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: 3rd Jul 2017
  • Decisions
  • 2 Associated documents
The Authority’s decision on NGET's notification of feasibility study costs for the year 2016/17.

  • Published: 28th Apr 2017
  • Decisions, Open letters and correspondence
  • 1 Associated documents
This letter sets out our decision on the costs incurred by National Grid Electricity Transmission (NGET) related to the procurement, testing and use of SBR and DSBR services during Winter 2016/17.

  • Published: 6th Apr 2017
  • Decisions
  • 3 Associated documents
This letter sets out the Authority’s decision to modify National Grid’s licence to introduce a one-year interim incentive scheme for the electricity System Operator (SO) for the period 2017/18 and establish a new regulatory framework for Black Start.

  • Published: 7th Mar 2017
  • Decisions
  • 2 Associated documents
Our decision to issue a direction to National Grid Electricity Transmission (NGET) of removing the SBR and DSBR cost recovery arrangements and obligations on NGET for 2017/18.

  • Published: 1st Mar 2017
  • Closed: 29th Mar 2017
  • Consultations and responses
  • 8 Associated documents
This document sets out our final proposal for the System Operator Incentives scheme for 2017/18. It also launches our statutory consultation on the required amendments to NGET’s licence to introduce the incentive scheme.

  • Published: 7th Feb 2017
  • Closed: 10th Mar 2017
  • Consultations and responses
  • 23 Associated documents
This consultation launches our review of how the SO regulatory framework can be designed to support our proposals for the SOs future role and structure, which we published 12 January.

  • Published: 9th Jan 2017
  • Closed: 3rd Feb 2017
  • Consultations and responses
  • 13 Associated documents
This consultation letter sets out our proposed approach to removing the Supplemental Balancing Reserve and Demand Side Balancing Reserve cost recovery arrangements for 2017/18 in light of the Early Capacity Auction for that year.

  • Published: 21st Dec 2016
  • Closed: 31st Jan 2017
  • Consultations and responses
  • 17 Associated documents
These are our initial proposals for the interim electricity System Operator (SO) incentives scheme.

  • Published: 28th Oct 2016
  • Decisions, Open letters and correspondence
  • 2 Associated documents
This letter sets out our decision to direct NGET to make an amendment to the SBR Procurement and Operational Methodologies for 2016/17 to include 31 October 2016 due to an exceptional change in circumstances since the methodologies were approved.

  • Published: 5th Oct 2016
  • Decisions, Open letters and correspondence
  • 1 Associated documents
This letter sets out our decision to approve NGET’s proposed Demand Side Balancing Reserve (DSBR) and Supplemental Balancing Reserve (SBR) Operational Methodologies.

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