The Electricity System Operator Who we are and what we do September 2018 CONFICONFIDNEITA

Transcription

1 The Electricity System Operator Who we are and what we do September 2018 CONFICONFIDNEITA

2 Who we are As the Electricity System Operator (ESO), we operate the National Electricity Transmission System in Great Britain. We ensure that Great Britain s homes and businesses have access to the electricity they need by balancing supply and demand managing the network minute-by-minute. We facilitate the connection of assets to the transmission system and changes to the market frameworks to accommodate new technologies and ways of working. We also work with our customers and stakeholders to shape the future of the energy market, providing analysis and insight into the changing technological and policy landscape. System Operator Mission Round the clock, we keep the lights on and the gas flowing for GB energy consumers; we play an essential role in enabling the transition to a more sustainable future Therefore, we believe that: - We deliver value for consumers first and foremost, while also ensuring that we build and maintain trusted partnerships with our customers and stakeholders - We influence the energy debate positively with our independent perspective - Through using markets, data and networks in new ways across gas and electricity, we help move GB towards a more reliable, affordable and sustainable energy world - An incentivised for profit model ensures we deliver the best long term outcomes for consumers, society and the GB economy This document describes our current role as Great Britain s Electricity System Operator - explaining what we do, how we are currently regulated and how the regulatory landscape is changing. Our role is described in accordance with the roles and principles as set out in our Forward Plan 1. 1 Our ESO Forward Plan can be found here: The Electricity System Operator September

3 What we do [Principle 2] We aim to ensure that consumer energy needs are met by helping to achieve % network reliability [Principle 1] 430 organisations involved in the development of our Future Energy Scenarios 2018 Managing System Balancing and Operability Our society today relies on a safe, reliable and secure electricity system and the GB transmission system is among the most reliable in the world. The Electricity National Control Centre (ENCC) is a 24/7 operation. It is responsible for the minute-by-minute balancing of demand and generation, and ensuring that power flows across the network safely and reliably, so that the electricity system stays within carefully set parameters. A team of specialist engineers is on shift at all times to maintain system frequency and voltage so that supplies across GB are not interrupted. They must manage the risk of any unforeseen events such as a generator dropping off the network unexpectedly or a change in weather that leads to a change in anticipated electricity demand. We have a number of support teams that facilitate the functioning of the control centre, for example operating and maintaining a number of complex IS systems that support control centre operations. As the GB energy system becomes more interconnected with European systems, we are also required to align our systems with European code requirements and with the operations of our European counterparts. We have operational, commercial and network planning teams to ensure that we optimise the use of the system not only on-the-day in the control centre but also to identify forthcoming challenges and how those will be met in the future. We must continually assess the risks to the power flows across the network versus the costs of taking action to manage those risks on behalf of consumers. We undertake energy forecasting, for example wind generation and demand, for the purposes of managing the system, but also provide forecasts for market participants to help them balance their own generation with demand. The less action that we as the ESO have to take to balance the system, the lower the cost to consumers, so there is real value placed against the accuracy and timeliness of the information we publish. We help Government, our customers and other stakeholders make informed decisions on a longer-term basis through the publication of our Future Energy Scenarios (FES), which present a range of plausible and credible pathways for the future of energy, from today out to Commercial arrangements to support system balancing We work with the market to ensure we have the commercial tools available to support system balancing. One such tool is energy trading where we can agree with market participants to provide more energy to or reduce energy on the system, which we subsequently report to the market to support decision making. The Electricity System Operator September

