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: 15th Dec 2017
  • Closed: 19th Jan 2018
  • Consultations and responses
  • 6 Associated documents
Consultation seeking views from stakeholders on our minded to position for the Electricity System Operator regulatory and incentive framework from April 2018.

  • Published: 1st Dec 2017
  • Closed: 26th Jan 2018
  • Consultations and responses
  • 10 Associated documents
This informal consultation seeks views on separation of National Grid’s electricity transmission licence into Transmission Owner and System Operator functions

  • Published: 29th Nov 2017
  • Decisions
  • 2 Associated documents
This letter sets out our approval of the SO Methodologies to be applied from 1 April 2017 to 31 March 2018.

  • Published: 31st Oct 2017
  • Decisions
  • 1 Associated documents
This letter sets out decision to reject the proposed solution to the Operating Reserve Cash Price model.

  • Published: 9th Oct 2017
  • Decisions
  • 2 Associated documents
This letter sets out our determination of the allowed outage cost adjustment value for 2016/17 as proposed by NGET.

  • Published: 29th Sep 2017
  • Decisions, Open letters and correspondence
  • 2 Associated documents
This open letter sets out our decision to remove the remaining provisions relating to Supplemental Balancing Reserve (‘SBR’) and Demand Side Balancing Reserve

  • Published: 28th Jul 2017
  • Closed: 8th Sep 2017
  • Consultations and responses, Open letters and correspondence
  • 6 Associated documents
This consultation sets out our proposed approach to removing the provisions relating to SBR and DSBR from NGET’s licence.

  • Published: 26th Jul 2017
  • Decisions
  • 1 Associated documents
This document set out our decision to approve the Black Start Strategy and Procurement Methodology submitted by National Grid as System Operator.

  • Published: 11th Jul 2017
  • Guidance
  • 4 Associated documents
This Working Paper updates stakeholders on our latest thinking for the future electricity SO regulatory framework and incentives scheme.

  • Published: 11th Jul 2017
  • Decisions
  • 2 Associated documents
This letter sets out the formal direction that directs NGET to remove the correction to the error in the Operating Reserve Cash Price model, pursuant to Special Condition 4C.45 of the Electricity Transmission Licence.

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