• U.K. grid may be stripped of network operation, Times says
  • Non-profit operator is one option mulled by government

National Grid Plc’s earnings may only be reduced by 2 to 3 percent if the U.K. grid operator loses its role running the nation’s power network, according to RBC Capital Markets LLC.

National Grid may be stripped of its grid manager status amid concerns the U.K. may not have enough supply to keep the lights on next winter and possible conflicts of interest within the business, according to the Times. Ministers are considering options for the future operation of the grid, with the preferred choice being for a non-profit company overseen by the U.K.’s Office of Gas and Electricity Markets, the newspaper reported, citing documents prepared for government officials.

“There is a strong case for greater independence for the system operator to promote more competition in our electricity system,” an official at the U.K.’s Department of Energy & Climate Change said by e-mail. “We are working alongside National Grid and Ofgem to see how we can ensure our electricity system is as secure, flexible and independent as possible, whilst operating in the best interest of consumers.”

U.K. Secretary of State for Energy Amber Rudd said Nov. 18 that the National Infrastructure Commission and Ofgem would look into reforming National Grid’s system operator role to make it more “independent.” The nation is facing shrinking supply margins as old coal plants are shut and new stations aren’t built to replace them. National Grid said it expects 11 weeks of negative supply margins, when demand outstrips supply, next winter.

Market Structures

“The costs and risks of introducing further change to market structures must be proportional to the benefit to consumers,” Sean Kemp, a spokesman for National Grid, said by e-mail. “There is little evidence that an Independent System Operator model would deliver value to justify the significant consumer costs and risks to security of supply.”

Chris Lock, a spokesman for Ofgem, declined to comment.

National Grid owns Britain’s high-voltage transmission network, and stripping the company of its system operator role will only reduce earnings by about 2-3 percent, according to RBC.

“It may prove more sensible to simply increase the independence of the system operator role within the overall National Grid business,” John Musk, a utilities analyst at RBC in London, said in a note.

Power generators in the U.K. have pointed to a conflict of interest at National Grid in its role as system operator. It can use power imports from France to meet demand through an interconnector cable that it owns. National Grid says these two parts of its business are kept separate.

“We take very seriously the need to provide confidence that any potential conflicts of interest are properly managed and have a lot of experience operating in an environment where this is a key part of what we do,” National Grid’s Kemp said.

National Grid rose 0.1 percent to 953.6 pence at 9:56 a.m. in London. The shares are up 1.7 percent this year.

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