NESO near yet so far | What needs to be achieved before summer deadline

Published 6 March 2024

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NESO near yet so far | What needs to be achieved before summer deadline

As chief operating officer of the National Energy System Operator (NESO), Kayte O’Neill will inevitably face difficult questions.

So, as she sits down with Utility Week to discuss her role, we try one out: is Labour’s pledge to decarbonise the power system by 2030 even remotely possible?

O’Neill’s first reaction is nervous laughter. However, minutes earlier she was stressing the need for NESO to be a robust and independent voice, not afraid to tackle trade-offs on the path to net zero. Surely she has to have a view on what will be a defining policy for the sector under a possible Labour government?

O’Neill hesitates before giving her answer… We’ll come back to that.

It is an illustration of the sheer scale of the task facing the NESO that we are discussing everything from a green grid, to local energy plans, flexibility, the role of hydrogen and digitalisation, among many others.

As was set out in the first of our series of articles on the creation of the NESO, these will all form part of the remit for this publicly owned system coordinator when it is established this summer.

There has been concern that this flurry of new responsibilities is too heavy a burden for a newly established organisation to bear. O’Neill is at pains to point out that the NESO is not being created out of thin air. Its base will be the well-established National Grid electricity system operator (ESO) where she has just taken on the role of COO and head of the operations executive committee. But, while ESO already sits at the centre of the electricity system, it will need to recruit rapidly to skill up to its new varied responsibilities.

O’Neill describes the creation of NESO as no less than an “inflection point” for a successful energy transition. We went to find out what progress has been made.

A conscious uncoupling

While the ESO was at one point working towards a 1 July target for the creation of the NESO, the aim is now more broadly “summer 2024” and O’Neill won’t be drawn into committing to a more specific date than this.

She divides her checklist over the next six months or so into three components – separation from National Grid; putting the necessary governance and framework in place for its new independent status; and ensuring there is “clarity on the roles of the organisation from day one”.

This latter point has involved a lot of feedback sessions designed to deliver a “shared vision” as O’Neill puts it. A less diplomatic way of saying it is that NESO is trying to ensure it treads on the least number of toes possible when it starts to perform its new roles.

Licences will need to be refreshed and new ones added, as well as a framework ownership agreement set out. None of this is easy and, of course, may well be interrupted by an election. O’Neill says: “Having the Energy Bill locked in gives us real certainty on the establishment of NESO and what it is set up to deliver. And it was great for us that there was very clear cross-party support. Inevitably a spring election would be a distraction for all of us, including the department for energy security and net zero (DESNZ), but the wheels are already in motion.”

O’Neill says it is vital there is “a really clean separation from National Grid”. Despite a legal split five years ago, a raft of services – from finance to HR and procurement – are still shared between the two organisations. That’s not to mention the fairly obvious link that National Grid remains in the ESO’s official title.

The shift will need to be cultural as well. All six members of the operations executive have a background in National Grid. O’Neill herself spent 16 years there before moving to the ESO in 2020 as head of markets. How can an organisation with such deep ties to National Grid prove it has its own identity?

“Remember, we’ve been legally separate from National Grid since 2019,” O’Neill stresses. “And in that time it has felt like a very separate business with its own culture and purpose.

“There’s a huge amount of our existing culture that we want to retain and build on. And then there are some parts of the culture we think we will need to tweak as we become NESO, to reflect our changing role.”

NESO’s new operations executive committee

Part of the shift will involve bringing new skills into the organisation. O’Neill says the ESO expects to grow from its current c1,000-strong workforce to an organisation employing 1,800 by the autumn.

Some of that increase in headcount will come from carving out those shared services with National Grid. It is also recruiting people to second within National Gas over the next few months.

Of the c450 new roles needed by the time the NESO is launched, “nearly 300” of these have already been filled, O’Neill says.

“We’ve cast the net pretty wide in looking for the talent we need to bring into the organisation. Of course, we have traditionally been a very electricity focussed business so we have been building our skills in new areas.

“We’ve been bringing in people in the planning space, modellers, data scientists and people with really strong engagement skills, particularly regional skills. We’ve also been trying to build some of that whole-system, cross-vector knowledge, so we’ve been looking for people who have got gas capability, people who’ve been looking at hydrogen CCUS over recent years and also those experienced in systems thinking.”

