(Recasts, adds detail, context, analyst, Ofgem CEO)
By Oleg Vukmanovic
Jan 12 Britain's National Grid will
escape with an arms-length separation of its two main businesses
rather than a formal break-up under proposals by energy
regulator Ofgem to ensure the group avoids conflicts of
As part of a government review into National Grid's role as
both operator and owner of Britain's power grid, the watchdog
and the energy ministry set out plans on Thursday for the power
system operator division to become a separate company, though
still owned by National Grid.
RBC Capital Markets analyst Maurice Choy said that the
proposal "seems to be a vote of confidence in National Grid's
expertise in managing the supply and demand of power in a
changing energy landscape", referring to the growing clamour for
more renewable energy.
By far the biggest share of National Grid's profit comes
from its ownership of power transmission lines and gas
pipelines, with its role as power system operator contributing
only 1 percent to 1.5 percent to group earnings, Choy said.
The revised structure could be set up with its own board by
April 2019, as well as a sub-committee to review and ensure that
investments put consumers' interests first.
Under the proposals, which are subject to a consultation
period that closes on March 10, the new entity would have its
own staff and offices, splitting off decisions about new
As more renewable energy plants are built and as users
manage their own consumption via so-called smart meters, future
investment may need to focus on non-transmission assets, such as
battery storage schemes.
National Grid's main activity of building and operating
power transmission lines, gas pipelines and inter-connectors
would not be affected, a National Grid spokesman said.
The group backed the plans, saying it would help it to meet
the challenges facing Britain's increasingly complex energy
system as it shifts toward low-carbon renewables as ageing
fossil-fuel plants are phased out.
The new operator would carry out existing functions such as
balancing power supplies as well as roles such as promoting
so-called smart solutions to manage increasingly complex energy
"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," Ofgem Chief Executive Dermot Nolan said.
Britain's electricity generation has come under increasingly
close scrutiny as a plan to close coal-fired power stations by
2025 and weak economic conditions for investment in new gas
plants needed to replace them has created concerns about power
($1 = 0.8147 pounds)
(Editing by David Goodman)