Ofgem calls for new independent body to lead net zero energy transition

Energy regulator argues National Grid should be stripped of responsibility for managing Britain’s power grid due to conflict of interest concerns

Ofgem has called for the creation of a new independent body to oversee the UK’s transition to a net zero electricity system, in a landmark move that would strip responsibility for balancing Britain’s grid from National Grid in order to combat long-standing conflict of interest concerns.

National Grid has managed Britain’s grid since it was privatised over 30 years ago, but the UK’s energy regulator today recommended fully separating out this responsibility from the company, arguing a new independent body would be better placed to lead the path to net zero emissions at the lowest cost to consumers.

Ofgem believes both owning the energy networks as well as holding responsibility for keeping Britain’s lights on could create a conflict of interest at National Grid, with regional networks playing an increasingly important role in balancing the grid as more wind, solar and battery storage come online.

In 2019 a legally separate function was created within National Grid – National Grid Energy System Operator (ESO) – to manage the power system in a bid to help avoid conflicts of interest. However, Ofgem is now recommending the government goes even further and considers a full separation of these responsibilities.

Both the regulator and the UK government have acknowledged that any additional responsibilities in the coming years, such as helping growing numbers of electric vehicle (EV) owners to charge up their cars and growing renewable power capacity, may require greater independence from National Grid.

Ofgem, which is currently carrying out a review of the management of Britain’s energy system, estimates a new independent body with new responsibilities for running the grid could save consumers between £400m and £4.8bn between 2022 and 2050.

These 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 deliver on its target for net zero emissions by 2050.

Jonathan Brearley, Ofgem’s chief executive, argued the changes were necessary as Britain’s energy system “needs to undergo the biggest transformation in over a century” in order to meet the country’s climate goals.

“Ofgem is recommending the creation of an independent body to help deliver the fundamental changes in how we use energy,” he said. “This would help bring forward green economic growth, accelerate our journey towards net zero and save consumers money on their energy bills.”

It follows the launch of the long awaited Energy White Paper late last year, which set out the government’s broad thinking for decarbonising the power and heating system over the coming decade and beyond, with more green policies covering transport, industry, and heating expected in the coming months ahead of the crucial COP26 Climate Summit in Glasgow later this year.

Business Secretary Kwasi Kwarteng welcomed Ofgem’s “contribution to the debate” over the future structure of Britain’s grid, and promised to “consider its recommendations thoroughly”.

“Meeting our far-reaching targets will mean changes to how we turn the lights on, travel to work and even cook our meals,” he said. “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.”

Reacting to Ofgem’s recommendation that the company’s powers are split in the near future, National Grid said it was working closely with the government, Ofgem, and industry to “explore what changes will be needed to achieve net zero, and the role and potential divestment of the ESO is an important part of that discussion”.

The grid company emphasised that “ambitious” government policy was needed to deliver a transition to a net zero energy system, alongside a clear set of principles for governing requirements of a future energy system and frameworks to support them.

“An industry structure that enables long-term thinking and allows the SO to take on new roles as part of the energy transition is an important step in the market and regulatory reform necessary to deliver net zero,” National Grid’s statement said. “Significant further work is needed to determine the detail of that structure.”

Last week National Grid confirmed a second landmark electricity subsea link between the UK and France is now operating at full capacity, allowing the two countries to trade low carbon power through a joint venture with French Transmission System Operator RTE.

In related news, global technology company Wärtsilä announced today it is teaming up with Scottish and Southern Electricity Networks (SSEN) – part of energy giant SSE – to install a new energy storage system on the Shetland Islands in Scotland to deliver a more reliable power supply.

The 8MW system is to be installed at the main power station operated by SSEN in the Shetland Islands’ capital Lerwick – which runs on diesel fuel – in a bid to help drive down emissions from the plant, Wärtsilä said.

The firm said it would also provide increased energy system stability to enable existing wind turbines on the islands greater penetration onto the electricity grid.

“The Shetland Islands are leading the way and providing a blueprint for other islands to follow,” said Bent Iversen, Senior Business Development Manager, Wärtsilä Energy. “The learnings will enable us to plan the best net zero pathway for larger island nations – such as the whole of the UK.”

Read more: businessgreen.com