232. GB’s NESO: the “cool” operator - Jun26

With Laurent segle End from London and Gerard Read from Berlin. This is redefining Energy Today. On Redefining Energy, we're going to talk about the future of the energy system in the UK. Because people complain a lot, but in fact there's a lot of things happening.

But you need a three sixty vision and that's exactly what our guests bringing. But first of all, from our partner, A. B Loco Energy is Europe's premier leaser of ten foot container mobile batteries built in Europe with COTL best LFP cells. A Bloco Energy serves fourteen European countries, including France, Germany and the UK.

A Bloco's batteries can be leased for any duration between six weeks and six years and they are monitored by the Dutch award winning platform school A Blocko Energy. Make your life easier, make. Your business more flexible. Back to the show, Yeah, what we decided to do is bring in Penton's lie, who is the CEO of the independent system operator in the UK.

And this is quite unique because Penton's job really is to oversee the gas grid. And the electrical grid in Great Britain. NSO National System Verider has so much roles, so I'm going to list them. Real time system operation, so keep supply and demand balance every second.

All system planning is putting everything together, provides impartial recommendation to the regulator. Is therein to market design and operations with design and run electricity market, he is planning the transmission system, the gas and of course he needs to follow the policy of net zero, so he's doing so much thing at the same time. But I would say in a way, it's great that it's one organization doing it and those things are not scattered all over place. Makes it much more fission.

Absolutely and systemic. In other words, because it's not just about the electricity system. Obviously gas is a huge part of it because it as provides heat and also gas also provides power or fuel for electricity. Yeah, I would say we bring them on the show.

Fintn, welcome to the show. Thank you very much. Great to be here. It's great to have you kick off with just if I look at this energy transition, it's been going on for quite a while and I just feel we're at an inflection point where you've got sort of in a lot of countries, you've got too much renewables, and obviously we've got this crisis ongoing crisis in the Gulf and all this.

How do you, as someone who's really meant it to have to take a systemic view of that UK system, how do you look at the moment that we are at a present? So I think it is at an inflection point for various reasons, some of which you talked about, Jared, But if you look at what the UK is trying to achieve, so it is a very clear policy ambition, and in particular decarbonization of the electricity systems. Government has set a target to get to clean power by twenty thirty and that effectively means ninety five percent of the generation comes from clean sources by twenty thirty and that is hugely ambitious and will require a huge lift right across the industry in order to get that and to achieve it.

And for two reasons I suppose we're at an inflection point. One, the current crisis in the trade of Hormuz and the previous crisis when Russia legally invaded Ukraine have shown the risks associated with relying on imported fossil fuels, and especially where those prices of those fossil fuels are set on international markets. The UK is seeing the impacts of that now with rising prices, and therefore that to some extent has catalyzed that transition and sort of reinforced the logic behind that transition to clean power by twenty thirteen.

The other inflection point you're seeing is even within that transition, we're moving from the policy part and the enabling part into the real hard delivery on the ground. So it is that inflection we need to make is a move to real on the ground delivery. Cranes in the air, shovels in the ground, and delivery of infrastructure is really hard. This is a huge scale of transformation in terms of the clean generation that needs to be delivered, the new storage that's coming on, and the network that needs to support it.

So for all of. Those reasons, it is at an inflection point, but I think one that has momentum. Certainly in gb. Well Finton you're the ELM, which means you need to ensure relevety twenty four to seven and you need to plan for the future at the same time.

At the yet of nisso I calculated since you were at the end of natural greed stumble writer precis organization. You have had nine minister secretary from a politics point of view above you. So how do you manage a long term vision and mission with unfortunately a lot of politics rotation? Or is it stronger than short term politics?

The advent and the creation of NISO actually is an opportunity to embed some of that longer term systemic, system wide thinking that allows for continuity through different political cycles. And you're always going to have changes in government, changes in secretary of state, those things are always going to happen. But I think the important thing is that alongside that, you do need an element of continuity, in particular in an energy system where you have large scale infrastructure that is delivered over multiple years.

