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National Grid operations unit to become separate unit

National Grid gets to keep its systems operator unit but will be expected not to interfere in the way it is run

Electricity pylons
The proposals are designed to mitigate potential or perceived conflicts of interest

Ofgem, the UK energy regulator, has proposed that the electricity system operations unit of National Grid PLC (LON:NG.) become a legally separate company.

Under the proposal, National Grid would retain ownership of the electricity system operator, but the unit would operate as an autonomous unit.

Ofgem has proposed that the new company should have separate staff and offices to other National Grid electricity subsidiary companies, and its directors be barred from sitting on the National Grid board or the boards of any other National Grid subsidiaries.

READ: Ofgem warns gas and electricity network owners to expect lower prices in future

The proposal mirrors to some extent the decision by telecoms watchdog Ofcom earlier this year to stick BT’s Openreach broadband arm behind a “Chinese wall”.

Ofgem said greater separation would allow the new system operator to “play a more proactive role in managing a more flexible electricity system”.

“A more independent system operator will help to keep household bills down by working to ensure and enable more competition, coordination and innovation across the system,” Ofgem’s statement said. 

The system operator role includes balancing the electricity grid on a second-by-second basis. Ofgem expects this role to evolve, with the operator expected to work more closely with local electricity distribution network operators to manage electricity flows across the grids.

“We need a more flexible energy system so that we can make the transition to a lower carbon future. A more flexible system will also ensure customers get the most out of new smart technologies,” claimed Dermot Nolan, chief executive of Ofgem.

“As the system changes, it’s important that all the monopoly networks adapt. Having a legally separate system operator will allow it to take on a more proactive role in managing the system and working with others, while mitigating any conflicts of interest,” Nolan said.

Greg Clark, the Business and Energy secretary, said separating the system operator would give greater confidence to investors that the UK “offers a level playing field for companies wanting to be part of our clean, secure and flexible energy system”.

Shares in National Grid were little changed this morning.

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