City academic authors Ofgem review
Dr Xeni Dassiou has recently published a report looking into the new Electricity System Operator
In her role as an academic panel member, Dr Xeni Dassiou (pictured), a Reader in Economics at City, University of London, has been appointed by Ofgem (the UK’s electricity and gas regulator) to produce an independent review of the ESO (the newly constituted Electricity System Operator which will be legally separated from the National Grid as of this April) – in particular its regulatory and incentive framework.
Dr Dassiou's work is significant and impactful as the Electricity System Operator (and the cost efficiencies its separation will hopefully bring) affects consumers across the entire country.
With the report now published by Ofgem, Dr Dassiou, who is also Director of the Centre for Competition & Regulatory Policy within City’s Department of Economics, takes a moment below to explain what this means for consumers.
Dr Dassiou, what is the ESO?
The ESO is the Electricity System Operator which has been legally separated from the National Grid plc (NG) from April 2019.
NG is the owner of the transmission assets and is responsible for the electricity transmission process, which includes balancing demand and supply of electricity in the UK in real time.
Why is it necessary?
The Electricity System Operator has a key role in managing the system balance and operability, facilitating whole system outcomes, supporting competition in networks and facilitating competitive markets.
How might it affect the average person or household?
Around 20 per cent of an electricity bill in this country consists of transmission and distribution charges. Therefore, the change will affect every person in the UK.
By separating the ESO from the transmission assets, Ofgem will introduce a new regulation framework to incentivise the ESO to search for new innovative cost-cutting solutions, freed from the legacy of the existing transmission systems (high-voltage transmission assets), which belong to NG plc.
This is vital as there is a growing urgent need for innovations to support electricity storage (which becomes more intermittent given the increasing reliance on solar and wind) and respond to increases in electricity demand resulting from the introduction of electric vehicles.
The separation will allow the ESO (if properly incentivised by economic regulation, which is what my report is reviewing by evaluating the proposed regulation framework) to balance the transmission system in the most cost-efficient way.
It will do this by removing information asymmetries and promoting competition and innovation (through encouraging participation of existing and new participants into the market), and by removing the conflict of interest with the existing legacy transmission assets which belong to NG.
To read the full report, click here.