There is no ‘El Dorado’ in the energy industry

The founder of Flexitricity has urged caution when it comes to making changes to the organisation of electricity networks, warning “there is no El Dorado in this industry – there is no perfect solution”.

Alistair Martin, who is also chief strategy officer for the aggregator, made the comments whilst praising UK Power Network (UKPN)’s proposals to establish an independent distribution system operator (DSO) that is legally separate from the rest of the company as part of its business plan for the RIIO ED2 price controls.

The distribution network operator (DNO) said this would include an independent supervisory board that would produce an annual report highlighting any conflicting decisions between the DNO and DSO.

“The independence of system operation from asset ownership is clearly important in distribution and UKPN has recognised that with what they’ve proposed in their RIIO ED2 business plans,” said Martin.

“This model gives commercial providers of services the best possible chance to compete openly in transparent competition with everybody else to provide the services that a distribution system operator needs to meet the requirements of operating that system.

“And it means that we will never wonder if we were improperly passed over as a potential resource in favour of a wires-based solution or something done by the network owner.”

Last year, Ofgem proposed transforming the Electricity System Operator (ESO) for the transmission network into a fully independent Future System Operator (FSO) following its legal separation from National Grid Electricity Transmission in 2019.

When asked whether a similar separation may be required at the distribution level as proposed by University of Oxford professor Dieter Helm in his cost of energy review in 2017, Martin said: “If you haven’t tried the kind of separation that UKPN has proposed, then how do you know whether or not you need to go further than that?

“There’s no need to say to the market that even UKPN’s proposal is not enough; let’s go straight to end game. I don’t see the need for that.”

He also questioned whether the full separation of the ESO from National Grid is actually necessary, stating: “I think the FSO model has merit but I don’t know that it was absolutely essential. We think there’s probably a lot that we could have achieved with the ESO. We had absolutely not reached the end of the road with the ESO when the FSO model was proposed.”

More generally, Martin argued against making radical transformations to such organisations unless they are clearly broken: “The advantage of not changing something like that is that the people in the organisation are able to get on with the job of doing the things that matter rather than disappearing into their business transformation siloes for months.”

“I’m never in favour of ripping it up and starting again in these situations unless there’s compelling evidence. We don’t have that.”

He continued: “What you end up with when you have people who reimagine the entire system with plans and proposals that are drawn in the abstract; you implement their model, you end up with flaws, and then you have to go back over and deal with those flaws, and the new flaws, and the new flaws, and you have three or four cycles before you feel that you’ve arrived somewhere.”

Martin said the focus should instead be on improving the existing model on the grounds that “there is no ‘El Dorado’ in this industry – there is no perfect solution”.

He added: “Every radical transformation will be followed by a long period of detail that has to be gone through and while you’re going through that detail and fixing the bits that aren’t quite right, someone else will come along and say, ‘rip it up and start again,’ again.”