Energy Security Bill factsheet: Future System Operator
Updated 1 September 2023
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‘A fully independent system operator will help to transform Great Britain’s energy system and cut customers’ energy bills. Critically, the FSO will ensure that we will build a smart, efficient and flexible system that will mean that Britain moves to a secure low carbon and low-cost system. We look forward to working with National Grid, government and the wider industry to implement this important change in the way the energy system is managed.’ – Jonathan Brearley, Chief Executive of Ofgem
Why are we legislating?
All of our energy ambitions - whether on net zero, energy independence, or cost of living - require new technical roles and a body with the remit and expertise to fulfil them. These roles are needed to help plan and shape the electricity and gas systems, drive competition and innovation, and ensure government and Ofgem decisions are based on robust technical advice.
We are therefore legislating to establish a Future System Operator (FSO) with the objectives, duties and powers that meets this critical need.
This new body will bring together the planning for the electricity and gas systems, and potentially systems for new technologies like hydrogen and carbon capture and storage, into a single institution to enhance our ability to transition to a zero-carbon energy system and reduce the costs involved. The FSO will build on the existing capabilities and functions of the Electricity System Operator, managing the electricity system in real time, as well as supporting its future development. It will also be responsible for gas strategic network planning, long-term forecasting and market strategy functions. As a new public body, the FSO will be a trusted and expert institution providing independent advice to government and Ofgem.
How the Bill will achieve this
This Bill will establish the Future System Operator (known in the Bill as the Independent System Operator or ISOP), an independent, first of a kind body, acting as a trusted voice at the heart of the energy sector.
The Bill provides for transfer scheme in order to ensure that existing capabilities and functions of NGESO and, where appropriate, National Grid Gas, carried out by other entities including NGESO are transferred to the FSO. It also makes provision to facilities transfer of pension schemes attached to these bodies, and the protection of certain rights and entitlements connected to these pensions.
Objectives
The Bill will require the FSO to carry out various functions and activities in a way it considers will best achieve 3 objectives - ‘net-zero’, ‘security of supply’ and ‘efficiency and economy’.
This Bill imposes a duty on the FSO to carry out its functions in a way that it considers best calculated to promote the net zero objective; this objective is defined by reference to statutory duties on the Secretary of State in relation to net zero. Whilst operating, planning and co-ordinating the system we would expect the FSO to drive net zero outcomes by proactively identifying and creating opportunities to facilitate the transition.
A further objective which the FSO should promote whilst carrying out its functions is the security of supply of electricity and gas to existing and future consumers.
The third objective of the FSO is promoting an efficient, a coordinated and economical electricity and gas system. Joining these planning functions is expected to result in an increased potential for efficiencies and the FSO will be tasked with seeking to reduce costs for energy customers.
Whilst carrying out these main objectives, the FSO will also be seeking to increase competition and innovation, take a combined gas and electricity (‘whole systems’) approach and consider consumer needs.
Licensing
The Bill makes amendments to the Electricity Act 1989 and Gas Act 1986 to create the two new FSO licenses (the ‘electricity system operator’ and the ‘gas system planner’ licenses). The energy authority Ofgem will monitor and regulate against these licences.
Providing information, advice and analysis
The Bill imposes a duty on the FSO to respond to requests for advice, analysis or information from government or Ofgem. With its unique position at the heart of the energy sector the FSO is uniquely well placed to provide this advice, with government continuing as decision maker on issues of policy.
Power to request information The FSO will have a power to request information to help it fulfil its functions. It will be able to make requests, so far as practicable, from a wide range of energy businesses.
Timeline
The BEIS/Ofgem consultation ran from 20 July 2021 to 28 September 2021 and showed there was broad support for the government’s proposals to establish an independent Future System Operator, across all categories of stakeholders, with a common recognition that net zero creates challenges that demand a more strategic and independent body.
On 6 April 2022, the government and Ofgem jointly published the FSO consultation response, which sets out the government’s commitment to proceed with the creation of the Future System Operator.
BEIS, Ofgem, National Grid Plc, and the ESO have agreed a joint statement, committing to work together to create the FSO.
Depending on several factors, including timings of legislation, and discussing timelines with key parties, the FSO could be established by, or in, 2024.
Background
In 2020, government released the Energy White Paper stating that they will consult on the overall strategy for system operation in 2021.
In 2021, Ofgem published the ‘Review of the Great Britain energy system operation’, outlining the potential roles of the Future System Operator in the context of Net Zero.
In July 2021, the government and Ofgem published a joint consultation on the future of system operation with options for roles and organisational design models. The consultation received a total of 77 responses from a mix of organisations.
This consultation confirmed the view that a new, independent Future System Operator (FSO) can play a vital part in helping us meet these challenges.
Net zero is creating new challenges for our energy system. It is crucial that the system is managed in a way which promotes a safe and secure energy system, and that the best possible advice is available to inform the decisions that will be needed.
We need fundamental change to build a net zero energy system and become energy independent in the long-term, and we need to implement this change efficiently so that consumer bill payments are kept as low as possible.
Further information
The following documents are relevant to the measures and can be read at the stated locations: