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: 28th Oct 2014
  • Decisions
  • 0 Associated documents
Following this consultation we published our initial proposals and then final proposals on the extension of the current framework. Licence conditions applying to this framework took effect from 1 April 2015.

  • Published: 28th Oct 2014
  • Closed: 25th Nov 2014
  • Consultations and responses
  • 8 Associated documents
This document sets out our initial proposals for a two year incentive scheme for the electricity System Operator (SO).

  • Published: 27th Jun 2014
  • Decisions
  • 1 Associated documents
This document sets out the Authority's determination regarding the applications received under the System Operator Innovation Roll-Out Mechanism (SO-IRM).

  • Published: 17th Jun 2014
  • Closed: 15th Jul 2014
  • Consultations and responses
  • 11 Associated documents
This consultation sets out our proposals on the development of future incentive schemes for the electricity system operator.

  • Published: 10th Jun 2014
  • Decisions
  • 1 Associated documents
Direction to extend submission date of the operational methodologies for the new balancing services.

  • Published: 10th Jun 2014
  • Decisions
  • 1 Associated documents
Decision on volume and procurement methodologies for the funding arrangements of the new balancing services.

  • Published: 11th Apr 2014
  • Decisions
  • 1 Associated documents
Decision on funding arrangements for new balancing services.

  • Published: 28th Mar 2014
  • Decisions
  • 2 Associated documents
This letter sets out the Authority’s approval of an increase to National Grid Electricity Transmission’s (NGET’s) Black Start target by £14.9 million.

  • Published: 7th Mar 2014
  • Closed: 4th Apr 2014
  • Consultations and responses, Decisions
  • 5 Associated documents
This document sets out our final proposals for the funding arrangements for NGET.

  • Published: 19th Dec 2013
  • Guidance
  • 2 Associated documents
These documents provide information regarding applications for the System Operator Innovation Roll-Out Mechanism. One document provides guidance to stakeholders about the process that the Authority will follow in assessing any applications made through...

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