NESO must abandon its network-centric mindset

As the Electricity System Operator (ESO) undergoes its transformation into the National Energy System Operator (NESO), it must move beyond its old electricity and network-centric focus and adopt a truly whole-system approach. This is according to former SSE executive and government advisor Keith MacLean, who also urges policymakers to give the body their full unwavering support to rebuild the country’s energy system.

“Ask not what your country can do for you, ask what you can do for your country.” The ESO would do well to heed John F Kennedy’s famous call to action when it formally adopts its new identity later this year.

Although the power grid was originally built around the needs of customers and generators at the time, those needs have changed and too often they are now being asked to fit around the network in its current form.

Unsurprisingly given its previous roles and responsibilities, the ESO has had the tendency to view both problems and their solutions through an electricity and network-centric lens. The NESO must now break away from this old mindset and develop a truly whole-system approach to meeting the net zero challenge.

As well as just ‘keeping the lights on,’ the NESO must keep people warm, keep them moving and keep industry operating efficiently. In doing so, the NESO will need to take advantage all available tools, picking the right ones for each job.

Lessons from the past

Despite the failings of the old electricity and gas boards, the vertical integration at their hearts at least trained their teams to look for the best overall solutions and to avoid optimising the component parts only to sub-optimise the whole. This was the mentality that I could still observe when I joined the industry in the early 1990s but now rarely see in day-to-day operation.

Since privatisation, many benefits were achieved by liberalisation of the electricity and gas sectors. However, the unbundling of the industries combined with the introduction of market and regulatory competition have, over time, made collaboration more difficult and led to a fragmentation and blinkering of decision-making processes, as well as a decimation of the number of people with the capabilities and incentives to join up their approach. Shortfalls in system understanding and thinking not only apply to industry players but also to regulators and policy makers.

Developing the whole-system infrastructure

As the ESO has just summarised in its proposals for the post-2030 electricity system, the transmission network still strongly reflects the drivers in the post-war years which, rightly at that time, supported the needs and locations of fossil fuel generators and consumers.

Today’s network users are now in the ‘wrong place.’ But really it is the networks themselves that are ‘wrong’ – neither big enough nor suitably located to deliver services when and where they are needed by their customers, whether on the supply or demand side.

This outdated architecture should not remain the determinant of when, where and whether the right system investments to mitigate climate change are made by producers and consumers. Strong signals are now desperately needed to direct timely network investment to the correct locations.

Disappointingly, the distraction of locational marginal pricing has recently been confirmed as a continuing component of the REMA process. It seems entirely counter-intuitive to send signals that ‘punish’ generators and users for locating their activities where it is most efficient and cost-effective for their needs, rather than to do, within reason, everything to ensure the necessary transmission (and distribution) networks are built.

Electricity transmission costs represent about 3% of customer bills and wholesale generation makes up 34%. Therefore, at a system level, implementing measures to save 10% of transmission costs only makes sense so long as generation costs rise by less than 1%. Indeed, it could be economically advantageous to double transmission costs even if this ‘only’ saves 10% in generation capital and revenue costs, or in the cost of capital.

New electricity networks may not be enough on their own.

The existing gas networks do the heavy lifting for energy and capacity provision as well as for storage to balance the electricity and heat needs over all timescales. Their continued use for gaseous energy vectors like biomethane and hydrogen should be evaluated seriously alongside the use of electricity.

The transport sector has long been reliant on liquid fuels. As with gas, extensive national and international infrastructure has been developed to move and store them.

Maintaining these functionalities, some of these assets, as well as the associated experience and know-how of the workforces should also be given proper consideration, if the approach is to be truly ‘whole system.’

The importance of storage to balance the system

Finding an alternative to fossil fuels for storage will be particularly challenging, both technically and economically.

In the timescales needed to achieve net zero, only zero-carbon chemical fuels appear capable of storing the enormous amounts of energy required to balance the system. Batteries and flexibility from consumers may have their place for some short duration events, but not to deal with longer durations, e.g. the enormous seasonal variation of heat demand and multi-year weather variations. Cumulative imbalance in electricity and heat over seasons and years can grow to over 100TWh.

