Written evidence submitted by the National Grid (ESO) (FRE0073)

Introduction

National Grid Electricity System Operator (the ESO) is responsible for the second by second operation of Great Britain’s electricity system. This means ensuring the lights stay on for homes and businesses across the county by keeping supply and demand in constant balance.
The ESO is a legally separate company within the National Grid group. We do not own the physical assets over which electricity is transmitted, and have our own licence, regulation, and governance arrangements to ensure independent decision making in the best interest of GB consumers.
The physical electricity links between GB and other European countries are owned and operated by other parties, however, we are responsible for the overall cross-border flows, ensuring that these are efficient and that the industry codes which govern our network are compatible and compliant with those in Europe.
The ESO is responsible for the operation of the network in GB, we are not responsible for the operation of the network in Northern Ireland.

Importance of energy in the negotiations

Energy is a special commodity characterised by interdependent networks and mutual dependencies. The integrated European and UK electricity markets delivers significant benefits to GB and European citizens in terms of affordability, security of supply, integration of low carbon energy sources, and facilitating a sustainable path towards achieving net zero emissions by 2050.
Current cooperation with EU on electricity is determined by physical interconnections and cross- border cooperation across a wide range of services with an increased level of interconnection forecasted in the future. There is also a common understanding that the compatibility of the electricity systems on both sides needs to be maintained.
We support the prioritisation of the energy sector in the future UK-EU relationship and believe that achieving an agreement on energy cooperation remains critical for allowing continuity of these benefits.
We welcome the publication of the EU and the UK respective legal texts on the future EU-UK relationship, which represents a positive first step towards achieving a successful deal on energy.
Our response will address the questions impacting our area of expertise.

