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 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 as the electricity system operator, after 30 years balancing the electricity grid, because the energy company also owns energy networks.

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

National Grid has already legally separated the electricity system operator (ESO) business from the FTSE 100 group but Ofgem’s proposal would see all ties 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. Ofgem is recommending the creation of an independent body to help deliver the fundamental changes in how we use energy.”

A new independent body would lead the UK’s shift to net zero by 2050, including “how we drive our cars, heat our homes and generate our electricity”, Ofgem said.

The new system operator could provide independent recommendations to the government and Ofgem on new 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 wind farms to the UK, Ofgem added.

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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”.

“An industry structure that enables long-term thinking and allows the [system operator] to take on new roles as part of the energy transition is an important step in the market and regulatory reform necessary to deliver net zero. Significant further work is needed to determine the detail of that structure,” the company said.


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