Shining a spotlight on the new National Energy System Operator (NESO)

TL;DR

• Since coming into government, Labour has reiterated its commitment to tackling climate change head-on and accelerating the energy transition, not only for its environmental benefits but also for the energy security it will provide.

• Prior to the election, Labour pledged to double onshore wind, triple solar power and quadruple offshore wind by 2030, and establish GB Energy – a publicly owned company intended to support the development and delivery of clean energy.

• The new National Energy System Operator (NESO) has been acquired from the National Grid and will play an integral role in uniting the different energy sectors, planning critical infrastructure, and supporting in the effective deployment of renewable energy.

• It is expected to work closely with GB Energy and help the renewables sector attract investors, bolstering their confidence by ensuring they understand how their project will fit into the country’s wider clean energy plan.

• This move reflects similar trends in Europe but stands out due to its focus on integration and infrastructure. It has the potential to accelerate the UK’s move away from fossil fuels and onto clean, cheap homegrown power that the country can control – and will be closely scrutinised as a result.

The detail

It’s been three months since Labour swept to victory at the General Election and Prime Minister Keir Starmer took office. The new government immediately got to work, and several new policies have been introduced since 4th July, with some more well-received than others. The party’s central campaign message vowed to enact change, and in its first 100 days, Labour is certainly delivering on that promise.

When it comes to Labour’s environmental and energy policies, speeches given so far appear to be upholding the ambitious pledges the party made in the run up to the election. Foreign Secretary, David Lammy, delivered a rousing speech at Kew Gardens where he described the climate emergency as the foremost existential crisis facing humanity. He also exposed the high financial costs of relying on fossil fuels, confirming that £94 billion has been spent to help households cope with escalating energy costs. Energy Secretary, Ed Miliband, echoed the urgency of the situation when speaking at the Energy UK annual conference where he stated, “the faster we go, the more secure we become.”

Happily, these emotive words have been accompanied by swift action. Miliband has already lifted the ban on onshore windfarms, withdrawn support for some of the UK’s most controversial oil and gas projects, reappointed a climate envoy and installed a nature envoy for the first time. He has also vowed to drive forward the rollout of wind turbines, solar farms and pylons. The strong argument being made by these senior ministers is that transitioning to renewables is not only good news for the climate, but it also addresses the vulnerabilities facing the UK due to its dependence on fossil fuels.

The Labour government is also looking further afield by launching the Global Clean Power Alliance to support the energy transition worldwide, especially in developing countries at risk of being left behind. This global approach recognises that the increase in extreme weather events is a failure of politics, regulation and international cooperation. The Alliance will also look to diversify the production and supply of critical materials – an industry which is currently dominated by China – as well as expanding power grids and electricity storage facilities.

That’s not to say that questions haven’t been raised, especially regarding how these aspirational plans will be financed. If Prime Minister Keir Starmer is to successfully reset the UK’s climate policy and meet his target of making the UK the first major economy to achieve net zero by 2030, finance must be unlocked on a far larger scale. It’s also important that the new wind turbines, solar farms, and nuclear plants are constructed with their surrounding communities in mind. For the government to retain the confidence of the public, making clean energy infrastructure beneficial for those directly affected by its construction will likely prove to be much more effective than taking a steamroller approach.

Promises, promises

Labour made its energy policies clear in the run up to the election, pledging to make Britain a clean energy superpower in its manifesto. To ensure the UK successfully completes this clean energy transformation, the party put together a comprehensive plan that envisioned how the country’s natural resources (long coastline, high winds and shallow waters) could be harnessed to create a new and improved renewables industry. The plan also had an economic component; for renewables to be viable, partnerships with the private sector, public investment and job creation all must play a role.

To achieve net zero by 2030, Labour pledged to double onshore wind, triple solar power and quadruple offshore wind by 2030, as well as investing in carbon capture and storage, hydrogen and marine energy. Investing in nuclear power – including ensuring the new Hinkley Point C power station gets over the line – and maintaining a strategic reserve of gas power stations would offer reassurance as new renewable energy sources embed. However, future growth of fossil fuels is off the table as the party promised not to grant new licences to explore new coal licenses and to ban fracking for good.

