Enabling Britain’s Clean Energy Future
22 Mar 2022 - 10 minute read
You have heard throughout the day about the critical market reforms and the plans that we are developing – together with industry and Government – to realise net zero in a fair, cost-effective way.
But I want to take a step back.
Watch Supporting Ukraine
The world is in crisis: Russia has invaded a sovereign neighbour and is waging war – something most of us thought we would never see again in Europe.
We are seeing horrific force used against civilians, with scenes in Mariupol and Kharkiv resembling something from a history book or indeed a horror movie.
I spent time working in Kyiv in the late 1990s, and to see these cities, and their people, subjected to such barbaric siege warfare is almost too much to bear.
I know I speak for everyone here, and the whole industry, when I say: we stand with Ukraine and we will do everything we can to support you.
We are working with government to see what technical support and assistance we can provide to help maintain electricity supplies. We are also working with our international partners, through the Global Power System Transformation Consortium, to explore what help can be marshalled across the global system operator and research community.
We all know the impacts of Russia’s war are being felt beyond Ukraine. And these events are challenging us all to look again at security of supply within the British energy system.
My starting point is that, thanks to the energy transition which started in Britain 20 years ago, we are in fact better placed than many of our neighbours to manage the energy related impacts of this conflict.
The keys to our continued energy security lie in the acceleration of this transition – transforming at pace to a sustainable, affordable and secure energy system for Britain. As the Prime Minister has said, the only way to ensure energy security and keep costs down is if our supply is more secure, more sustainable, and less vulnerable to manipulation by others
Looking at the short term – for the next 12 months – we at the ESO are doing all of the scenario planning that you would expect – assessing what the implications of various permutations of global sanctions or reactions could be. We have sufficient capacity in place today and there is no immediate threat to security of supply. We have also secured adequate supplies through the Capacity Market to ensure security of supply margins are maintained through next winter.
To help ensure a shared view across the market and allow more time to assess various scenarios, I have asked my team to investigate publishing our annual Winter Outlook earlier than normal. We also will continue to utilise our weekly Operational Transparency Forum to keep you updated and informed.
Cost of living
Alongside issues of energy security, the war in Ukraine is also impacting wholesale energy prices, compounding the existing cost of living crisis.
We are acutely aware that market analysts this month have warned that the current rise in wholesale gas prices may mean significant further increases in the price cap and overall energy bills for homes and businesses.
This will be very difficult for people up and down the country already struggling to make ends meet and cope with rising prices.
Small businesses which have worked hard to survive the pandemic are also now facing significant increases in their energy bills. And manufacturers are seeing energy drive up costs. While some will be able to hedge against these costs, for others this is a burden they will struggle to bear. And, if maintained, these cost increases in industry will feed back into inflation in consumer prices – placing further burdens on those who are struggling.
In the short term, the ESO will do everything we can to continue to manage the system in a way that minimises costs. As many in this room are aware, we have been reviewing the balancing market and some of the exceptionally high-cost days we saw this winter. We are finalising this review and will publish our initial conclusions over the coming weeks – our focus in this review is on ensuring consumers are well served, and that no one can game the market and drive-up costs for consumers unnecessarily or inappropriately.
Achieving Net Zero remains an imperative
Alongside the real and present issue of energy prices, we also have the urgent need to decarbonise. Climate change is the challenge of our generation and we need to step up and address it. In the UK, we’ve seen the devastating impact of changing weather patterns on our doorstep – from the floods that devastated parts of Yorkshire and the Midlands in 2019 to Storm Arwen just a few months ago. One in one-hundred-year events seem now to happen every 5 years.
And the decarbonisation of our energy system will also help to tackle rising air quality issues and boost health outcomes across the country.
We are making progress – for example, on 29 January this year, we had almost 20GW of wind generation on the system. While recognising that there is more to do, we should be proud of the progress we have made and the fact that Britain is leading the world in many aspects of decarbonising electricity systems.
Need to act and act quickly
However, this is a time when we are seeing three crises at once – a war in Europe with severe impacts on energy security and prices; a cost of living crisis driven in part by energy prices, and a climate crisis which demands immediate action.
There is no doubt we need to accelerate our efforts further if we are going to ensure secure energy supplies over the medium term and meet our Net Zero targets, transitioning our energy system to one that is affordable, more secure and more sustainable.
You can slice and dice the problem many ways – however I wanted to highlight three big questions that we are working on that urgently need to be addressed related to (1) supply and demand (2) networks & systems and (3) markets
Firstly, supply and demand - what is the resource portfolio – across generation, demand and storage we want in the UK to deliver 100% clean electricity in 2035 that is secure and affordable. How will we define security of supply and what role will storage – of all durations and technologies – play, how will we engage consumers and how can we ensure it is operable every minute of every day under all conditions.
