National Grid faces break-up threat in green drive

Boris Johnson has promised to quadruple offshore wind capacity to "power every home", as the energy industry is reshaped

Wind turbines in Yorkshire
Wind turbines in Yorkshire

National Grid faces the looming prospect of a break-up as politicians and regulators reshape the energy industry to help reach its goal of net zero carbon emissions within thirty years.

As a review by regulator Ofgem draws to a close, support is growing for moving the FTSE 100 energy giant’s work balancing electricity supply and demand into an independent body

Officials are believed to be exploring the practicalities of such a move, including the structure of any independent body and how to compensate National Grid shareholders, who would still own the main electricity transmission system for England and Wales.

It comes as Boris Johnson is expected this week to outline further details on his “10-point plan for a green industrial revolution”, following his commitment last month to quadrupling offshore wind capacity to 40GW by 2030 so it can “power every home”.

More support is expected for carbon capture systems as well as for small-modular nuclear reactors, while the ban on sales of new internal combustion engines is likely to be brought forward from 2035.

National Grid, a regulated monopoly that operates the high-voltage electricity network and a gas pipeline business, is one of Britain’s biggest companies employing over 23,000 people worldwide.

It avoided a break-up in 2017 when Ofgem first looked at whether to separate its dual roles both running the electricity network and owning the wires, given the boom in renewable energy which requires different management and development of the system, and to avoid conflicts of interest between the two roles.

The operator division was spun off into a legally separate entity, National Grid ESO, which has its own board and staff.

But Ofgem accelerated a review into how well the structure is working in light of the national net zero target set in 2019 and following last August’s power cuts, when lightning struck the network and two wind farms failed.

It plans to publish the results of the review shortly after the Government publishes its energy white paper, which is expected this month but has been repeatedly delayed.

Industry sources are braced for a further separation of the unit, although any exact structure is not yet clear. Other countries offer examples. These include Australia’s Australian Energy Market Operator, which is owned by both the government and industry.

National Grid ESO makes a relatively small financial contribution to National Grid, which also has a large US business, and the ESO does not report its finances separately. However, it gives National Grid an important role in keeping the lights on.

John Pettigrew, National Grid’s chief executive, appeared open to a split when he told the Financial Times in 2019 that the company would this year probably “sit down with Ofgem and government and say: ‘Is this working? Do we need to make further changes?”

He added: “It’s not a big part financially of the group and therefore if it is the right thing to do to then the board of National Grid would absolutely consider that.”

National Grid was threatened with nationalisation by the Labour Party led by Jeremy Corbyn ahead of the 2019 election, forcing the company to set up holding companies abroad in an effort protect investors from a state asset grab, under bilateral investment treaties.

An Ofgem spokesman said: “Our review is ongoing and we expect to publish our advice to government soon.”

A National Grid spokesman said: “National Grid continues to work closely with the government, regulator and industry to explore what changes will be needed to achieve net zero, and the role of the ESO is an important part of that discussion.”

National Grid reports interim results on Thursday. Shares closed down 1.6pc at 935p on Friday, compared to 886p at the start of the year, valuing the business at £32.9bn.

A BEIS spokesman said: “Ofgem is reviewing whether existing system operation arrangements can meet the challenge of delivering net zero at the lowest cost to consumers. We will consider Ofgem’s findings when they are presented.”