4 Facilitating Competitive Markets There are a number of areas where we facilitate competition in large complex markets: Since 2011, the number of balancing services providers has risen by 70% [Principle 3] [Principle 4] We manage the cash flow risk associated with ~ 3.7bn of system charges Balancing Services Balancing services are another tool we can use to operate the system. To promote competition in balancing services markets, we publish our operational requirements to the market, run tenders and then publish the outcomes of those tenders in order to support new and existing service providers to participate in subsequent tender rounds. We manage contract settlement upon deployment of these services by the control centre and report monthly to the market on their usage. In order to drive cost efficiency, we continually review and develop our balancing services products and markets and support new players by removing barriers to entry. This ultimately increases value for consumers. For example, we facilitate a stakeholder-led programme called Power Responsive 2 to stimulate increased participation in the different forms of flexible technology such as Demand Side Response and storage. One thousand-five hundred organisations have signed up through this programme. Industry Frameworks We also promote competition through our role as the administrator for a number of industry codes and frameworks, namely the Connection and Use of System Code (CUSC), the Grid Code and the System Operator / Transmission Operator Code (STC). We ensure that the rules of participation and the commercial arrangements for using the system are clear and fair. As energy markets across Europe become more interconnected, we are helping to deliver eight new codes and standards here in Great Britain and the rest of Europe. This helps to assure security of supply and means that consumers can access cost-effective energy. System Charges System charges and the methodologies surrounding them are set out in industry codes and we keep charging arrangements under review to ensure they are fit for purpose. We forecast, set and collect Transmission Network Use of System (TNUoS) and Balancing Services Use of System (BSUoS) charges which amount to around 2.7bn and 1bn respectively per annum. Once collected, TNUoS charges are re-distributed to the onshore and offshore Transmission Owners for their revenue recovery. We are therefore required to manage cash flows associated with charges that are many times larger than the ESO s own revenue stream. Electricity Market Reform (EMR) As the EMR Delivery Body we use our modelling expertise to advise the government on security of energy supply in GB. Any inaccuracies 2 Find out more about the Power Responsive Programme here: The Electricity System Operator September

5 in our modelling, and therefore the level of capacity procured, could have serious consequences for security of supply. Our Delivery Body role also includes administering the: Capacity Market - a competitive auction process where potential providers secure the right to receive capacity payments in return for delivering energy at times of system stress; and Contracts for Difference these incentivise investment in new lowcarbon generation technology by providing greater long-term certainty and stability of revenues. [Principle 5] [Principle 6] [Principle 5] Facilitating Whole System Outcomes A robust network is fundamental to secure energy supplies today and in the future. Our network planning teams analyse and model the system across different time horizons and co-ordinate with the many interfaces of the network to ensure reliable and safe operation e.g. liaising with Distribution or Transmission Network Owners about an outage or the maintenance of a transmission asset. We also facilitate the connection of new energy sources and demand to the network - including generators, storage providers and interconnectors - via the connection application and contracting process, again interfacing with both Transmission and Distribution Network Owners. We facilitate longer-term transmission network investment planning and development by collating and modelling system data in order to identify and publish future transmission system needs. This work, which is underpinned by our FES analysis, results in the production of our Electricity Ten Year Statement (ETYS) and the Network Options Assessment (NOA), which look at the long-term requirements of the network and make recommendations as to how to efficiently meet those requirements. Our expert analysis 3 enables us to leverage additional value and synergies as we are also able to identify future system operability challenges. Market participants and stakeholders are informed of these future challenges in our System Operability Framework (SOF) publication to enable a collaborative approach to solving them. 3 All of our analysis is available on our website and can be found here: The Electricity System Operator September

6 [Principle 7] Supporting Competition in Networks Our FES work supports the management of huge future uncertainty and decision making on investment in large network infrastructure projects. Through the NOA process we use economic models to undertake a cost-benefit analysis of delivering projects against the cost to manage the network if those reinforcements were not in place. We then recommend investment options and the timing of those options to the Transmission Owners, enabling them to manage investment delivery risk when ultimately deciding which option to take. Each year we revisit the analysis such that we can recommend whether current build projects should continue or be delayed, or even stopped altogether, in order to deliver the greatest consumer benefit. Of the projects we identify to proceed we set out which ones meet the criteria for competitive delivery. Figure 1- The ESO Roles and Principles from our Forward Plan 4 4 We are reviewing these to ensure that they encompass everything that we do. The Electricity System Operator September

