really is the best candidate.

While the Energy System Catapult is also worried about the organisation being overburdened before it has had chance to get its feet under the table, its “greater concern” is the combination of roles. It fears the NESO will focus on the day-to-day operations involved in managing the grid at the expense of long-term strategic planning.

Aware of the industry’s concerns the government said in its response to its initial consultation: “We recognise… concerns over the future system operator taking on too many roles on ‘day one’ and we will consider the appropriate way to build up new capabilities as part of implementation.

“We are otherwise mindful of not overburdening the future system operator too early in relation to completely new roles, particularly where it may not initially have the relevant expertise.

“It will be important that it has the time needed to develop its own culture, as well as recruitment policies and plans, to ensure it is appropriately resourced to perform further new roles as they arise.”

So, what exactly is the NESO being asked to do?

Focus areas

Murphy told the conference that the new organisation would be delivering value across four key areas from day one. Over time the roles will evolve as its capacity and capability grows:

Strategic planning

The NESO will publish a CSNP which will align the planning of electricity and gas networks while also starting to consider other vectors like hydrogen. It will provide the first long-term independent view of the gas network and give whole energy network recommendations. In parallel it will build out the capability to provide a whole system view of the energy sector. Murphy stressed the need to recruit the right skills to ensure gas is given an equal focus to electricity in the system and said staff seconded into National Gas at the moment would be reintegrated in the NESO after July. He said: “We will fundamentally fail if we have an independent ESO with a few people on the side thinking about gas system planning and strategy.”

Market development

The organisation will support Ofgem, government and industry to develop both gas and electricity markets. Later it will consider vectors like hydrogen and carbon capture and storage. It will provide strategic guidance to stakeholders through analysis and insights built through industry engagement, including leadership of gas industry forums and market plans. It plans to eventually bring together players from across vectors to drive co-ordination and action. It is also working with Ofgem to become a signatory of the Uniform Network Code to enable it to influence code development and help shift the market.

Resilience and security of supply

The ESO is establishing an office of resilience and emergency management as a core part of the organisation. From day one the NESO will explore how gas and electricity systems can be best used to enhance whole energy sector resilience, and this work will involve conducting whole energy resilience assessments, looking at risks and vulnerabilities across the system, helping to define mitigations and conducting annual reviews of our emergency processes. It will also act as the independent technical body.

The NESO will publish assessments for electricity and gas, looking at macroeconomic and political factors, specifically highlighting where the two systems interact. The full ambition is for the NESO to be a key co-ordinator for emergency preparedness across the whole system, planning and co-ordinating responses to ensure reliance and security of supply.

Net zero energy insights

The NESO will provide advice to government and to the regulator as it seeks to develop policy and regulation that delivers on ambitious targets. It will build on the Future Energy Scenarios to develop its whole energy system expertise, providing government with specific advice which considers how energy vectors can be utilised to optimise the energy transition in Britain. It will publish insights for industry whilst also doing key horizon scanning.

This article first appeared in Utility Week’s Digital Weekly issue, available here.