National Grid should be broken up, say MPs

The Energy and Climate Change Committee said the electricity and gas network operator should be split up despite its technical expertise, as it faces conflicts of interest.

Chair of the Committee, Angus Brendan MacNeil, said: “National Grid's technical expertise in operating the national energy system must be weighed against its potential conflicts of interest. The Independent System Operator model has worked in the USA. It is time for it to be brought to these shores.

“Local energy is here, with astonishing growth in generation connected directly to regional networks. Distribution network operators (DNOs) remain somewhat blind to their energy flows and passive in managing them. DNOs must transition to a more active role as distribution system operators so that they can use smart technologies to manage ever-more complicated energy flows."

The Committee noted the importance of smart meters and a smart grid to enable the transition, but said the rollout of smart meters was not progressing fast enough to achieve the necessary mass to truly create a smart energy network.

It said innovative solutions to 21st century energy problems such as storage and demand side response were being held back by “legislative and regulatory inertia”.

“The government has committed to addressing these issues, and we will hold them to account on making good on this promise,” the Committee said.

MacNeil went on to say: “The UK needs clean, renewable power, but it won’t be built if it's too costly or difficult for generators to connect to the electricity grid. Distribution networks have been overwhelmed at times by the challenge of integrating small-scale renewables."

RBC Capital Markets said that while this is unwelcome for National Grid, it should not be a complete surprise to the market as both Energy Secretary Amber Rudd’s precious comments – originally in November 2015 – and the request for a committee investigation were well known.

“Previously we have stated we did not feel a separate system operator is entirely necessary and that National Grid should be best placed to continue its SO role with appropriate ring-fencing in place. However, if National Grid loses the SO role it is a clear there will be a small loss to future earnings.”

At 1240 BST, National Grid shares were down 1% to 952.10p.