Blog Post

National Grid to be stripped of electricity responsibilities in favour of a new independent Future System Operator

Richard Simmonds • July 19, 2021

Energy suppliers should prepare themselves for some huge changes to the way the UK electricity system operates as the Department for Business, Energy and Industrial Strategy prepares to strip National Grid of its electricity responsibilities and replace it with a new Future System Operator and introduce a new governance framework for energy regulations.

National Grid to be replaced

According to the Times newspaper, the government is planning to announce the proposed changes this week. The plans will see National Grid stripped of its responsibilities for running the nation’s electricity system and a new independent body created.

The BEIS is expected to unveil a consultation outlining the creation of the new entity and will also be looking to consult on a new governance framework for regulations, something that will have major consequences for energy supply companies.

The government is expected to say that the challenges posed by meeting its ambitious climate change targets is the main driver for such a move and that a new organisation will be needed to handle the immense task of updating and changing the nation’s gas and electricity systems.

Also read: Ofgem confirms £1.5 million fine for National Grid ESO for its failure to provide accurate and unbiased electricity demand forecasts

Why the change?

Earlier this year, the energy regulator Ofgem said that National Grid should be broken up to avoid any potential conflicts of interest between its role in running the nation’s electricity system and its other business such as operating power transmission cables.

Ofgem believes that the separation could save consumers between £400 million and £4.8 billion between next year and 2050.

The two bodies have clashed in recent months as back in March National Grid referred Ofgem’s plans to cut energy network company earnings to the Competition and Markets Authority (CMA).

The move to take responsibility for the UK’s electricity system away from National Grid could put a dent in the group’s electricity aspirations who only last month acquired Western Power Distribution for £7.8 billion.

Also read: National Grid takes Ofgem to the competition watchdog over energy earnings plan

What about gas?

The proposed consultation is expected to say that National Grid will continue to be responsible for running the UK’s gas systems.

However, this could change as one of the biggest challenges faced by the government to hit its climate targets is to shift the nation’s reliance on gas to cleaner alternatives such as heat pumps and other forms of electrical heating.

Also read: Energy Suppliers call for government to scrap VAT on Green Products and to introduce a Fair Heat Deal

What does it mean for energy suppliers?

The area that will be of most interest to energy suppliers is the plans for a new governance framework.

Details have yet to be released but whatever the changes are it is likely that suppliers will need to be compliant and get up to speed with them.

Last week, National Grid released its annual Future Energy Scenarios report in which one of its major key messages was that holistic energy market reform will be needed to hit the NetZero target by 2050.

The changes will be needed to drive investment and behavioural changes, including changes to market and code designs to ensure that flexibility can be harnessed to balance supply and demand across different locations and time periods – from ‘second by second’ to ‘seasonal’.

The plans for the consultation are expected to be released by the end of this week.

Also read: Ofgem greenlights market-wide half-hourly settlement across the retail electricity market

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