Split off power system operator from National Grid, UK energy regulator says

The U.K.'s Office of Gas and Electricity Markets, or Ofgem, is recommending the creation of a fully independent electricity system operator, separating the role completely from National Grid PLC.

The operation of the U.K. electricity system was handed to National Grid Electricity System Operator Ltd., a legally separate division within National Grid, in 2019.

But in a Jan. 25 report, Ofgem recommended fully separating the system operator from National Grid. It said the move would further progress an existing policy to manage commercial conflicts of interest between the company's ownership of transmission networks and an expansion to its electricity system operation functions.

"We see reform of the ownership and role of the system operators as a real opportunity to bring the outstanding engineering expertise within our system operators to bear on the net zero challenge," the report said.

As part of the proposed reform, the energy regulator wants system operators to take on additional responsibilities including providing independent advice to government, more direct planning of onshore and offshore electricity networks, and taking a more active role in designing and planning the future energy system.

Analysts at Barclays said Ofgem's recommendation was broadly in line with their expectations, given the legal split in 2019, and that a final decision will rest with the U.K. government.

In a note to clients Jan. 25, the analysts added that the system operator segment only has a small financial impact on National Grid's business, valuing the unit at £300 million.