And the thing that the. Advent of NISO has enabled is the creation of that long term strategic plan for a great Britain's energy system and the transition that allows you to have that long term view, that confidence that enables people to invest and enables those longer term decisions to be taken and for them to be robust to changes in administration, whether that is government or secretary of State, et cetera. So it's a real issue or on. I think though that the creation of needs and the way it has been established as a public corporation but operationally independent for government, with its own board, its own chair, make sure that you can have that longer term view.

Vincel I think myself in Laurmo will both share the same view, which is, look, an independent system operator is what we need to do going forward, because the word independent is really critical because you're not incentivized to put in one solution or the other. What you're there is to do the best. Had society really on that note there, I'd be very interested to hear how when you look at the future, the whole thing of non wire solutions versus wire solutions, how do you look at that.

The exact model and how appropriate is I think differs for different jurisdictions. So if you look across the world, people have organized transmission system operators, independent system operators, regional trul in various different ways of different sets of responsibilities. The right answer in any given country is dependent upon the specifics of what's going on there and their current institutional arrangements. From our perspective, NGB, the thing that MESO allows us to do is in terms of planning one, you have that system wide planning because we're also responsible where the gas system planner as well, so we do genuinely have that whole system perspective and the strategic special energy plan that will develop.

How has that view across all of those different energy vectors. And then also the thing you talk about, Jared is that ability to see you know, non wire solutions and so how can storage play a role in this? How can demand side response play a role in this? Are there advanced technologies you can deploy to sweat the assets more and get more out of them?

How can AI help you with that? And being constructed and set up and governed in the way we are ensures that the strategic plans that we ultimately produce will actually deliver in the best interests of society and the economy because of the way we're set up. And I know it's a subject you're not directly responsively off, but I mean it's in the zone. Is a lot of people complaining that the price of electricity in the UK is much higher than in other even your open countries, and it's not really linked to the price of electricity po say, you know, link to a certain number of tuxic levies of charger which are added on the top of that, which of course is going to slow directification, especially of heating if you have in your opinion on it, How could we reduce the price of power for the end consumer.

A lot of that comes down to policy choices by governments and regulators right and are not within our remat but certainly the price of energy in the UK absolutely needs to come down. We've seen price of energy rise as a function of what's happening in. Straight up our moves. We've seen it previously with Bush's a legal invasion of the Ukraine.

Definitely it is contributing to the cost of living crisis right around the country and is not helping in terms of overall helping the economy grow, right. So definitely we need to find ways to get prices down, and that is through a combination of having a long term plan that actually does deliver secure, sustainable power but out of four prices, having a set of market arrangements that ensure that you get competitive forces, that you drive down price and you get the most competitive and economically efficient outcomes for consumers, and that you identify and progress those projects that can deliver that.

And one of the big things that we're doing at the moment is reforming the connection queue, So trying to get down from what was the connection queue of seven to eight hundred giga, what's down to the two to three hundred giga, what's that are ready to go strategically aligned with government policy and making sure that you build out then the right network to support them. So I think there's a series of things that are in train that that should help. I also think that from a GB perspective, the price of electricity is very dependent and tied to the price of gas, which is set on international markets, and therefore that move towards clean power and getting away from the price of gas set in the price of electricity will be helpful as we progress that.

I suppose the other thing that it is is the more you electrify, you could argue that the cheaper it's going to be for electricity because you've got more units to kill a lot of hours running through these wires. The only issue with that is that you sort of have to have the capex for the new grid before maybe you have the demand. And I suppose, going finding off with what Yourna said is I think what we scratch our heads about is just the incentive to electrify is not there because electricity is too expensive.

And if you don't have the incentive to do that, you're building grid out. What you're actually doing is push the price up, which gives you the disincentive to electrifier. So it's a bit of a crazy situation that you're in. And I know it's not your job because you're not the government or anything like this, but I presume you really do have an important role and let's say, brainstorming with the government in around what they should and shouldn't do.