Through their bills (and taxes) consumers have already paid a lot for investment in fossil fuel infrastructures. Writing off their still-functioning investments, asking them to pay for an alternative and then also for decommissioning may not represent good value for them.

Political and regulatory risk

The NESO’s predecessors were often hampered by a political, policy and regulatory environment that did not give the clarity and support needed to design and deploy the necessary system infrastructure.

Policy delays and flip-flopping are commonplace. The situation is not helped by new energy ministers coming along at least once, sometimes several times a year. This and a lack of political focus on credible deployment strategies have characterised energy policy for decades. Despite the growing urgency for action to mitigate climate change, matters have not improved.

Professor Dieter Helm recently characterised the UK’s net zero approach as follows: “Having set an unachievable target, and then come up with an incoherent plan to achieve it. The plan has effectively been abandoned but the target remains. This is not a credible energy policy.”

Along the way there have been positive initiatives to agree system development plans between government, the regulator, network providers and users. In 2002, the Renewable Energy Transmission System (RETS) study paved the way, and in 2009 a working group co-chaired by the Department for Energy and Climate Change and Ofgem agreed a 2020 blueprint in its report. This was refreshed in 2012.

Some progress is being made but is often painfully slow. For example, part of the 2009 Eastern subsea HVDC Link (now Eastern Green Link  1), which already had a ‘strong’ business case at the time, has just received “fast track” approval from Ofgem as the first project to come through its Accelerated Strategic Transmission Investment (ASTI) framework.

Even though the needs’ cases have strengthened over time, significant transmission capacity shortfalls remain and have again had to be highlighted in the ESO pathways to 2030 and beyond.

Planning constraints

Even when the policy and regulatory stars align in favour of investment, the UK’s rather paradoxically named ‘consenting’ and ‘permitting’ regimes are singularly successful in hindering the proposals that do come forward. Sadly, politicians, including senior ministers, are themselves complicit in this – often the first to criticise and object to plans to deploy the very infrastructure needed to deliver their own “world- leading” targets.

Paraphrasing the late Professor Sir David MacKay and his book, ‘Sustainable Energy without the Hot Air’: “To fight climate change, we need ‘country-sized’ solutions … however the British are only willing to support the necessary measures as long as it doesn’t mean building anything bigger than a fig leaf.”

As a result, more than 25 years on from Kyoto and the realisation that we must start to transform the system, the same two barriers still top the list for those wishing to connect to the electricity system – a lack of grid access and planning.

In this period there have been governments of all colours, and it would therefore be very optimistic to expect that, on their own, changes at the next election will make any significant difference.

Moving forward together

So, something must be done differently over the next 25 years, if the NESO and other system players are to successfully develop AND implement existing blueprints, like that just outlined by the ESO for the post-2030 electricity system, let alone those that will be needed to properly cover the whole system.

There must be concerted political and regulatory support to implement the plans. This could emulate the positive experiences of rapid vaccine development but must be seen to have cross-party support if private investors are to be attracted at anything approaching a reasonable cost of capital.

Blueprints should be used expeditiously to design the necessary system in detail and to identify the key investments, not just in networks.

The designs and their component investments must also be adopted into appropriate, well-resourced planning frameworks to enable efficient and timely consenting and permitting of the necessary infrastructure.

The principle of ‘presumption in favour’ for such developments must be established and vociferously supported by all throughout the consenting process and deployment. The common mindset that there is always a better way or place to do everything, should be rejected.

Any approach must ensure stakeholders are well informed about developments and protected from unacceptable adverse impacts. However, there should be no naïve expectation that it will be possible to keep everybody happy.

By developing a wide-angle lens view of the future energy system and facilitating some of the positive aspects of vertical integration to join up thinking across the system, the NESO could make a significant contribution to the UKs achievement of net zero whilst also serving its customers’ needs.

Keith Maclean is founding director of Providence Policy, having previously worked in a broad range of roles in the energy industry, including two decades at SSE where he was policy and research director. He has acted as an advisor on energy policy to both the UK and Scottish governments and as chair of the Energy Research Partnership