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The government and Ofgem want to see a future system operator (FSO) established as an independent public corporation by 2024.
The Department for Business, Energy and Industrial Strategy (BEIS) and the regulator’s joint response to a consultation on the creation of the FSO also confirms the initial responsibilities the body will take on and its principal duties.
Two potential ownership models had been considered for the FSO but the response confirms it will be created “in public ownership, in a way which ensures it is truly and properly independent – not only of asset ownership and other commercial energy interests, but also from day-to-day operational control of government”. National Grid will be “appropriately compensated” for its divestments.
The creation of the FSO will require both primary and secondary legislation, which will be progressed “when parliamentary time allows”. However, the response stresses the need to set up an FSO as soon as practicable and states: “Depending on a number of factors, including timings of legislation and discussing timelines with key parties, the FSO could be established by, or in, 2024.”
As indicated in the consultation launched last July the FSO will first of all be expected to take on all the main existing roles of National Grid electricity system operator (ESO) as well as the longer-term planning, forecasting and market strategy functions for gas. However, real-time gas system operation and emergency co-ordinator roles will stay with National Grid Gas.
The consultation floated the potential for a number of other roles for the FSO, including in distribution system operation, heat, transport, hydrogen and carbon capture usage and storage. However, these will subject to further consultation.
The FSO will have a duty to advise Ofgem and government and will have statutory powers to request information and data from the sector.
The response sets out the FSO’s primary duty to undertake its functions in a way that promotes three main objectives:
- Achieving net zero
- Ensuring security of supply of electricity and gas
- Ensuring an efficient, coordinated and economical electricity and gas system
It will also have a statutory duty to consider the need to facilitate competition and innovation, whole system impacts and the how consumers are affected by decisions.
In order to allow the FSO to act independently but still within the context of wider energy sector policy, it will be covered by the existing Strategy and Policy Statement framework. It will also have a statutory requirement to “keep under review developments in the energy sector (including relevant government policy initiatives) that may be relevant to the delivery of its functions”.
Energy minister Greg Hands said: “Russia’s appalling aggression in Ukraine amid escalating global gas prices has shown the vital importance of strategic change to the UK energy system. We need to boost our energy resilience, reduce our dependence on expensive imports and slash emissions. The FSO will do just that.”
Ofgem chief executive Jonathan Brearley said: “A fully independent system operator will help to transform Great Britain’s energy system and cut customers’ energy bills. Critically, the FSO will ensure that we will build a smart, efficient and flexible system that will mean that Britain moves to a secure low carbon and low-cost system.”
Fintan Slye, executive director, Electricity System Operator, said: “We warmly welcome today’s announcement that the ESO will be at the heart of the system operator of the future. Building on our track record and skills as a world leading system operator, together with industry and government and regulators we will help deliver an affordable, reliable and clean transition for all.”
John Pettigrew, chief executive of National Grid, said: “National Grid has a critical role to play in the decarbonisation of the economy to reach net zero, whilst continuing to ensure security of supply at the lowest cost to consumers. We have been working closely with government, industry and the regulator to create an FSO that enables long-term holistic thinking, drives progress towards net zero, and lays the foundations for the regulatory reform necessary to deliver a clean, fair and affordable energy transition.”
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