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Ministers are planning to strip National Grid of key responsibilities overseeing the UK’s electricity and gas systems under plans published on Tuesday designed to help the country meets its 2050 net zero emissions target.
The business department has launched a consultation to create a new “impartial” organisation that is separate from the FTSE 100 utility following recommendations by regulator Ofgem earlier this year.
Under the proposals, the roles carried out by the National Grid Electricity System Operator — the part of the utility that matches electricity supply and demand and avoids blackouts — would be transferred to an independent body.
In addition, ministers are considering giving the new organisation key responsibilities for gas, including long-term forecasting and strategic network planning, although National Grid would retain an over-aching role operating the national gas system.
The government proposals go further than Ofgem. The watchdog recommended hiving off responsibilities for electricity but said “further consideration” was needed over National Grid’s role in the gas system, although it said there was a “good case” for removing certain gas functions from the company.
Ofgem concluded at the time that creating a new independent body to oversee the electricity system would deliver more value for bill payers and more effectively oversee the changes required to meet the legally binding 2050 target.
The government said it was important to reassess the “governing institutions” that underpin the country’s energy system as it “undergoes a transformation equal to any it has undergone in the past” as Britain switches away from polluting fossil-fuel power stations to rely on more weather-dependent renewables such as wind and solar.
Electricity demand will also increase as more drivers buy electric vehicles and homes switch to low-carbon heating such as electric heat pumps.
The proposed new operator would “need to be independent — not only of other commercial energy interests, but also from the day-to-day operational control of government”, according to the consultation document. Ministers are still weighing whether the entity would be privately held or state-owned.
National Grid’s role in the energy system has come under growing scrutiny in recent years following concerns raised by MPs and independent experts over conflicts of interest.
In addition to overseeing the gas and electricity systems, National Grid owns electricity and gas infrastructure in Britain and develops interconnectors — subsea cables that trade electricity with countries including France, Belgium and the Netherlands.
But the company was spared a break-up at the last regulatory review, which concluded in 2017 and only looked at its management of the electricity system; that function was moved to a legally separate company which remained part of the National Grid group. National Grid has since continued to oversee the gas system.
Business secretary Kwasi Kwarteng first questioned National Grid’s role in overseeing the energy system in 2019, not long after a power cut that disrupted 1m homes in England and Wales.
National Grid said it would “continue to work closely” with the government and Ofgem on the role of the new operator, “the most appropriate ownership model and any future related sale”. The consultation closes at the end of September.
Analysts at Barclays have previously valued the electricity systems operation at £300m, noting it has a “small financial impact” on National Grid, which also has businesses in the US.
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