In our last blog, we outlined the three key support pillars required to enable flexibility markets to scale and unlock a faster, lower cost Net Zero. In this blog, we dig into pillar one: an entity with a “whole-system” mandate.
This entity has the scope to play a key role in unlocking new markets and volume in flexibility. Not only that, it can unlock competition everywhere: within markets, and also between market platforms themselves.
The case for an entity with a whole-system mandate
Financial markets are highly effective at solving for optimal resource allocation at the lowest possible price. But, in energy, other vectors and trade-offs need to be managed too, such as:
- National supply/demand balancing requirements vs. local congestion management
- Long-term vs. short-term system needs
- Regional development and connection priorities
- Gas vs. electricity
- Security of supply (insurance) vs. cost
In the UK, the “Future System Operator”, or FSO, embodies this whole-system role. This is the working title of the newly independent National Grid System Operator role across electricity and gas.
However, it’s also fast becoming a catch-all phrase for everyone’s favourite and/or most urgent reforms wish list. This is dangerous. On top of broad strategic responsibilities, the industry needs to task the FSO with clear, deliverable, and near-term objectives – not just strategic oversight and governance.
The Future System Operator role has universal appeal
A whole-system mandate is not a UK-only need. Versions of this thinking are underway in every renewable-led, Net Zero economy.
Audrey Zibelman – Energy Transition Advisor with 30 years’ experience across the Australian and American energy markets – has recently spoken on how the industry is missing that aligning body to encourage “total system planning” around supply and demand.
“We’re really re-engineering the power system, and we need to be thinking about how all the pieces are going to be put in place,” she says in the Energy Transition Show with Chris Nelder.
Bringing the Future System Operator to life today
Last week, I attended the quasi-launch event for the new FSO, amidst the glory of the former control room at Battersea Power Station. The restructure is live, and the FSO role is going ahead. It’s not just a “Future” operator. It’s a series of new responsibilities today.
So, onto the increased network planning and markets responsibilities. The FSO has a key and urgent role to play in expanding activity and effectiveness in flexibility markets with its expected “neutral market facilitation” mandate. It will:
- Reduce fragmentation of flexibility market requirements and processes. This sits within ESO markets and services themselves and extends into distribution-level markets.
- Enable stacking of multiple revenue streams across these multiple markets. This will make the business case for flexibility more compelling – and hasten adoption of new flexible assets.
The FSO must also use its proximity to government to be part of the solution for smoothing flows of settlement data and payments through the system. And it must accomplish the above functions with the highest possible levels of operational transparency and accountability to the industry.
But the FSO is not a panacea, nor is it sufficient in itself
Over time, the FSO should develop expertise and insight into regional and local planning priorities. However, this will not happen on day one. Nor will the FSO have capabilities in managing distribution-level flexibility markets, particularly in response to nearer real-time network needs.
There is still a key role for regional Distribution System Operators (DSOs) to ratify the design of flexibility products and services. At the same time, they’ll need to keep the ability to trial and adopt new approaches to local flexibility markets. In the future, this role might also be extended to local and community-level officials.
The next steps
The FSO is therefore needed to enforce and hasten uniformity where needed (asset<>market qualifications and data transfers, deadlines and time windows, primacy, and exclusivity requirements).
However, it shouldn’t mandate a single market platform or technology provider. It is positive – and desirable – that distribution-level flexibility markets are still evolving rapidly. Indeed, they will need to continue to do so as more variable generation; flexible, clean technologies; and grid monitoring, control and prediction tools are adopted.
Instead, the FSO should promote a systems architecture that enables an open ecosystem of competitive, evolving third-party platforms and services to thrive.
We’ll explore this concept and its role in the future of energy flexibility in the next article in this blog series.