Question	Question Response
How close are the UK and the EU’s negotiation positions for the future relationship on energy? Where are they further apart? In which areas is there a need for more detail to understand each sides’ positions?	Both the EU and UK negotiation positions acknowledge the importance of maintaining a close co-operation on energy and continuity of cross – border electricity trading over interconnectors. However, there are strong differences between the two parties when it comes to the framework of cooperation and the processes to enable it. The EU position would limit UK access to the Internal Energy Market (IEM) and ties close energy cooperation on compliance with EU level playing field requirements, adherence to EU regulation on energy, environment, state aid and the arbitration of the European Court of Justice (ECJ). The UK position retains limited provisions from the EU regulatory framework on wholesale electricity markets and proposes an alternative dispute resolution mechanism outside the jurisdiction of the ECJ Divergence around EU rules alignment (level playing field), will serve to add both complexity and cost in to the existing efficient arrangements, this includes areas such as access to European Market Coupling, Balancing platforms, System Operation and challenge continuity of the efficient cooperation between TSOs within ENTSO-E. Conscious of the ongoing bilateral negotiations between the UK Government and the European Commission we are encouraging talks to reach an agreement on energy that promotes security of supply, efficient cross-border trading, no impact on electricity costs for consumers, promotes decarbonisation, and allows for the benefits of collaboration on electricity from day one. In case of alternative arrangements emerging from negotiations an implementation period will be needed in the Agreement on energy to ensure continuity of smooth cross – border operations on the first day following the end of the transition period. The UK and EU positions are not covering cross - border electricity system operation aspects nor alternative arrangements for trading and balancing electricity outside the Internal Energy Market as the EU position is restraining UK access to IEM. Therefore, further focus is needed on coordination of System Operation Regions, access to the future Regional Coordination Centres including adequate measures to ensure efficient system operation, as well as better understanding of potential alternative arrangements to efficient electricity trading and balancing arrangements.
Why is the future relationship on energy important for the UK and the EU? How might the future relationship influence UK domestic energy policy? For example, how might the future relationship link energy policy and action on climate change, renewable energy and energy efficiency?	Current cooperation with EU on electricity is determined by physical interconnections and cross- border cooperation of services. The GB network currently has 5GW of electricity interconnection: 2GW to France, and 1GW each to the island of Ireland, Netherlands and Belgium. This figure will increase significantly over the next few years as projects currently under last phase of construction such as IFA2 (France), ElecLink (France), North Sea Link (Norway) and Viking Link (Denmark) become operational, this will double the capacity by 2021/22. With other projects under development, our Future Energy Scenarios (2019) show a capacity range between 12 and 20GW by 2030. Therefore, a future relationship on energy is important for maintaining efficient electricity trading over interconnectors as well as increasing the penetration of renewable energy in the GB system in line with the UK Governments climate change ambitions. This helps ensure sustainable, affordable electricity prices and security of supply and operations over the medium and long term. While there are differences in the approaches, the EU and the UK share a common goal of reaching zero emissions by 2050. This can only be delivered with resilient and efficient energy systems. The energy sector has a long history of collaboration between the countries of Europe. The UK actively contributed to the development of current electricity market architecture and the market-based approach shaping the IEM. The UK – EU cooperation has enabled available resources and capacity to be shared across borders to reduce costs, improve security of supply, better integrate renewable energy and help towards climate change targets. Continued cooperation with EU for cost-effective deployment of offshore wind and electricity interconnection in the North Sea has the potential to facilitate a significant increase in renewables.
Which aspects of the UK and EU negotiating positions could restrict the depth of the future relationship on gas and electricity trading, and access to the EUs Internal Energy Market (IEM)? What would be the consequences of the UK leaving the IEM?	The main constraints from the EU negotiation position would be around restricting UK TSOs access to European market coupling (day ahead and intraday trading), balancing platforms, the future Regional Cooperation Centres, and restricting cooperation within ENTSO-E. On the UK side the aspects that could restrict the depth of the future relationship are lack of alignment with EU rules on energy, environment, climate change and not finding a suitable forum for dispute resolution (the European Court of Justice or elsewhere). Leaving the IEM will bring some inefficiencies in electricity trading, which may increase costs for consumers, as well as costs for balancing and system operations, and will challenge UK participation in ENTSO-E. In this scenario, alternative arrangements that would maintain broadly similar benefits would be important in order to ensure competitive electricity prices, protect security of supply and electricity system operations
How far apart are the UK and EU negotiating position for ongoing involvement in ACER, ENTSO-E, and ENTSO-G? What would be the implications if the UK was no longer a full member of these bodies? Are there other relevant bodies that it would be advantageous for the UK to maintain involvement in?	Maintaining a secure and efficient energy market should not be a political matter. GB’s energy infrastructure is connected to the systems of Europe, as well as connecting the Irish system to Europe (and part of the all-island Single Electricity Market (SEM) in Ireland and Northern Ireland). As such cooperation is key to limiting any distortions in the market, this is best achieved through an organization such as ENTSO-E representing all the involved TSO interests. ENSTO-E has a central role in ensuring compatibility of EU and UK power systems and markets for efficient cross-border trading and for ensuring the effective regional coordination between synchronous areas of Ireland, Great Britain and all other areas especially Continental Europe and Nordic regions. Moreover, given the increase in interconnections with continental Europe ENTSO-E membership is very important for enabling alignment with current rules and to influence future rules; for example, future electricity network codes that will impact our power system. ENTSO-E is also the most suitable forum for future TSO cooperation and strategy, sharing of best practice, developing and maintenance of communication links such as the current and upgraded electronic highway, and an opportunity for the entire European (not just EU) TSO community to meet The European Commission is challenging non-EU TSOs membership of ENTSO-E based on the legal mandates (EU rules of the 3rd energy package) of the Association in supporting the implementation of EU law (EU clean energy package rules). Nevertheless, as an Association established under private law with current non-EU members, our view is that ENTSO-E should not be treated as an EU body and membership should not be impacted by political decisions Maintaining membership of CORESO, the Regional Security Coordinator of grid operators in Western Europe (to become a Regional Coordination Centre from 2021), is also important as a means of real time cooperation between TSOs, and real maintenance of security standards with combined power system network analysis.
Question	Question Response
What would be the consequences if no agreement could be reached in any of the areas you have commented on above?	We anticipate no immediate electricity security of supply and operability risks as part of the UK’s exit from the EU. In the event of no agreement we will experience inefficiencies in cross border trading over interconnectors with continental Europe and impact on electricity prices. This would potentially be at a greater cost to consumers if we lose access to cheaper balancing services from the interconnectors. Therefore, we encourage reaching an energy agreement with the EU that will maintain efficient electricity trading As the System Operator of the electricity in GB we have been actively following Brexit developments since the 2016 EU referendum result and worked on contingency planning to ensure that the electricity system continues to run in a secure and efficient manner post EU Exit. Therefore, we monitor the developments of bilateral negotiations on electricity matters so that we are prepared for any eventuality and continue to work closely with the electricity industry, BEIS, Ofgem and EU parties to ensure that the electricity system continues to run in a reliable and efficient manner

July 2020