National Grid faces being stripped of its role managing Britain’s electricity system after the energy regulator concluded an independent body would deliver more value for bill payers and would better oversee the changes required to meet the UK’s 2050 net zero emissions target.
Ofgem said on Monday that creating a new independent body to oversee the electricity system — a role that involves the constant matching of supply and demand — could potentially save bill payers up to £4.8bn between 2022 and 2050.
“Greater strategic planning and management” of the electricity system would also be required to meet the legally binding 2050 goal, the regulator said.
The government has already committed to an investigation into whether the so-called electricity system operator should effectively be renationalised, but Ofgem’s conclusions mark a stark turnround from four years ago when a previous probe by the regulator saved National Grid from break-up.
Instead the electricity system operator was spun out into a legally separate body that was still part of the National Grid Group. National Grid has managed the electricity system since privatisation in 1990, the costs of which are met by consumers through their energy bills.
Energy experts such as Dieter Helm of Oxford university have long called for management of the system to be handed to a publicly owned body. Former Labour party leader Jeremy Corbyn also laid out plans during his tenure to renationalise the energy system — although he also wanted to take back into public ownership the pipes and wires currently owned by private companies.
Under Ofgem’s recommendations, National Grid would maintain ownership of the high voltage electricity transmission network in England and Wales, which forms the backbone of the system.
Managing Britain’s electricity system has already become more challenging as renewables such as wind and solar — which have variable output — make up an ever greater part of the system, requiring National Grid to find new ways of balancing the grid and ensuring it remains stable. The role will become complicated further as more sectors of the economy such as transport and heating electrify.
The company has in recent months issued a series of warnings over stretched supplies as weather conditions and a number of generators being offline have resulted in a smaller than expected buffer between supply and demand, although it has always succeeded in securing additional capacity and avoiding blackouts.
Ofgem chief executive Jonathan Brearley said: “The energy system needs to 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.”
New business secretary Kwasi Kwarteng, who in an interview with the Financial Times in 2019 first raised the prospect that National Grid could be stripped of its flagship role, said on Monday that he welcomed Ofgem’s “contribution to the debate over the future structure of our energy system and will consider its recommendations thoroughly”.
Analysts have previously said the electricity system operator role was “financially irrelevant” to National Grid and investors would welcome its departure, although compensation would have to be determined should the government decide to create a new independent body.
National Grid said it would “continue to work closely with government and with Ofgem over the coming months”. Its share price was up 0.3 per cent in early London trading.