UK energy secretary raises prospect of National Grid break-up
Amber Rudd has raised the possibility of breaking up the company that runs Britain’s electricity grid, as part of measures designed to “reset” UK energy policy.
The energy secretary on Wednesday gave her first big speech since taking office in May, in which she announced the closure of coal plants by 2025 and the promise of extra subsidies for gas power and offshore wind.
But one less-predicted element of her speech was the announcement that the government would begin consultations on making the various parts of National Grid’s business separate from each other.
The company has three elements of its business: one that owns the electricity network, including the wires and pylons; one that runs the electricity and gas systems; and one that owns interconnectors bringing power from abroad. The network ownership part creates the vast amount of revenue and profit.
Some have argued that this structure creates conflicts of interest. For example, National Grid runs the auction to provide subsidies for back-up power generators and could this year receive support for its interconnectors through that auction.
Ms Rudd appeared to accept that argument, saying: “There is a strong case for greater independence for the system operator . . . to make it more flexible and independent.”
Shares in National Grid dipped more than 1 per cent in the morning before bouncing back to £9.25, where they closed the previous session. Analysts said shareholders might have been relieved by the fact that Ms Rudd said she wanted to work with the company to formulate concrete proposals, which officials said could fall short of complete break-up.
National Grid said: “Our priority as a system operator will always be balancing the system minute by minute and getting the best for consumers, which is what the current system provides.
“We look forward to working alongside the energy department, Ofgem [the regulator] and others to ensure that Britain continues to have the best system in place for managing supply and demand.”
Peter Atherton, an analyst at Jefferies bank, said: “This creates uncertainty. If it is done sensibly, shareholders should not lose value. But it might not be done sensibly.”
The measure was just one of many announcements as Ms Rudd looked to explain what kind of electricity mix she wanted, having spent the past few months slashing green subsidies.
She announced that coal plants would close by 2025 at the latest, to be replaced by gas and offshore wind, the latter of which would be able to bid for three rounds of subsidy by the end of the decade. This deadline would be changed, however, if insufficient new gas power was built in the intervening period , she added.
Department officials are looking at how they can adapt the government’s subsidy schemes to encourage more gas. Ms Rudd said: “In the next 10 years, it’s imperative that we get new gas-fired power stations built.”
The energy secretary will review the rules around the so-called “capacity market auction”, which allocates subsidies to companies to build reserve power, and which this year looks set to hand hundreds of millions of pounds to diesel power. One option would be to increase the amount of money available through that scheme to enable more expensive gas plants to be built.
Despite saying she wanted to encourage more gas and offshore wind, Ms Rudd insisted she did not want to prioritise certain types of power generation, calling her approach a more free-market one than that pursued by Labour.
She said: “We want to see a competitive electricity market, with government out of the way as much as possible, by 2025.”