‘We don’t have five years to wait for a future system operator’

The government should set up the planned Future System Operator (FSO) as a shadow body, like it did with the Olympics Delivery Agency (ODA), because of the urgency surrounding the transition to net zero, a former chief energy official has urged.

Simon Virley, partner and head of power and utilities at KPMG, expressed concern at a meeting of the House of Lords Industry and Regulators Committee this week about the Department for Business, Energy & Industrial Strategy’s (BEIS) bandwidth for dealing with energy issues.

Giving evidence to the committee’s ongoing inquiry about Ofgem and net zero, he said the now defunct Department of Energy and Climate Change (DECC) had four ministers when he was its director general for energy markets and infrastructure.

“We don’t have anything like that focus of ministers and officials today and the challenge is much greater. Back then were largely focused on the power sector as the first step on transition but now we have to think about whole economy.”

Virley said that this lack of capacity could be remedied if the FSO, which is due to be split out from National Grid, were to become the basis of an expert delivery body with a remit to deliver the clean energy transition.

But, he estimated that it will take five years to set up the new body, including primary and secondary legislation, which was too long to wait given the pressure to decarbonise the UK economy.

“On the current timetable that doesn’t see FSO being up and running until 2026.

“I don’t think we have got five years and would advocate setting it up in shadow form, the precedent is the ODA, and put it on a statutory footing when the first parliamentary opportunity arises.

“This is so urgent we need to get on with this: we need to get a delivery mechanism in place.”

Many of the steps required for the UK to decarbonise, such as the rollout of the hydrogen network and other “monopolistic elements” of the energy system, must be led by the public sector, Virley said: “I don’t see that happening at the pace we need if we are serious about net zero.

“We are not moving at the pace we need if we are serious about meeting our net-zero targets,” he said, adding that Ofgem’s remit was likely to be “smaller” if the new agency was established with a focus on ensuring value for money from delivery of network investments.

Another gap in existing energy policy is future carbon prices, where greater clarity on price signals would enable CCS (carbon capture and storage) development to become “less reliant on public policy”, Virley said: “We definitely should have clearer signals from government about the future trajectory of carbon prices, which will ultimately ensure lower cost delivery.”

The UK’s geography and geology offers “wonderful opportunities” to put develop a net zero system, he said.

However Britain risks losing out in the competition for footloose international investment to overseas countries like China, which Virley pointed out deployed as much renewable generation last year as the UK has achieved in total.

Darryl Murphy, head of infrastructure at Aviva Investors, agreed with Virley that “urgency is critical” in delivering net zero.

“Investors just want clarity on the pathway.”