So you're absolutely right to the extent you electrify and you spread fixed capital across up costs over more units of electricity than the cheaper that is, and that is. Helpful a lot of though. The infrastructure, the transmission infrastructure needed in GB right now, though, is around getting new renewable sources of generation and moving that generation to where the existing demand is as distinct from significant increases in demand. So the transmission infrastructure that we're looking at at the moment largely is driven by the fact that the new sources of generation are in very different places to where the ould sources of generation used to be, and that is sort of a move away from coal fired power plants located various sort of discrete locations around the country to offshore wind in the north Sea or on shore wind or solar at different places around the country.

As we move further through the twenty thirties, etc. Then you start to see the demand growth part of a pick up as well. Jered. But I think in the first instance that transmission investment is around getting those renewable resources on and.

The key is trying to match the timing. So you don't want to build the network ahead of time and it be there sitting not being used. Similarly, if it's late, you get additional constraint costs associated with generation that can't get to demand. So how do you marry up those two timelines.

And what we're seeing in reality on the ground is that lee times for transmission over the last ten years have got significantly longer. It's taking significantly longer to get the planning, consenting, the construction, the commission, and the delivery of transmission. So those lee times are now longer than it is to typically deliver any of the generation resources. That's very interesting.

So you end up with balanks in costs, which in fact costs a lot because there's just too much win. You known Scotland, and there's what is it by your four by US six which are and I know you and National Grid are working on it. With those subsey cables just going to go full of course they're going to be probably more expensive than overground, but at least it's relatively predictable. Was the system has been launched And to people who complain about balancing caers, I would say two things.

Okay. Number one, geography it is what it is well along stretch it's you know, we're not Germany. And the second thing is, even if there's a lot of curtailment overall, the amount of gas we didn't need to import, it's certainly superior that whatever balancing cars. So it's kind of a teething issue, which I understand can be very irritating, but people need to see both sides of the ledger.

Now very interestingly, you start talking about demand and I saw you made a great quote in the ft about Scotland. Data centers or data centers is the old rage right now? How do you plan to accommodate with data centers. Before we go on to data center on just on your point right balance and costs, there are two things to.

Bear in mind. So one, where you get a mismatch between generation connecting before the network is delivered, you are going to get balancing costs and absolutely we should be driving to get those down. The other part is, of course you'll never get balancing costs zero. They shouldn't be zero.

You would have absolutely goal plated the network if you built it such that there was never a pound spent on balancing costs. And what we try and do is find out what is that appropriate most economic balance that builds the right amount of grid to meet. It and deliver the most efficient one. On data centers, there's a huge focus on them at the moment due to the advances made and being made in AI, but also just their impact on the grid is just so significant, Like we are looking at gigawattscale data centers being delivered now.

The first thing to say is that the UK government and has huge ambition about AI and associated with that the data centers that are needed in GB to do it, and we're really focused on making sure that we support them in that and ensure that GB can sort of benefit from the build out of that sort of AI infrastructure in GB. So the connection queue on the demand side is now over one hundred gigawatts of demand and the connection queue of that almost one hundred is data centers and that is all looking to connect broadly in the region between now and twenty thirty.

And typically data centers have really short lead time sort of commitment to having the data center up and drawing power. I think if you look at the UK's ambition around data centers and actual delivery on the ground of what's needed in terms of data centers, it's not the one hundred gigawats that's in the queue. Actually, it's probably somewhere between eight, ten or twelve gigawats and a little bit on time horizon use on. But in the sort of twenty thirty time horizon that's.

Broadly where you land and THEREFO we have a question of which of those data centers of the one hundred that are in the queue, which of those will go ahead, how do they get built out, et cetera. I think you can look around the. World and you can see where data centers have been managed really well and their integration on the grid has been managed really well, and you can see places around the world where actually it's been cost price rises and there's been a backlash against them.

