More flexible, independent electricity system operator to be set up within National Grid

The new entity will have separate employees, directors and offices from other National Grid electricity subsidiary companies, and will be expected to "ensure and enable" more competition, coordination and innovation across the electricity system, according to plans published by Ofgem for consultation.

The new arrangements will give the system operator "a more proactive role in managing the system and working with others, while mitigating any conflicts of interest", said Ofgem chief executive Dermot Nolan.

"We need a more flexible energy system so that we can make the transition to a lower carbon future," he said. "A more flexible system will also ensure customers get the most out of new smart technologies."

The new arrangements will be implemented over the next two years, and are expected to be fully in place by April 2019, according to Ofgem.

National Grid owns and maintains the electricity and transmission network in England and Wales as National Grid Electricity Transmission (NGET), as well as the gas transmission network across Great Britain as National Grid Gas Transmission (NGGT). It also operates and balances both of these transmission networks in its role as transmission system operator (TSO).

The new structure would mitigate the potential or perceived conflicts of interest between the two roles, which were described as "intractable and growing" in a report by the House of Commons Energy and Climate Change Committee last year. The new system operator will also be better placed to adapt to a changing electricity system, and to make the second-by-second decisions needed to balance the electricity grid as more smart and local generators come on line, according to Ofgem.

National Grid welcomed the announcement.

"The government and Ofgem have recognised our vast experience and expertise in balancing the electricity system and ensuring the market runs efficiently," said John Pettigrew, the company's chief executive.

"We share the same priorities towards keeping customer bills down, increasing certainty, enabling greener energy and security of supply. We will be working closely with key stakeholders to achieve these objectives while further evolving the independent of the system operator role within National Grid," he said.

The Ofgem consultation closes on 10 March.