A new fully independent system operator is being launched by the government, to help shape the future energy system and facilitate competition.
The Future System Operator (FSO) will be a public body built on the capabilities of National Grid Electricity System Operator (ESO) as well as, where appropriate, National Grid Gas.
It will balance the UK’s electrical systems, working together with energy suppliers and networks to ensure energy resilience and security, the government said. Additionally, it will provide strategic oversight of longer-term planning of the gas system.
“A fully independent system operator will help to transform Great Britain’s energy system and cut customers’ energy bills. Critically, the FSO will ensure that we will build a smart, efficient and flexible system that will mean that Britain moves to a secure low carbon and low-cost system,” said Jonathan Brearley, chief executive of Ofgem.
“We look forward to working with National Grid, government and the wider industry to implement this important change in the way the energy system is managed.”
The creation of the FSO follows Ofgem calling for an independent system as part of a review of Britain’s energy system’s operation in January 2021. This suggested that there was a potential conflict of interest given the transmission network owner’s links to National Grid ESO, which could lead to bias in its role.
In response, the government launched a consultation in July 2021, which outlined two potential models for a new system operator; one to set it up as a standalone privately owned model, independent of energy sector interests, and the second to set it up as a highly independent corporate body model classified as within the public sector.
The newly created, standalone FSO will take a whole-system approach to coordinating and planning the electricity network, as well as emerging markets like carbon, capture, usage and storage and offshore wind networks. Additionally it will provide independent advice and technical input to the government and Ofgem, helping to inform strategic policy decisions.
“We warmly welcome today’s announcement that the ESO will be at the heart of the system operator of the future. Building on our track record and skills as a world leading system operator, together with industry and government and regulators we will help deliver an affordable, reliable and clean transition for all,” said Fintan Slye, executive director at the ESO, adding that the operator will continue to work closely with involved partners to enable a smooth transition.
As well as the creation of the FSO, a number of Ofgem’s strategic code functions focused on overseeing energy companies’ governance have been expanded in response to the consultation.
These include Ofgem being required to publish an annual strategic direction for how codes are expected to evolve over the year, having the ability to change the codes directly in a limited range of circumstances, having the power to select and license a code manager, and having the power to issue directions to in-scope central system delivery bodies.
The establishment of the FSO comes ahead of the energy security strategy, which Prime Minister Boris Johnson is expected to release this week, which will provide further detail on supporting Britain’s energy independence.
“Russia’s appalling aggression in Ukraine amid escalating global gas prices has shown the vital importance of strategic change to the UK energy system. We need to boost our energy resilience, reduce our dependence on expensive imports and slash emissions. The FSO will do just that,” added energy minister Greg Hands.