- Getting to net zero requires a transformation in how we drive our cars, heat our homes and generate our electricity
- Greater strategic planning and management of our energy system will be crucial to deliver benefits while minimising costs and maintaining secure energy supplies
- Ofgem recommends an independent body should lead the path to net zero, fully separating out running the electricity system from National Grid
Ofgem has recommended the creation of an independent body to help lead the path to net zero at the lowest cost to consumers.
The body would be fully separated from National Grid and run the electricity system, helping to charge millions of electric vehicles and enabling a huge increase in renewable power while maintaining secure energy supplies.
Last month, the government committed to consult on reviewing the management of the energy system.
It acknowledged that any additional responsibilities may require greater independence from National Grid, which has managed the energy system since privatisation.
Ofgem, which will work closely with government in its review, has estimated that an independent body with new responsibilities for running the electricity system could save consumers £0.4 - £4.8 billion between 2022 and 2050.
Its new responsibilities would include taking a more active role in designing and planning new grid infrastructure and providing independent advice to the UK Government on how best to hit its target of net zero emissions by 2050.
This body, or Independent System Operator, would be fully separated from National Grid, which also owns the electricity transmission network, to avoid any perceived or real potential conflict of interest.
In 2019 a legally separate function was created within National Grid to manage the electricity system to help avoid this. (see notes)
Given the scale of the net zero challenge, Ofgem is recommending government goes further and considers full separation. Full separation would help ensure future decisions on how to manage the energy system are taken in the interests of consumers, helping to keep costs as low as possible.
Jonathan Brearley, chief executive of Ofgem, said:
“The energy system needs to go undergo the biggest transformation in over a century to meet Britain’s ambitious climate goals.
“Ofgem is recommending the creation of an independent body to help deliver the fundamental changes in how we use energy.
“This would help bring forward green economic growth, accelerate our journey towards net zero and save consumers money on their energy bills.”
Kwasi Kwarteng, Business and Energy Secretary, said:
“As the first major economy to commit in law to net zero carbon emissions by 2050, the UK is leading the green industrial revolution.
“Meeting our far-reaching targets will mean changes to how we turn the lights on, travel to work and even cook our meals. Which is why we must ensure that the energy system is designed to provide the very best for consumers and allows energy companies to keep innovating as we build back greener.
“I welcome Ofgem’s contribution to the debate over the future structure of our energy system and will consider its recommendations thoroughly."
(1) Following a joint statement from Ofgem, UK government and National Grid, on April 1 2019, the Electricity System Operator became a legally separate function within National Grid PLC responsible for carrying out the system operator functions. The objective was to help to mitigate any perceived or real potential conflict of interest. Ofgem committed to reviewing the effectiveness of this separation during the course of 2020/21. The independent body recommended by Ofgem today following our review of energy system operation would be known as the Independent System Operator.
(2) National Grid’s current responsibilities for managing the energy system include:
- real-time operation of the electricity and gas systems
- forecasting how the energy system will look in decades to come
- supporting the long-term development of the gas and electricity transmission networks.
As part of this, National Grid Electricity System Operator (ESO) is currently responsible for ensuring the stable and secure operation of the national electricity transmission system and supporting the planning and coordination of electricity networks.
Ofgem’s review has found that there is a good case for separating certain gas network planning functions from National Grid and giving this to the new Independent System Operator. However additional complexity and a less certain future for the gas system means separating all gas system operation functions from National Grid requires further consideration.
New responsibilities for the Independent System Operator could include:
- Providing independent recommendations to government and Ofgem on new gas and electricity network investment proposals, as well as the costs and trade-offs on pathways to reach net zero.
- Taking a more proactive role in the balancing of supply and demand across both local and national electricity networks. This could include creating new opportunities to reward consumers and generators for being flexible in the way they use electricity.
- Taking on wider planning responsibilities for new infrastructure, for example the design and construction of an offshore grid connecting offshore wind farms to the UK.
There are a range of different options available for the structure for the Independent System Operator, including alternatives to a company.
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