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Dermot Nolan chucked a hand grenade into his evidence to the energy and climate change select committee this week, with the comment that he sees a “strong case” for the establishment of an independent system operator (ISO), separate to National Grid. This would allay suspicions of a conflict of interest for Grid, which both advises the government on the future of the transmission network, and owns and operates the assets.
The idea of stripping Grid of its system operator role has been around for a while, not least as part of the ITPR (Integrated Transmission Planning and Regulation) project discussions. But it is extremely sensitive for Grid, and until now, has been spoken of in whispers. Nolan’s public comments this week notably move the agenda along, marking National Grid’s card for after the election.
Ministers of whichever party or parties form the next government will need to take a view. On the one hand, there is the potential for a conflict of interest when one company holds such a broad range of roles. It should be noted that Nolan distinctly said there is no evidence of any inappropriate behaviour on Grid’s part – but, as he says, the perception of a conflict can be as damaging as the reality.
On the other hand, Britain is a heavily loaded island system, which has been very well integrated, with one company making it work. National Grid has a solid record and unparalleled visibility of the full system; unpicking it could have unintended consequences.
Ofgem is working on a report for the next government, and then it will be for ministers to take a view. They will also need to consider whether an ISO, if established, should be complemented by a system architect, whether as a linked or separate organisation.
Calls for a system architect have been growing. It’s common sense, really. The once-predictable, controllable system of supply and demand is fracturing into thousands of tiny pieces. The result will be a complex web of intermittent capacity, demand peaks and troughs, and new and smart technologies that must have an expert hand guiding their development and structure if they are to deliver effectively on the country’s three energy objectives of sustainability, security of supply and affordability, in whichever order.
It is not clear how a new ISO would operate, or how broad and deep the implications for National Grid would be. What is clear, however, is that the very structure of the industry is on the table. The next government will make decisions that will shape energy for a generation – and not, it seems, just about the retail market.
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