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Client insights

Power transactions and trends | Q4 2017

Redefining the system operator at National Grid

Perhaps the greatest impacts of the energy transition will be felt by those who manage our electricity networks. EY Global Transactions Power & Utilities Leader, Matt Rennie, and UK EY Energy Leader, Anthony Byrne, spoke to Fintan Slye, Director of the UK System Operator at National Grid UK, to discuss the future of energy markets, how he sees the system operator (SO) role changing over time and what he hopes to achieve in the role.

EY - Fintan Slye, Director, UK System Operator, National Grid

Previously the Chief Executive at Ireland’s EirGrid, Fintan Slye took the pivotal role at Britain’s electricity transmission network at a critical time for both the energy sector and National Grid’s role within it. As one of the world’s largest publicly listed utilities, National Grid is actively adapting to a rapidly shifting market, both at home and across the world, through a strategy centered on innovation.

Four main industry drivers behind changing role

He says four main drivers are behind the evolution of the system operator (SO) role.

“The first is climate change and how we address that and meet our carbon reduction commitments.

“The second is the accelerated scale and pace of technological change. At the same time, the reducing cost of technology is allowing greater consumer participation in the energy sector, which will become an increasingly dominant force.

“A third factor is debate around the SO’s license to operate. There are two dimensions to this – firstly around the network’s ability to engage with communities and convince them of the benefits of hosting infrastructure that impacts directly upon them for the wider good. And the second is around changing society perceptions of energy and the cost of energy. In the UK, the cost of energy is a concern and is sparking political dialogue around the renationalization of utilities and other assets.

“The fourth factor is increasing levels of interconnectedness – of electricity and gas; of markets; and of geographies. The system will become increasingly integrated as we move forward.”

Decentralized system demands collaborative approach

All of these factors are already impacting how the SO operates, notes Fintan, who says increased connectivity within the sector is driving the need for a more interactive, collaborative approach to managing the grid.

“It wasn’t that long ago that the role of SO was a highly centralized command and control operation. A more decentralized energy system requires a shift in focus to facilitating solutions among market participants,” he explains.

“Enabling new business models to flourish while making sure we have a safe, secure and stable system that delivers value to consumers, the economy and society is occupying all of our minds.”

“Enabling new business models to flourish while still making sure we have a safe, secure and stable system that delivers value to consumers, the economy and society is occupying all of our minds.

Fintan Slye, Director, UK System Operator, National Grid

Fintan says he believes that market-based solutions offer the best potential to tackling grid management issues arising from the energy transition.  He sees potential for new markets to manage the intermittency of distributed, renewable generation and very short-term frequency response and to facilitate innovative uses of battery storage on the grid.

“Going forward, a key part of planning for our growth will be around how we can create markets for ancillary services. The first part of this is defining the services we need and the quantity required and then considering how we can establish a market-based mechanism to achieve this.

“I see batteries evolving and having a place in the capacity market. For example, instead of building a new distribution line into a congested area or reinforcing a transmission network, could I put a battery on the far side of the constraint and use that to alleviate it? The option to use batteries to solve network congestion is definitely a future possibility.”

Turning innovation up while keeping the lights on

Fintan believes that balancing innovation and stability will depend upon ensuring the right regulatory incentives are in place and says that the introduction of the UK’s RIIO (Revenue+Incentives+Innovation+Outputs) model has been positive for the industry and energy consumers.

“Incentives are based on a more holistic, transparent view across the breadth of the business and a focus on what we’ve delivered. This creates a greater alignment of outputs and what’s of value to society.”

He said that there is scope to make future regulatory changes to improve settlement systems for short-term frequency response and to better recognize the costs and risks of operating a decentralized, disaggregated system.

As he settles into his new role, Fintan says that his first priority is to establish the new one-SO model for both electricity and gas while also delivering the legal separation of the electricity SO.  “This integrated model between electricity and gas is the way forward because its ability to consider future scenarios across these two energy dimensions will deliver significant value to consumers.”

In the longer term, he sees potential for National Grid to help lead the world’s energy transition.

“We have done a lot to help decarbonize the UK – now we have an opportunity to lead that transition globally, bringing market-based solutions to issues around sustainability, affordability and security of supply.”

“Whole system thinking can’t be done in an ivory tower. We need to consider the problems we are trying to solve and then bring an external perspective to solving them.

Fintan Slye, Director, UK System Operator, National Grid

Wider engagement will create better solutions to energy issues

What will the SO look like in five years? Fintan says that while critical elements of the organization will stay the same – “we’ll always need core engineering skills” – new capabilities are already changing the way National Grid operates.

“We need more financial and commercial skills and also a greater external perspective.

“The SO sits at the heart of the energy system so it needs to be better at engaging with others – customers, regulators, other stakeholders. Whole system thinking can’t be done in an ivory tower. We need to consider the problems we are trying to solve and then bring an external perspective to solving them.

“National Grid’s vision is to bring energy to life – that’s what it’s all about. And a key part of that is engaging with customers to lead the transition toward a more sustainable energy system that meets government objectives and delivers at the end of the day for consumers.”

Fintan Slye is currently the Director of the UK System Operator at National Grid covering both gas and electricity. Prior to that he was Chief Executive of the EirGrid Group, the electricity system and market operator in Ireland and Northern Ireland. He also spent a number of years with McKinsey, supporting companies across Ireland and the UK, and with ESB, where he held roles in Ireland and the United States.