According to reports, the government is now actively thinking of removing the electricity system operator function from National Grid and establishing an independent not-for-profit SO instead. Over the last year, IGov has been arguing for the creation of an independent SO as part of a wider rethink of energy system governance. One reason is about perverse incentives – currently National Grid is supposed to co-optimise transmission and system operation, but the profits from the former (£849 million in 2011/12) dwarf those from the latter (£9 million). This implies that if you really want system operation working in the public interest and not creating a distorted case for further transmission build out, then it is a good idea to separate the two more thoroughly. At the same time, Ofgem has struggled to find an effective incentive framework for Grid’s SO activities, which implies that regulation of a private SO is not the best approach. Many other countries also have not-for-profit ISOs which function well. However, the most important argument for having an ISO is that it can act as a key delivery body not only for system security, but also for the transformation of the energy system towards a low-carbon, more decentralised future. This is because the system operator, unlike DECC or Ofgem, has the essential technical expertise and knowledge of the details of the system. But this is also where a danger lurks. The government seems to be thinking about simply hiving off the electricity SO role from National Grid and running it independently. This is not enough; transformation of the energy system needs a far more integrated approach.
IGov 4th March 2016 read more »