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: 29th Sep 2016
  • Decisions
  • 1 Associated documents
This letter sets out our determination of the allowed outage cost adjustment value for 2015/16 as proposed by National Grid Electricity Transmission.

  • Published: 23rd Aug 2016
  • Decisions
  • 1 Associated documents
This letter sets out the Authority’s determination of £54 million as an Income Adjusting Event related to Black Start capability for 2016/17.

  • Published: 22nd Aug 2016
  • Decisions
  • 1 Associated documents
This letter sets out our decision to approve NGET’s proposed Demand Side Balancing Reserve (DSBR) Procurement Methodology.

  • Published: 4th Aug 2016
  • Closed: 15th Sep 2016
  • Consultations and responses
  • 18 Associated documents
Our initial consultation on our approach to System Operator (S) incentives from April 2017.

  • Published: 8th Jul 2016
  • Decisions
  • 1 Associated documents
See the Authority’s decision to approve sensitivities for the tender round which closed on 30 November 2015 of the Supplemental Balancing Reserve and Demand Side Balancing Reserve.

  • Published: 8th Jul 2016
  • Decisions
  • 1 Associated documents
Decision on the recovery of costs for Supplemental Balancing Reserve and Demand-Side Balancing Reserve for winter 2015-16.

  • Published: 8th Jul 2016
  • Open letters and correspondence
  • 1 Associated documents
Publication of National Grid Electricity Transmission's Notice of Proposed Outage Cost Adjusting Event 2015/16 as required under Special Licence Condition 4C ahead of final determination by the end of September 2016.

  • Published: 1st Jul 2016
  • Decisions
  • 1 Associated documents
Direction to allow the Authority further extended time to make an assessment of Contingency Balancing Reserve costs.

  • Published: 1st Jul 2016
  • Decisions
  • 2 Associated documents
Decision on NGET's notification of feasibility study costs for the year 2015/16.

  • Published: 8th Jun 2016
  • Closed: 14th Jul 2016
  • Consultations and responses, Open letters and correspondence
  • 25 Associated documents
These documents consult stakeholders on the proposed Income Adjusting Event submitted by National Grid Electricity Transmission in relation to the 2015-17 Electricity System Operator Incentives Scheme and disclose the notice received by the Authority.

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