Second, what networks and systems do we need to have in place to get this clean energy to consumers when its needed – be it from large scale off-shore windfarms or from small embedded solar installations – it all needs to be joined-up and a ‘systems thinking’ approach is increasingly important.
Thirdly, what markets do we need to encourage the right investment and ensure consumer value. Today you have heard the team discuss where our Net Zero Market Reform programme is up to, including our current perspectives on wholesale market design options. Our work and analysis is on-going as we examine options around investment, capacity, flexibility and, importantly, how all the elements come together and we very much look forward to continuing to engage with all of you on all of this over the coming weeks and months.
All of these are big hairy questions and typically involve long lead times for delivery – whether it is wholesale market changes or delivery of new infrastructure – we need to find a way to identify the right solutions and enable new ways of delivery that are quicker and more effective – whether that is anticipatory investment in infrastructure or agile changes to markets and systems – we need a new paradigm, we need to move faster, we need to unlock the innovative spirit of our people to transform the energy landscape for everyone.
Opening up the BM to consumer participation
One area where we should be able to move quicker and faster is around consumer participation in markets. We have recently run trials which have clearly showed the benefits of this – using price signals to encourage domestic consumers to move load to lower price, lower demand, higher renewable periods.
But we still need to do more to unleash the power of consumers and we are committed to delivering on that. One of the biggest blockers to demand side response entering the market that we hear from you, our stakeholders, is that our metering requirements were designed for big power generators not small retail consumers.
We want to open the door to supplier aggregation in the Balancing Market through changing the paradigm. Using probabilistic analysis and techniques such as asynchronous polling we think that suppliers will be able to provide appropriate aggregated real time signals to the ESO and meet regulatory requirements. This will help suppliers to bid aggregated demand into the Balancing Market – removing a key barrier and enabling suppliers to innovate and bring their customers into the market in ways and volumes we have never seen before.
I am committed to ensuring this is driven forward and fast and I have asked the Power Responsive team to convene an industry working group to define the processes and standards that will be needed. But we are not waiting – we are from today taking a revised approach to metering standards that will open the Balancing Market to this aggregation – we will work collaboratively with suppliers to get them up and running, to trial and refine the approach allowing the standards to be informed by the experience and enabling suppliers to build and evolve their consumer propositions based on real live experience.
The ESO is stepping up
But in all of this it is important that we don’t lose sight of the long term.
We are excited by the possibilities opened up in the consultation document last summer about the future of system operation, and we continue to work with Government and Ofgem on this important issue.
As we have been discussing, we need to transform the energy system – we need to do this in a joined-up way while also moving at pace – the challenges are large and hairy – but together, I believe, we can do it. We need to embrace the urgency, be brave and act in society and the country’s interest. Now is the time to step up and take action.
As one of the fastest decarbonising electricity systems in the world we must accelerate, not stall, the good work of the last decade.
At the ESO we want to drive this change – we have a privileged role at the heart of the electricity system, and we recognise and accept that with this comes a responsibility – to lead, to collaborate, to drive forward, to protect consumers, to enable new business models – we want to do all of these; we want to be your trusted partner as Britain continues to lead the world in decarbonisation and the transition to a sustainable energy system.
Delivering economic benefits to Britain
And pursuing this course will not only deliver for Britain a leadership role on the world stage, but it also offers the opportunity to win a huge economic prize.
Hundreds of thousands of green jobs will be created across the country as we deliver the energy transition. We will need design engineers, electrical technicians, installation managers, oceanographers, geophysicists and environmental scientists. High-skilled green jobs, and millions invested in local communities.
The investment needed can turn ‘Global Britain’ into a green energy superpower – advising international partners and exporting our home-grown manufacturing products to the world. By becoming the engine-room of decarbonisation we can lay the groundwork for the green industrial revolution.
In conclusion, my message is simple - this is the time for action – we need to move at pace and reform our energy system – to deliver energy security, to tackle climate change and to protect our people. This is both important and urgent - energy is the lifeblood of society and the economy – we must do this, we must do this right, and we must do this right now.
The ESO is committed to stepping up to play its part. We know we need to accelerate our own transformation – to be more flexible and agile and be your trusted partner - trusted to deliver, trusted because we are open, trusted to work in partnership and trusted to be impartial and I hope that you are seeing changes for the better in how we operate and engage.
Accelerating the transformation of our energy system, ensuring that it is secure, clean, affordable and fair for all, is paramount to the ESO. I look forward to working with the Minister, Government, Ofgem, our consumers and all of you across industry to deliver that future.