System Operator incentives

We develop incentive frameworks for the companies that operate the gas and electricity transmission systems. Our System Operator (SO) incentive schemes are designed to drive improvements in the performance of the SOs in order to unlock benefits for consumers. This is done through extensive consultation with the SO and other stakeholders, in order to develop a fair and efficient set of incentives.

You can find System Operator incentives information relating to gas and to gas/electricity issues combined in the publications and updates list below.

The Gas System Operator Incentives Framework

National Grid Gas (NGG) is the gas System Operator (SO) responsible for balancing the system on a continuous basis across Great Britain (GB). To do this, the SO buys and sells gas and procures associated services. It also provides other services to market participants, such as forecasts of demand. The SO is obliged to perform its role in an economic and efficient manner.

The outputs that the gas SO is expected to deliver reflect the broad role that the gas SO plays in delivering the objective of the gas SO regulatory framework.

The linkages between SO and Transmission Owner (TO) frameworks are already strong given the SO internal cost price control is covered by RIIO-T1 and the internal cost allowances make an important contribution to the delivery of the SO external function. A key part of determining the SO incentives is ensuring NGG achieves value for money in delivering the SO outputs.

Most of the current SO incentives were set for the current price control period, RIIO-T1 (2013-2021) but some were set for a shorter period. This was to allow for the effectiveness of new incentives or substantial changes to existing incentives to be assessed before committing to longer timescales. All of the incentives are due for review as part of the RIIO-T2 price control period, which will commence in 2021.

The Electricity System Operator Incentives Framework from April 2018

Our rapidly changing energy system needs an Electricity System Operator (ESO) that proactively responds to system challenges and maximises consumer benefits across the full spectrum of its roles. We need the ESO to work more closely with its stakeholders and other energy sector parties to ensure there is a coordinated approach to system operation and planning. We also want a more dynamic ESO that readily responds and adapts to new developments.

In order to encourage these behaviours, we have introduced a new incentive regime for the ESO - changing it from a narrower mechanistic scheme to a broader evaluative scheme - from April 2018. The new scheme now involves a reward or penalty, which will be determined from a holistic evaluation of ESO performance. We have clearly set out the expectations for the roles the ESO should fulfil through principles and supporting guidance. The onus is on the ESO to use its expertise to organise its resources to best meet and exceed these expectations to drive additional benefits for consumers. The scheme involves a performance evaluation and recommendation by an independent panel of experts and stakeholders prior to our decision on whether any incentive payments or penalties should be paid.

If you would like to know more about the ESO incentive scheme, get in touch with us at ESOperformance@ofgem.gov.uk. The ESO’s stakeholders can also get in touch with us directly to provide views or evidence on the ESO’s performance across the full spectrum of its roles at the mailing list above.

Publications and updates

  • Published: 28th Aug 2019
  • Closing: 25th Sep 2019
  • Consultations and responses
  • 2 Associated documents
We confirm our approach to the ESO’s RIIO-2 funding model, and launch further consultations on the financial methodology and incentives design.

  • Published: 9th Aug 2019
  • Decisions
  • 1 Associated documents
This letter sets out the Authority’s decision on the financial incentive value for the ESO for 2018-19.

  • Published: 31st Jul 2019
  • Decisions
  • 2 Associated documents
This letter sets out the Authority's decision to direct an adjustment of £0 to the term BSTAt of NGESOs licence for relevant year 2018/19.

  • Published: 31st Jul 2019
  • Decisions
  • 1 Associated documents
This document sets out the Authority's decision to approve the 2019/2020 Black Start Strategy and Procurement Methodology submitted on 3 April 2019 by National Grid Electricity System Operator under Special Condition 4G.

  • Published: 28th Jun 2019
  • Reports and plans
  • 1 Associated documents
We are publishing the ESO Performance Panel’s end of year evaluation report on the Electricity System Operator’s performance for the 2018-2019 regulatory period.

  • Published: 1st May 2019
  • Open letters and correspondence
  • 1 Associated documents
We have reviewed the ESO Forward Plan 2019-21 and the stakeholder responses the ESO received as part of its consultation and have provided our view of whether the Forward Plan meets our expectations. This letter outlines Ofgem’s Formal Opinion of the ESO...

  • Published: 25th Mar 2019
  • Decisions
  • 1 Associated documents
This letter presents the Authority’s decision to not to use our power of direction to veto C16 statement changes.

  • Published: 6th Mar 2019
  • Open letters and correspondence
  • 1 Associated documents
This document contains the ESO Performance Panel's views on the Electricity System Operator’s Forward Plan consultation 2019-21.

  • Published: 6th Mar 2019
  • Open letters and correspondence
  • 1 Associated documents
This document contains Ofgem’s views on the Electricity System Operator’s Forward Plan consultation 2019-21.

  • Published: 15th Nov 2018
  • Open letters and correspondence
  • 1 Associated documents
See our open letter setting out changes proposed to the definition of “licensee's transmission system” in the standard conditions of all electricity transmission licences.

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