I think from our perspective, there's probably three things that we look at in order to make sure that data centers are additive to, or sympathetic with, or helpful to the grid. The first is location. At the moment, the main constrain some power flow in the grid are moving power north to south, and that is typically when it's windy, a lot of upfshore wind and trying to get it down to the south of England. So therey if you can put data centers to the north of that transmission constraint i e.

In Scotland, that is more beneficial to the grid than putting them on the M four corridor, for example, in the southeast. So the location is really really important, and put them in the right place you need to build less new infrastructure, you'll be able to get them connected quicker. So that's the first one. The second one is around flexibility that those data centers can provide.

I think you don't have to go back that far. When a data center load was almost entirely inflexible. It was going to come on, it was going to consume what it wanted to consume, and that was going to be it. I think though, in the last number of years, what you've seen is data center technology has got better and the need for them to be flexible has become really really important in their ability to get connected as more and more of them have gone on and grids have got constrained and they've responded and there are now increased levels of flexibility of different types available from data center and in some places that's been provided on a voluntary basis, in some places of contractual basis.

Indeed, are's examples of where it is actually mandated as part of the legislation. But that flexibility makes a huge difference to security, supply margins, and ability to manage the grid. And then the third things around data centers that really matters is what is the timeline and the ramp up of capacity, because what you want to be able to do is to match the increase in demand with a similar increase on the supply side, such that you don't end up with the demand coming on significantly ahead of the generation or the supply side coming on, because that's just going to drive prices up.

I mean this pretty straightforward economic theory that says that's just going to drive prices up. But if you can match the supply side with that ramp on the demand side, well, actually you have more units of energy over which to tribute some of the fixed costs, and as we talked about earlier, that could then overall reduce the per unit cost of electricity. But you've got to manage that timing really well. So location, flexibility, and timing are the sort of three critical things, and if you can manage them well, then I think data centers can be integrated and can be overall helpful to the system, and ultimately from a GB perspective, will help with that strategy around building GB as sort of an AI center.

Finton just I want to just change it something slightly. And I suppose asked the question, your job, your huge responsibility. Your responsibility is one to make sure that people have gas electricity twenty four to seven. I suppose in that regardless was I was really coming from an energy security point of view.

Is there anything where you really look at and say, I'm worried about that you need to get that sorted or do you literally sleep every night going, We've got it under control. That's it. It's done. So maybe two things from an energy security point of view, like don't go home and worry about any sort of macro threats or things that I don't believe are being gripped either.

By us or by government or the regulator. But the world is a really uncertain place at the moment, right and we've seen that and is becoming increasingly more dangerous, and we're seeing energy security and national security becoming ever more intertwined. So those sort of things, yes, sort of those sort of unknown things outside. Of your control, you always worry about whether.

That is also just you know, something happening like really bad storm or a fire or something that that takes out. So the thing you can do is prepare right so that you have a team, a control center, system managers that can respond to that. In the moment. That is really really important.

From a company point of view. The more macro thing maybe is that I worry about is around social license to operate, Like are we doing the right thing? Like are we hitting the right balance between security, affordability sustainability, Like are we acting in the interests of GBPLC consumers, businesses, society because we're not for profit business. We're a public corporation and ultimately we exist to serve society in the economy and we're only able to do that so long as we actually do a good job at it.

So that's the bit overall from a sort of a company perspective, that you're always trying to make sure that you're creating that right balance there. And it's called a trilemma for a reason. It's because actually you need to keep those three things in balance and make sure that you. Are meeting your objectives around all of those.

One of the most amazing feature of your system is that GB's the biggest owner and manager of Subscencia connectors and you put one every eighteen months on average. So we've got some with France, Regium, Denmark, Norway, Ireland, we're going to Germany. What's your vision of a more interconnected grid, nike U, stronger, weaker? How do you see that?

