National Grid PLC (LSE:NG.)’s expected sale of its electricity system operating (ESO) will leave control of Britain’s energy grid in public hands for the first time since the 1990s.
Following years of higher bills and growing strain on the grid, the government’s takeover marks a step towards the long-awaited reform it has promised will cut both.
Indeed, the ESO said “unparalleled change” was needed following news it would be taken into public ownership under the Energy Act last year.
Its publicly-controlled replacement, the National Energy System Operator (NESO), would shift grid operations “from a siloed approach to a whole system perspective,” ESO added at the time.
However, questions over how this will be done remain, given the ESO’s key job revolves around ensuring energy supply meets demand in real-time.
This has historically left the operator at the mercy of generators’ demands as it constantly buys energy or pays for power stations to cut supply to ensure a balanced grid.
Both Drax Group (LSE:DRX) and SSE PLC (LSE:SSE) have been fined in recent years for overcharging the ESO when asked to reduce output, for instance.
On the other hand, the ESO generated an additional £800 million last year as such balancing costs came in lower than had been forecast when consumer bills were set.
Such payout was not enjoyed by National Grid though, with any benefits from balancing the grid put to reducing bills in future, leaving the ESO’s underlying profit at £80 million in 2024.
Energy analyst Tom Haddon commented National Grid would likely be “very happy” about the £630 million ESO sale to the government as a result.
“The amount of risk it has to manage (i.e. the ESO could in theory topple the entire system in error) for what was peanuts in profitability always felt a bit out of kilter to me,” he said in an X post on Friday.
Such responsibility being taken on by the government would appear to make sense for the energy firm then, leaving National Grid as the owner of large swathes of Britain’s grid but not having to bear the burden of running it on a day-to-day basis.
For the government, the new NESO’s position overseeing operations on both the UK gas network and now the electricity grid will likely make planning far simpler.
Alongside balancing supply and demand, the ESO has been responsible for greenlighting new energy projects and linking them to the power grid since the industry was largely privatised under Margaret Thatcher's government in the 1990s.
Years down the line, the ESO has found itself grappling with rules only recently changed meaning every project had to be assessed regardless of whether it was ready to be built.
The result was a decade-plus-long waiting list for the likes of new wind and solar farms waiting to join the grid.
Ofgem said last November this equated to some 400 gigawatts (GW) worth of new power.
Given Britain’s efforts to run a net zero grid by 2035 and brace for growing future energy demand, which currently peaks around the 60GW mark but relies heavily on gas, unlocking such projects has been viewed as vital.
How successful the new public body is in tackling grid constraints and prioritising is set to determine any benefits to consumers as a result.
Industry body RenewableUK had hailed “efficiencies” that could be found by a system operator with a full view of the energy system previously.
Haddon added the shift of operations into public hands would make for “an interesting few years” ahead, given the ESO’s own calls for reforms to drive market competition.