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: 22nd Nov 2013
  • Closed: 6th Dec 2013
  • Consultations and responses
  • 9 Associated documents
Following two rounds of consultation, National Grid (NGET) has made an application to the Gas and Electricity Markets Authority (the Authority) to introduce two new balancing services to support it in balancing the system, given margins are expected to...

  • Published: 27th Sep 2013
  • Decisions
  • 2 Associated documents
This document sets out the Authority's determination on the income adjusting event notices submitted to Ofgem by National Grid Electricity Transmission (NGET) on 28 June 2013. The Authority has determined that the overall income adjustment will be £7.3...

  • Published: 9th Aug 2013
  • Decisions
  • 1 Associated documents
Decision for Electricity System Operator Incentives: final proposals on a scheme for 2013.

  • Published: 5th Jul 2013
  • Open letters and correspondence
  • 12 Associated documents
This letter asks for stakeholder views on the proposed Income Adjusting Events submitted by National Grid Electricity Transmission in relation to the 2011-13 System Operator Incentive Scheme.

  • Published: 27th Jun 2013
  • Closed: 26th Jul 2013
  • Consultations and responses
  • 25 Associated documents
This letter invites views from all interested stakeholders on the potential requirement for National Grid Electricity Transmission plc (NGET) to procure new balancing services to support an uncertain mid-decade electricity security of supply outlook

  • Published: 31st May 2013
  • Closed: 28th Jun 2013
  • Consultations and responses
  • 3 Associated documents
This document sets out final proposals for National Grid Electricity Transmission System Operator incentives to be applied from 1 April 2013. It also includes the statutory licence notice.

  • Published: 6th Mar 2013
  • Closed: 5th Apr 2013
  • Consultations and responses
  • 7 Associated documents
We have set out for consultation our proposals for the key characteristics of an incentive scheme on the electricity system operator from 2013.

  • Published: 26th Oct 2012
  • Closed: 21st Dec 2012
  • Consultations and responses
  • 11 Associated documents
This paper builds on our initial proposals for incentives on the electricity System Operator from 2013 providing more details.

  • Published: 17th Sep 2012
  • Other
  • 1 Associated documents
See our direction issued in response to NGET’s consultation on changes to the BSIS modelling methodology statements.

  • Published: 27th Jul 2012
  • Closed: 21st Sep 2012
  • Consultations and responses
  • 12 Associated documents
This document sets out our initial proposals for National Grid System Operator Incentives for gas and electricity from April 2013.

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