Ofgem prepares for system operator overhaul

Regulator Ofgem has launched a consultation on system operator (SO) incentives for the interim period between the end of the current framework and a “fundamental review” of the SO role.

Ofgem is proposing to largely continue the current framework from 1 April 2017 until the review in 2018 but make changes to the balancing services incentives scheme and the incentive on costs for Black Start services.

It is also proposing not to extend the model development licence condition, but would add in three new incentives for short term demand forecasting, transparency and openness of balancing services procurement, and an SO-TO funding mechanism.

Ofgem said: “While we believe the current approach to setting a financial target for balancing costs may not be working as well as it could be, we consider there is evidence that this approach would still drive overall savings to consumers in the short term.”

SO National Grid balances the electricity system in real time to ensure a safe and reliable supply at a cost of around £850 million a year, adding £9 to consumer bills.

Last year the government said there is a case for greater independence of the SO role to avoid conflicts of interest with National Grid’s other businesses, such as the owner of interconnectors.

Ofgem said now is the “right time” to fundamentally review SO incentives to ensure they reflect future challenges in the electricity system, and reflect any changes made to the SO role.

It said it is engaging with the government on the future of the SO and expects there to be “greater clarity on its thinking soon.” It will issue a consultation on longer term SO incentives once this has happened.

It expects to have implemented the findings of the review by spring/summer 2018.