At the ESO, we play a central role in developing electricity markets and the way they operate as GB decarbonises.
Our ambition is to see competition for the benefit of consumers. At the ESO, we’re working to remove barriers to entry and improve access to real-time electricity markets.
We’re enabling different businesses – small and large – to participate and compete, meeting the needs of consumers today while preparing for GB’s decarbonised system of tomorrow. Our Markets team is also developing new products, systems and industry codes to help us efficiently operate the system, maintain security of supply and deliver the best outcome for GB consumers.
With over 200 ESO colleagues working across Markets, we have a range of expertise as outlined below.
Our Market Services team supports the wider electricity industry, leading on the procurement and financial settlement of the balancing services we use in the Electricity National Control Centre (ENCC).
This team is responsible for the ESO’s code secretariat function, administering the Connection and Use of System Code (CUSC), Grid Code, System Operator Transmission Owner Code (STC) and Security and Quality of Standard Supply (SQSS). They also run our Charging Futures Forum.
Additionally, our Market Services team undertakes tariff setting activity and recovers network charges – including TNUoS, BSUoS, AAHEDC and Connections Charges – on behalf of industry.
The ESO’s Market Development team analyses the ongoing suitability of current GB, ESO and cross-border electricity markets in the context of operating a net zero system. With four workstreams within Market Development, this team engages stakeholders to understand the evolving energy landscape to make sure that we’re equipped to develop markets and frameworks over time.
Electricity Market Development
The Electricity Market Development workstream is responsible for developing future directions for the ESO’s balancing services markets and answering key strategic market reform questions.
This team produces our annual Markets Roadmap, where we provide a transparent view of the market reforms we are introducing. As outlined in the Roadmap, this workstream owns and applies the Market Design Objectives and Principles to the existing and future reforms of the ESO’s balancing services markets. This ensures that we’re designing markets in a robust, comprehensive and transparent way.
Additionally, this workstream is exploring potential enduring and optimal market design options to procure stability services. This work is part of our Stability Market Design innovation project.
The Market strategy workstream looks at GB’s longer term energy markets.
In particular, this group runs the ESO’s Net Zero Market Reform programme. This project was established in early 2021 to holistically examine the changes to current GB electricity market design required to achieve net zero.
Most recently, this team published their Net Zero Market Reform Phase 3 assessment and conclusions. This report explores the reasons why reform is required for GB’s electricity market design, outlining nodal pricing as a solution to reduce consumer costs on the path to net zero.
Cross-border and EU
The Cross-Border and EU workstream develops and manages the relationship with the ESO's European counterparts following the withdrawal of the UK from the EU.
It is also responsible for analysing the medium- to long-term evolution of cross-border activities as the energy system transitions to net zero both in the UK and in Europe.
Distributed Flexibility Strategy
Our Distributed Flexibility Strategy workstream is responsible for developing the ESO's mid- to long-term strategy to facilitate the growth of distributed flexibility via ESO markets, our coordination with Distributed System Operation (DSO) markets and wider policy development.
Our Market Change Delivery team develops a range of products and services that allow the ESO to operate a safe, secure net zero electricity system at the lowest cost to consumers. To meet these goals, they reform markets that facilitate participation from a wide range of market participants.
This team is responsible for balancing services reform. They lead response and reserve reform, including the development of new, day ahead procurement markets. They’re also developing new markets for stability and voltage services to help address emerging operability challenges.
The Market Change Delivery team delivers Pathfinder procurement events to find innovative new ways to operate the electricity system of today and tomorrow, and keep costs down for consumers.
They design and implement new systems and ways of working to make it easier to work with the ESO and participate in our markets, such as the Single Markets Platform and a new auction capability.
This team leads and delivers all of this change in partnership with industry through consultation and co-creation. The Market Change Delivery team facilitates the Power Responsive Programme to stimulate increased participation in different forms of flexible technology, such as Demand Side Response (DSR) and storage.
The ESO’s Code Change Delivery team works across GB’s technical and commercial codes, charging arrangements and cross-border frameworks. Their work enables more efficient markets and optimal consumer benefit on GB’s journey to a decarbonised electricity system.
This team works closely with the ESO’s customers and stakeholders through the open governance process for industry codes, as well as various industry work groups and governance functions.
Our Market Requirements team plays a critical role in supporting market development, design and delivery activities, working closely with the ESO’s Networks and National Control teams to support ESO ambitions to enable zero carbon system operation and competition for the benefit of consumers. The team also leads the technical design for our frequency services, enabling the delivery of our response and reserve reform commitments as part of our business plan.
They procure the ESO’s balancing services and lead on our Frequency Risk and Control Policy. Together, this work enables the identification and generation of £100s millions of consumer value each year.
The team also delivers mitigations to manage emerging system risks. This ensures that the ESO’s Electricity National Control Centre (ENCC) has the best tools to balance the supply and demand of electricity second by second in the most efficient, cost-effective way.
This involves creating models and conducting complex risk analysis with a core focus on generation supply, demands and margin; frequency risks and controls; and assessment of electricity balancing services. This results in insights to inform and support engagement with stakeholders at all levels across government, regulator and industry.
Our EMR Delivery Body team is responsible for the ESO’s Electricity Market Reform (EMR) programme of work. EMR aims to deliver low-carbon energy supplies while maintaining security of supply and minimising consumer costs. EMR includes two key mechanisms – the Capacity Market (CM) and Contracts for Difference (CfD) – that each provide incentives for the investment required for energy infrastructure.
The CM is one of the ESO’s key policies. It aims to makes sure that the future security of GB’s electricity supply comes at the lowest cost to consumers. It does this by providing regular retainer payments to reliable forms of capacity in return for such capacity being available when the system is tight.
Meanwhile, CfD is one of the key mechanisms implemented by UK government as part of EMR. It provides long-term price stabilisation to low-carbon plant, allowing investment to come forward at a lower cost of capital – and therefore a lower cost to consumers. CfD has a critical role to play in supporting our market development, design and delivery activities.
This team works closely with external customers and stakeholders through open governance process for industry codes as well as various industry work groups and governance functions.
The EMR Modelling team provides modelling expertise to government on security of supply, or how much electricity capacity – including generation, storage and interconnection with other countries – is needed to meet demand. They work to horizons that are one to five years ahead, with increasingly complex modelling reflecting GB’s transition to a net zero electricity system.
This team makes recommendations to government on how much electricity capacity to procure in the Capacity Market, which is the Government’s main policy mechanism for securing reliable electricity capacity. The Capacity Market ensures the legislated Reliability Standard of loss of load expectation (LOLE) to not exceed three hours per year.
Did you know?
Our EMR Modelling team provides recommendations for auction parameters in both one-year ahead (T-1) and four-years ahead (T-4) Capacity Market auctions.
The total cost of the Capacity Market auctions that took place in February-March 2022 for delivery in 2022-23 (T-1) and 2025-26 (T-4) was £1.7 billion – showing the significance of this market.
Additionally, this team models technology de-rating factors. These de-rating factors measure how different technologies contribute to security of supply and are used to determine Capacity Market payments to market participants. The EMR Modelling team provides annual recommendations and supporting modelling in the ESO’s annual Electricity Capacity Report. They then recommend updates to auction parameters (as required) as part of the Demand Curve Adjustment process following prequalification for the Capacity Market.
The EMR Modelling team also provides modelling expertise for the ESO’s Winter Outlook report. This report provides government and industry stakeholders insights into electricity security of supply for the winter ahead. As part of this report, the EMR Modelling team models the margins between electricity supply and demand over the winter period and forecasts whether the system will be within the Reliability Standard.
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