Labour shadow energy minister Alan Whitehead has backed Ofgem’s proposals to fully separate the Electricity System Operator (ESO) from National Grid, describing the move as “absolutely essential”.
He said the Independent System Operator (ISO) proposed by Ofgem should also combine the system operator for gas, something which the regulator revealed it is considering following its recent review of energy system operation in Great Britain.
“The full separation of the system operator function from the company function of National Grid is something I’ve been urging for a very long time,” Whitehead told Utility Week, arguing there are “basic” conflicts of interest between the two. Although he does not believe that National Grid has ever really taken advantage of its position, he said “there always was the danger that could happen”.
“Separating the two out, I always thought, was absolutely essential,” he added. “Obviously, there was the partial legal separation but still under the same company umbrella a little while ago. But Ofgem’s proposals which set up an entirely independent system operator which has specified functions in relation to the system and is seen to be entirely independent, and indeed operates entirely independently, I think is the right move.”
With regards to Ofgem’s suggestion that the ISO could also pick up some or all of the system operator functions for gas, Whitehead said: “It seems to they’ve got a very clear line as far an independent Electricity System Operator is concerned but less clarity on gas and I think we need to move down that path as well.”
He continued: “I think that should happen and I think particularly that should happen because of the increasing convergence of how we are going to be dealing with different elements of energy system management in the future.”
He said it is “completely logical that the two should go together in terms of system operation so you can get a much greater integration of how the system works.”
Ofgem said creating an ISO and thereby removing conflicts of interest would allow the body to take on an expanded role, including acting as a system architect and providing advice to government to how to meet the target of reducing greenhouse gas emissions to net zero by 2050.
Whitehead welcomed the direction of travel, stating that the energy system needs “a much greater degree of coordination and planning and strategic overview than we’ve got at the moment.
“One of the problems we’ve got is that there is no strategic overview. We’ve actually got a system working offshore as far as the grid’s concerned that is quite different from the onshore system and creates tremendous problems for the offshore system”.
“That’s one of the things that we need – much greater strategic planning oversight and a much better of understanding of how all these things work together.”
But he also said meeting the net zero target will require “either an Independent System Operator that has a substantially greater remit even than that which is envisioned by Ofgem but also has a remit for the energy system as a whole, or – and I think this is a preferable route – have a National Energy Agency which is able to pull together all of those different elements of strategic planning and oversight and system architecture and within that having an Independent System Operator which looks after all those concerns of how the system actually functions.”
“Obviously, as we know from the huge number of things that are being discussed and consulted on at the moment, there’s a huge new agenda which needs to be properly overseen and sorted out in a way that I don’t think is very easily possible at the moment,” he added.
In a paper published before the last general election in 2019, the Labour party called for both transmission and distribution networks to be taken into public ownership. It said the transmission network should be owned and operated by a National Energy Agency, whilst a series of regional energy agencies – one for each of the 14 current license areas – should do the same at the distribution level.
Whitehead said Ofgem’s recent proposals are “not too far distant” from Labour’s: “We think that the thrust and principle of what Ofgem is saying now and indeed how the debate is going in terms of how we strategically plan and manage the system are very much going in the way of what we said before the last election.”
He said the regulator should now apply the same thinking to distribution networks: “The principle of separation is no different than that of National Grid. It’s just the voltage levels that are different.”
Ofgem has additionally suggested that the ISO could perform the strategic oversight function proposed as part of its joint review of energy code governance conducted in partnership with the Department for Business, Energy and Industrial Strategy (BEIS) in 2019.
Whilst noting that “what Ofgem is saying is a little tentative in that respect”, Whitehead said he agrees with the idea in principle: “With code management, for example, we’ve got a number of different bodies… some of which are private companies, some of which are not-for-profits, and they’re quite often cannibalising each other’s areas so to actually get some strategic sense into code governance is absolutely right”.
“Again, it seems absolutely imperative as we move forward onto the different energy landscape, that code governance is going alongside it and not holding things up. That’s one of the big issues in governance at the moment,” he remarked.
Responding to the energy white paper published in December, in which BEIS promised to review energy system institutions and governance, Whitehead said: “We’re to some extent reliant on the huge number of consultations and discussions and strategy documents that the government has announced are going to be put forward between now and 2022. And that’s actually the essential part of the success of the white paper vision.
“Are we going to have consultations focusing on doing things or are those consultations going to be consultations about consultations and we’ll simply kick the can down the road? They need to be action consultations, that is, with a very clear minded line to proceed and the consultations are about the detail of the line rather than the line itself.”
“That’s one of the essential weaknesses of the white paper – that we just don’t know what these consultations are going to look like. We’ve merely got statements that these are going to happen.”