Government should strip National Grid of energy operator role, says regulator

The Government should take away the running of the UK’s electricity system from National Grid and set up an independent body to avoid conflicts of interest, the energy regulator has said.

Ofgem said customers might save up to £4.8 billion between next year and 2050 if National Grid is stripped of the responsibility.

It added that an independent system operator would also help the country reach its targets to slash UK greenhouse gas emissions by the middle of the century.

“The energy system needs to go undergo the biggest transformation in over a century to meet Britain’s ambitious climate goals,” said Ofgem chief executive Jonathan Brearley.

“Ofgem is recommending the creation of an independent body to help deliver the fundamental changes in how we use energy.”

The Government’s 2050 net-zero target aims to reduce emissions as close to zero as possible and offset any remaining pollution through tree planting, and other ways of absorbing gases.

The regulator laid out four potential new forms for the independent body, but Mr Brearley declined to express a preference.

The options included setting up a private company with limited Government involvement or accountability; a private company where Government has a so-called golden share which lets it veto changes; an independent not-for-profit company; or an organisation owned by the public, like Network Rail.

All the suggestions would be an improvement on the current way of running things, Mr Brearley said, adding it is up to the Government to decide which it prefers.

“There’s a number of trade-offs between the models. If you get something that’s more like a government agency, you have to think really hard about the way it’s structured and how you maintain its independence to act in the interest of customers,” he said

“And, equally, if you go for some of the private regulated models, you’ve got to think about how you put the right incentives around the organisation to make sure you get what you need.

“So what we’ve said to Government is that each one of these models, we think, is a step forward from where we are today, but there really are a set of trade-offs that ministers need to work through with their officials to get to a model that we think works for the UK.”

The chief executive said his team had looked at several international options, but that none of them was directly transferable to the UK and its conditions.

He also said that the size of the payment which might have to be made to National Grid for stripping the function away from the company would depend on which of the models is chosen.

National Grid said it “operates one of the safest, most efficient and reliable power networks in the world, and has a critical role to play in the decarbonisation of the economy to reach net-zero”.

It added: “That’s why we are working closely with the Government, regulator and industry to explore what changes will be needed to achieve net-zero, and the role and potential divestment of the electricity system operator is an important part of that discussion.”

A lot more work is still needed to hammer out the detail of any reform, National Grid said.