So I only see it increasing urn. There are two dimensions to it. One, it's a huge source of flexibility for the system here and when you look at the way we see the generation portfolio develop, we are going to need that flexibility in order to export our access power import power at times of lows renewable output, and those interconnectors provide a really really flexible resource and an ability to trade power to ensure that we're getting efficient and economic outcomes for consumers here and indeed enabling those countries we're interconnected with trade with us to help them as well.

The other dimension of it besides sort of those interconnectors which exist between sort of two countries, is the increasing focus on building out the North Sea as a resource, and whether that is through things like the Energy Islands or hybrid interconnectors. We're very active members of the OTC, the US Show Transmission Coordination Initiative with a number of tsos that border the North Seas, and a key part of that is how can we help governments to deliver on the commitments that we're made in Hamburg around harnessing the huge potential that is in the North Sea.

That's a voluntary collaboration, but I think it's been really really effective in delivering that. But stepping back from a gb perspective, even from a European perspective, further interconnection is a really good thing, and we see more interconnection coming. I mean, you talked about some of the ones that were on their development today sort of you know, ships out laying cables on some of them as we speak. But they will continue to develop, I think, and I think we'll see it evolve from just the point to point interconnectors, as I say, to other configurations that allow us to harness some of that terrific resources in the North Sea.

And we'll go to America. Or maybe can I tell the one. I hear you, I hear you, Joah Pinon, maybe just for last question, give us a view of how you see gb energy system in twenty thirty. In twenty thirty, I see huge momentum around the transition towards clean power.

Recent auction rounds by government have delivered new offshore wind. We're seeing development of onshore wind. We're seeing real progress on the transmission infrastructure. That needs to be built.

So I see us absolutely transitioning to a situation where you have hit that sort of ninety five percent clean power. We'll see the UK at that point as a net exporter of energy over the array of interconnectors. That we have. We'd hopefully as well have seen a takeoff in demand side flexibility so that demand side will be a real contributor to.

The energy system. It won't be just flexibility on the supply side of it. I think we're going to see a massive ramp up and the amount of storage and in particular batteries on the system between now and then. The number of them in the.

Queue and the desire for them to connect is absolutely huge. We have a lot of. Them already, but I think we're going to see a huge amount more of them in the coming time. And the other bit is that we will see hopefully a step change in the digitalization of the energy system.

There's been a lot of talk about it, a lot of initiatives in specific areas, sort of pilot projects in each but I think we're moving towards a much more coordinated approach to building out a digital spine that will enable digitalization to take hold in a much much broader and more systemic way, and I think that will deliver huge benefits for consumers. When we've seen it happen in other industries, has been really really difficult at the outset to see what the impact would be, but it always delivers benefits for consumers.

So that is the other bit I see throughout which we don't maybe talk about as much, but I think it will be transformative, fantastic. Wellfinton, it's a treat to a yonder show. So thank you very much. And as we say, there's a sheriff in town.

Always a pleasure to be here. Thank you very much, thank you, Bye well John. I'm reassured because there's someone at the helm, not only him, but his all organizations really know what they're doing. I feel kind of confident and overall is balanced when you talk about the data centers, when you talk about the do we invest in two generations or transmission and trying to harmonize and organize everything.

It's a tough job because everybody's screaming, everybody's winging, and he has to stay steady. Yeah, no better man to do it. And listen, he's done a great job over the last few years there. Yeah.

As I said, and I think he agreed, is that we are an inflection point in this energy transition and we're going to have to electrify. We're going to electrify quicker and that's an exciting place and next few years. And it's really about efficiency. There's no you know, I'm not nuclear there, I want this.

There's very energy pragmatic and it's role is very clear. The energy security, affordability and clean clean is relatively easy because we're not going to build any more gas plant, certainly not core planned. There's a question. I would have a love to ask him, but we didn't have any time.

Why on earth is the UK government giving two billionaire subsidiy to drugs with burning wood chips. That's the ural story. It's for another time, for. Another time, exactly, my friend.

So I wish you a great. Week and I'll talk to you next week looking forward. To Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcasts, Spotify, or the platform of your choice.