Ofgem has confirmed that National Grid should proceed with plans to set up a new legally separate company to carry out its electricity system operator function within National Grid Group.

The electricity system operator (ESO) has a central role in planning and operating the electricity system. The role and the form of the ESO needs to adapt to keep pace with a system that is going through a process of change.

Ofgem said it expected the new system operator company to be fully operational by April 2019. The plans will allow the separate organisation to be spun off as a fully independent system operator (ISO) at a later stage.

Steve Thomas, national secretary for National Grid for trade union Prospect, said: ”We are also seeking assurances that protect terms and conditions for our members;  a commitment to job security, assurances on how career and skills development are not diminished and that collective bargaining is maintained.

“We welcome the end of uncertainty and the confirmation that the Electricity System Operator (ESO) will remain in the National Grid Group, albeit with legal separation. This decision recognises that the changing energy market is best supported by experience and know-how of National Grid and our members rather than unnecessary fragmentation.”

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System Operator to have legal separation, specific licence, new incentive scheme

The New Power Expert Forum view

In a June 2016 survey, a majority of New Power’s Expert Forum said GB’s high-voltage electricity network should have an independent system operator (ISO) instead of leaving the responsibility with a ring-fenced part of National Grid.

The ISO model would provide more freedom to act and to direct the system, Forum members thought, and there was a “need to have a totally impartial, accountable system operator”. They raised the growing risk of conflicts of interest between National Grid’s roles.

But Forum members sounded a note of ­caution about the change. It should happen “as long as National Grid’s expertise as system operator [SO] is not lost”, one said, and another noted that “it needs to be closely aligned with National Grid”. Clearly, the current SO’s role could change to that of ISO. In that case, “some disposals may be needed, especially of interconnectors”.

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Further debate: Exeter University’s Catherine Mitchell argues in an interview with New Power that the system operator role should be taken from National Grid. She says, “We have to separate it out and give it new incentives. It needs a not for profit state-owned company. National Grid would be required to disinvest.”

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