7 How we are regulated today The framework currently used by Ofgem to regulate gas and electricity network companies in Great Britain is called RIIO: Revenue = Incentives + Innovation + Outputs. The ESO is presently funded through the RIIO-1 price control as a joint entity with the England & Wales electricity transmission owner, under the National Grid Electricity Transmission (NGET) licence. Our operating costs and the costs of balancing the electricity system are ultimately passed on to consumers in their electricity bills. Through the RIIO-1 regulatory framework, Ofgem sets the amount we are allowed to recover from customers to run our business, with any overspend or underspend shared between the ESO and consumers. Through greater efficiencies and finding a better way, we underspent by 19.4m over the first four years of RIIO-1 (April 2013 March 2017), providing 10m savings for consumers 5. In 2016/17 the cost of the ESO for domestic consumers was approximately 1 of the average annual household electricity bill (or 0.2%). In addition, the cost of balancing the system, which we manage and pass through to our customers via Balancing Services Use of System (BSUoS) charges, was 7 on average per household (1.3%). Figure 2 The ESO cost within the average annual domestic electricity bill (*numbers applicable to 2016/17) 5 For every pound that we save, 53p of the benefit is passed on to end consumers through lower network charges. The Electricity System Operator September

8 We saved consumers 500m by reducing balancing costs between 2013 and 2017 For the first four years of the RIIO-1 period ( ) we were financially incentivised to reduce the costs of balancing the system on behalf of consumers through the Balancing Services Incentives Scheme (BSIS). We are not subject to the same competitive pressures as other businesses, so in order to produce economic and efficient outcomes that would normally be driven by greater competition, financial incentives can be used effectively to replicate market forces. Well-designed financial incentives have a key role to play in aligning our interests with those of consumers, driving innovation and investment. As a result of our actions to reduce the cost of balancing the system against the target cost for each year through the BSIS, we saved consumers 500m 6 during RIIO-1 ( ). 6 Our annual performance summaries for the RIIO-1 period can be found at: Performance.aspx The Electricity System Operator September

9 How the regulatory framework is changing The Electricity System Operator will legally separate from the England and Wales electricity transmission owner in April We will remain within the National Grid Group but as a separate legal entity with our own licence. The current RIIO-1 funding arrangements will continue to apply throughout the RIIO-1 period with the next (RIIO-2) price control beginning on 1 April Ofgem has set out in its RIIO-2 Framework Decision Document 7 that the ESO, for the first time, will have its own price control under RIIO-2. This presents an exciting opportunity to develop a regulatory framework that is tailored to the ESO, as an asset-light, services business. Following legal separation, the ESO will be a different type of company: a unique enabling business that provides specialist services; manages significant risk; delivers, and allows others to deliver, real value for consumers across the energy system. We have a critical role to play in facilitating the transition to a more decentralised, low carbon electricity industry model, while ensuring minimal disruption and cost for our customers and for energy consumers. We will continue to facilitate competition in markets and support new market entrants on this path to decarbonising the economy. In doing this it will be important to think more holistically to achieve whole energy system outcomes, for example through more aligned incentives across industry entities. We therefore require a regulatory framework for RIIO-2 that will maximise the opportunity for the ESO to facilitate the decarbonisation of the energy system and ensure security of supply in the most affordable manner. From now until RIIO-2 begins, we have a new holistic incentive framework in place which covers all aspects of our role as described in this document. Under this framework we publish a Forward Plan that sets out the activities and outputs we intend to deliver, and our performance against that plan will determine a reward or penalty of up to ± 30m per year. This approach marks a step change in the levels of transparency, engagement and accountability from the previous incentive approach. Ofgem will make a decision on the ESO s regulatory framework for RIIO-2 in 2019, which will include our funding model and incentives framework. We are exploring options with stakeholders and discussing these with Ofgem to help inform their decision. Join us on this journey We are continuing to engage with our stakeholders to develop the first price control for a legally separate Electricity System Operator. We very much hope you will continue to work with us to develop our plans. If you Box.ESO.RIIO2@nationalgrid.com would like to get involved, please get in touch via or through our website. Visit our RIIO-2 website: yourenergyfuture.nationalgrid.com 7 2_july_decision_document_final_ pdf The Electricity System Operator September

10 nationalgrideso.com Faraday House, Warwick Technology Park, Gallows Hill, Warwick, CV346DA The Electricity System Operator September