The government has set out details of the planned new Future System Operator (FSO) that will undertake day-to-day operation of the electricity system operator and have a beefed up role in planning the electricity system and facilitating competition. It also wants the FSO to be responsible for long-term planning, forecasting and market strategy for the gas National Transmission System, as well as coordinating and giving advice on rulemaking responsibilities. The government does not favour giving the FSO day to day operational responsibility for the gas network.
Primary legislation will be required to set up the organisation – most likely a public corporation with operational independence – and it is expected to take around two years with the new body in operation in or by 2024.
Although the new organisation will have some responsibilities for security of supply in both the electricity and gas sectors, it is not expected to own and operate generation assets of its own; instead it is expected to facilitate market solutions to these issues.
The government thinks it will cost £50-140 million to set up the new organisation. But it thinks that an FSO with a “whole system” view could reduce the future costs of the electricity system by 1-5% – up to £2.5 billion across generation, network development and system balancing – though it admits “this is highly uncertain”. The saving arises from less potential for perceived conflicts of interest in network development and more co-ordination of investment decisions, across electricity and other energy vectors. That includes increased gas forecasting and planning functions, and including natural gas and hydrogen in the ‘whole system’ approach, expected to result in cost reductions across the energy system of between £80- 600 million.
It thinks it will improve network competition, bringing in third parties to provide planned assets, by 25-50%, which BEIS thinks could save £80-300 million.
this will affect the current electricity and gas system operators, owned by National Grid, because the FSO would be founded on some of the existing roles and capabilities within these organisations and will involve a transfer of ownership
BEIS says the FSO could take on other responsibilities over time, naming distribution system operation as well as data, heat, transport, hydrogen and carbon capture usage and storage (CCUS) as potentially within its scope. It says it will continue to review the FSO’s role in relation to these areas as the policy develops.
The advent of the FSO will also dramatically affect settlements body Elexon, whose shares are owned by the current system operator. BEIS said it would review the ownership of Elexon and consult on it.
The document also signals new responsibilities for the regulator Ofgem, as government also wants to make management of the GB energy codes – the rules for different parts of the market – more effective, so it has announced plans to give regulator
Ofgem a new strategic functions for codes, including the ability to establish and regulate (by licence) code managers.
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