The 1,800 figure is just the start, however, and as its responsibilities deepen so must its pool of resources. Is ESO already recruiting for skills in future focus areas, such as managing the regional energy strategic planners (RESP)?

O’Neill says a team is already being built out to work with Ofgem and industry on the detailed design phase, with a focus on grassroots experience. However, this will inevitably need to scale up to staff the planned 13 RESPs across Great Britain.

“The key to being successful in the regional energy strategic planning space is to be out in those regions, getting that very local perspective and connecting the dots back up. It’s important that we build some of that into our central team who are doing the design thinking ahead of actually building a much more significant level of capability in those regional teams themselves.”

Your energy bill is never going to come from us

Links with communities will be key to building trust in the NESO, O’Neill believes. But how can you engender trust in an organisation that doesn’t even exist yet? While the ESO might provide a “really strong foundation” for the new system operator, it’s doubtful many members of the public would have heard of it.

O’Neill says: “We’re never going to have that kind of direct relationship an energy retailer has. Your energy bill is never going to come from us. But our roles in strategic energy planning will require NESO to have a much closer relationship with nations, regions and down into the communities, where these plans ultimately matter most.

“Not all consumers will know who we are but I think what we saw through the demand flexibility service over the last couple of winters is that there’s probably a much greater brand recognition today for the system operator in its role of engaging with consumers on their energy and demand flexibility. As that progresses, folks are going to get more familiar with who we are.”

This is undoubtedly true given the important calls the NESO will have to make in the coming years. Under Fintan Slye’s leadership over the past few years, the ESO has not shied away from taking an unambiguous stance on polarising subjects, such as locational pricing. As an independent body trying to navigate a much more crowded energy system through delicate trade-offs, will it still be able to talk straight?

O’Neill replies: “We’re confident that we can bring robust, independent, trusted, expert advice to the fore, not just for government but more broadly in opining on the wider challenges facing the sector. We believe that’s one of the critically important things we’ve been set up to do. How we do it will be down to being evidence based, transparent in our thinking, clear about the question we’re answering and clear about how we got to our answer.”

As an example of this in practice, she points to the work ESO carried out as part of its holistic network design to map out what it would take to enable 23GW of offshore wind in response to government zeal for faster buildout.

She insists that NESO is not afraid to tackle thorny topics such as reform of electricity markets or decarbonisation of heat, saying: “The step change from ESO to NESO is really about taking a much more strategic holistic approach to energy planning, one that will help solve many of the challenges we’re collectively facing as an industry.”

But what if the government of the day doesn’t agree with NESO’s solutions or even recognise the same problem? We have already seen a Conservative prime minister publicly undermining a statutory advisor in the Climate Change Committee. What can NESO do to ensure its voice is being heard? And how will it approach a possible Labour government, which appears ready to take a more active role in energy, not least through its own national energy company?

O’Neill insists that ESO has engaged across the political spectrum, adding: “There would inevitably be different dimensions with a Labour government but the core roles of NESO are critical irrespective of the party.”

She adds: “It’s very important to all of us that we have all the right governance and necessary institutional reform in place to set us all up for success. I don’t worry about Great British Energy but I do think that clarity of accountability is critical. We’ve worked really hard with DESNZ, with Ofgem and with industry on that to date. And to the extent that there’s more work to be done on that with a potential future Labour government, it would be that focus on clarity of accountability, roles and responsibilities.”

So, back to that difficult question at the start. Does NESO really believe the power system can be decarbonised by the end of the decade, as Labour has set out?

O’Neill chooses her words carefully: “All of our focus to date has been on 2035. If 2030 emerges as a question that we’re asked to take a view on, then obviously we would go away and look at what you would need to believe for that to be possible. But our focus to date has been on the committed 2035 targets and goals.”

Perhaps appropriately it’s very much a politician’s answer. But while in this instance the question was deliberately mischievous, in future it will be asked more earnestly. How NESO responds in course, and whether that reply is acted on, will be an important test of whether it has lived up to O’Neill’s vision.

This article first appeared in Utility Week’s Digital Weekly edition. To read the issue in full, click here.