National Grid should lose role as electricity system operator, says Ofgem

National Grid could lose its role of keeping Britain’s lights on after the energy regulator called for a new and independent electricity system operator to help steer the UK towards its climate targets.

Ofgem has called for National Grid to be stripped of its role after 30 years balancing the electricity grid because the energy company also owns energy networks.

The regulator warned this could create a conflict of interest in the future as the UK’s networks play a larger role in helping to keep the lights on.

National Grid has already legally separated the electricity system operator business from the FTSE 100 group but Ofgem’s proposal would lead to all ties being severed and a new independent system operator put in its place.

Jonathan Brearley, the chief executive of Ofgem, said: “The energy system needs to go undergo the biggest transformation in over a century to meet Britain’s ambitious climate goals.”

“Imagine you have 10m electric cars on the system, and lots of renewable energy. You could manage this in two ways. One way is to build a much bigger and higher capacity network. Equally you could have a smarter and more efficient system that begins to shift the times that those different cars charge, which could be a lot cheaper overall for customers. Asking a company which builds networks to make that kind of trade-off is the sort of thing we’re concerned about in the future,” he said.

“Ofgem is recommending the creation of an independent body to help deliver the fundamental changes in how we use energy,” Brearley said.

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The new operator could provide independent recommendations to the government and Ofgem on gas and electricity network investment proposals to help move the UK towards a net zero carbon electricity grid at the lowest possible cost, according to the regulator. This could help to save consumers between £400m and £4.8bn between 2022 and 2050.

An independent operator could also take on wider planning responsibilities for new infrastructure, for example the design and construction of an offshore grid connecting offshore windfarms to the UK, Ofgem added.

Alistair Cromwell, the acting chief executive of Citizens Advice, said a separate body to run the electricity and gas systems “should give consumers more confidence that the advice given, and decisions taken, will be in their interests”.

“This should lead to lower bills and an efficient transition to net zero. But the new independent system operator – as advocated by Ofgem – needs to have the right structure, responsibilities and capabilities to enable it to make the best decisions for all of us,” Cromwell said.

The structure and ownership of an independent system operator would be decided by the government in consultation with National Grid. The FTSE 100 energy company would be entitled to some financial compensation if it is stripped of the business, which is considered a very small part of the group.

Equity analysts at Barclays have estimated the value of the National Grid electricity system operator at £300m, or less than 1% of the group’s market value. Ofgem believes the cost of compensating National Grid for the business would be outweighed by the long-term financial benefit to energy bill payers.

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Kwasi Kwarteng, the business and energy secretary, said the government welcomed Ofgem’s contribution to the debate over the future of the energy system and would “consider its recommendations thoroughly”.

National Grid said in a statement that it was working closely with the government, regulator and the industry to explore the future of the energy system operator, and added that a “potential divestment” of its role was “an important part of that discussion”.

“Significant further work is needed to determine the detail of that structure,” the company said.


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