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: 11th Jul 2018
  • Decisions
  • 2 Associated documents
Decision further to Limejump Energy Limited’s request for Derogation under Standard Condition 11.1 of the Electricity Supply Standard License Conditions.

  • Published: 11th Jul 2018
  • Decisions
  • 2 Associated documents
Decision further to National Grid Electricity Transmission plc’s request for Derogation under Standard Licence Condition C14 (Grid Code).

  • Published: 3rd Jul 2018
  • Decisions
  • 1 Associated documents
This letter sets out the Authority’s decision to approve the Black Start Strategy and Procurement Methodology submitted by NGET on 2 April 2018.

  • Published: 14th May 2018
  • Open letters and correspondence
  • 1 Associated documents
As part of the new Electricity System Operator’s regulatory and incentives framework, we have provided our view of the ESO’s Forward Plan 2018-19.

  • Published: 27th Apr 2018
  • Decisions
  • 1 Associated documents
This letter sets out the formal direction, directing NGET to include the correction to the Model Inaccuracy in the embedded generation output in the SO Models.

  • Published: 28th Mar 2018
  • Decisions
  • 3 Associated documents
We have decided to modify NGET’s special licence conditions in order to introduce new reporting and incentive arrangements for the ESO from 2018/19 onwards.

  • Published: 27th Mar 2018
  • Decisions
  • 1 Associated documents
This letter presents the Authority’s decision to approve changes to National Grid’s C16 statements.

  • Published: 7th Mar 2018
  • Open letters and correspondence
  • 1 Associated documents
We have responded to the Electricity System Operator’s Forward Plan consultation 2018-19.

  • Published: 23rd Feb 2018
  • Decisions
  • 3 Associated documents
This is our policy decision on a new regulatory and incentives framework the Electricity System Operator from April 2018.

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