Watchdog tells National Grid to proceed with separate operating company

Midlands utility National Grid should proceed with plans to set up a new legally separate company to carry out its electricity system operator function, energy watchdog Ofgem has said.

The regulator has said it expects the new system operator company to be fully operational by April 2019.

In January 2017 Ofgem, the Government and National Grid issued a joint statement setting out their intentions for the future of the ESO (Electricity System Operator). At the same time, Ofgem published a consultation on future arrangements for the ESO.

“The electricity system operator (ESO) has a central role in planning and operating the electricity system. The role and the form of the ESO needs to adapt to keep pace with a system that is going through a process of change,” said Ofgem.

National Grid said it welcomed the belief by the Department for Business, Energy & Industrial Strategy (BEIS) and Ofgem that a more independent ESO, within National Grid, could help realise benefits for consumers by enabling a more secure, competitive and flexible system.

The original brief said a more independent system operator would help to keep household bills down by working to ensure and enable more competition, coordination and innovation across the system.

The system operator role includes balancing the electricity grid second by second. In future, as the electricity system becomes more flexible, Ofgem said this role would need to evolve. The system operator will also have to work more closely with local electricity distribution network operators to manage electricity flows across the grids.

Speaking at the beginning of the year, Dermot Nolan, chief executive of Ofgem, said: “We need a more flexible energy system so that we can make the transition to a lower carbon future. A more flexible system will also ensure customers get the most out of new smart technologies.

“As the system changes, it’s important that all the monopoly networks adapt. Having a legally separate system operator will allow it to take on a more proactive role in managing the system and working with others, while mitigating any conflicts of interest.”

Greg Clark, the Business and Energy Secretary, said separating the system operator would give greater confidence to investors that Britain offered a level playing field for companies wanting to be part of the country’s energy system.

The new system operator’s employees, directors and offices with be distinct from other National Grid subsidiaries.