Britain's Ofgem and the government have announced plans to create greater separation between the system operator role performed by National Grid and the rest of the National Grid group.
A more independent system operator will help to keep household bills down by working to ensure and enable more competition, coordination and innovation across the system, according to Ofgem. The system operator role includes balancing the electricity grid second by second. In the future as the electricity system becomes more flexible, this role will 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.
To this end, Ofgem has published a consultation for a legally separate electricity system operator to be established within National Grid.
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 our system operator will give greater confidence to investors that Great Britain offers a level playing field for companies wanting to be part of our clean, secure and flexible energy system - keeping costs as low as possible for our homes and businesses.”
It is proposed that the more independent system operator will have distinct employees, directors and offices from other National Grid electricity subsidiary companies. The process for establishing the proposed new company is set out in a joint statement between Government, Ofgem and National Grid, also published today.
- The Ofgem consultation proposes new governance arrangements that mitigate potential or perceived conflicts of interest. The reforms propose that the new company will have its own licence, separate staff and offices to other National Grid electricity subsidiary companies. The new company’s board members will not be able to sit on the National Grid Group board or other National Grid electricity company boards.
- The consultation also proposes to set clearer expectations of the role of the system operator (SO), and to give it new roles.
- The new arrangements will be implemented over the next two years. We expect that the SO will start adapting how it undertakes its existing roles immediately, taking further steps in 2018 with the new system operator company fully operational by April 2019.
- The joint statement by Government, Ofgem and National Grid setting out the intention to establish the new company.