Arguably one of the most exciting parts of Labour’s pre-election manifesto – and its most headline grabbing pledge – is Great British Energy. A publicly owned company, GB Energy isn’t intended to provide power to households or businesses itself. Instead, the company will form partnerships with the private sector, industry and trade unions to support the development and delivery of clean energy. The company is still under development, but it has been announced that its HQ will be based in Aberdeen and Energy Secretary, Ed Miliband, has appointed climate and energy expert Chris Stark to lead in the company’s “Mission Control”.

In terms of financing, Labour has committed to capitalising GB Energy with £8.3 billion in the next four years. This figure will be raised through a combination of responsible borrowing and a windfall tax on the oil and gas giants that is expected to be around £1.2 billion. GB Energy will also be supported by the Green Prosperity Plan which, in partnership with the National Wealth Fund, will create 650,000 jobs by 2030. Further, clean energy developers will have their efforts rewarded through the British Jobs Bonus, which will allocate up to £500 million per year from 2026.

Investing in infrastructure

While not mentioned in Labour’s pre-election manifesto, the government’s newest acquisition appears to echo the ethos of GB Energy – and it’s an equally exciting development.

On 1st October 2024, the government followed through on plans initially announced by the former Conservative government in April 2022 and launched the National Energy System Operator (NESO). Like GB Energy, this is a publicly owned body intended to boost the UK’s energy security, cut household bills and accelerate Labour’s clean power mission. Originally known as the Electricity System Operator, NESO has been transferred to public ownership after being acquired from the National Grid for £630 million. It will now be chaired by the former E.ON CEO, Dr Paul Golby.

There are several reasons to be optimistic about the launch of NESO, not least because it plugs an important gap. Prior to the operator’s nationalisation, there hasn’t been a single body responsible for overseeing the strategic planning and design of the country’s electricity and gas networks. This is where NESO can really excel, working in a strategic and advisory role to progress the energy transition and ensure renewables are integrated into the grid successfully.

The UK’s energy infrastructure and its ability to attract investment has long been questioned. Critics of Labour prior to the election made their concerns known; even if renewable energy sources grow exponentially, excess electricity could go to waste if it isn’t stored and integrated correctly.

NESO could tackle these concerns head on, breaking down the silos that currently exist (especially between the electricity and gas networks) and ensuring that the UK’s energy infrastructure is secure, resilient, flexible and future-proof. Investors may also feel more reassured as they can now go to the NESO to understand how their project will fit into the country’s wider clean energy plan.

Cross-sector collaboration

NESO will work closely alongside GB Energy to help deploy renewable energy and connect these new generation projects to the grid. However, it’s first task will be to provide advice, supporting the government and Ofgem to make informed decisions regarding new infrastructure and grid connections with the UK’s net zero goals in mind.

It’s all about taking a collaborative and coordinated approach. As Dr Paul Golby, Chair of NESO, said: “NESO brings together critical roles and responsibilities under one roof, creating an environment that is essential for success.”

While NESO has been nationalised, it will remain an independent organisation, able to work with all parts of the energy sector and communities across the country. Fintan Skye, Chief Executive of NESO, explained that the organisation will “unify and optimise our national approach to energy and…deliver the clean, secure, decarbonised energy system that is affordable and fit for the future.”

The government’s acquisition of NESO has been described as a pivotal moment, however it reflects nationalisation projects happening elsewhere, especially in Europe. France, for example, recently invested €10 billion to renationalise EDF, revive its nuclear sector and support its policy of reindustrialisation.

NESO stands out from the crowd in that it’s focused on network management rather than power generation. It offers the possibility of a more integrated and coordinated strategy that will empower the UK to move away from fossil fuels and onto clean, cheap homegrown power that the country can control. By facilitating the integration of renewable energy, it will not only contribute to reduced carbon emissions, but may also improve the grid’s resilience to fluctuations in supply and demand.

Essentially, it represents the missing link – the piece of the puzzle that will help turn the government’s lofty ideals into actionable steps forward. It’s perhaps unsurprising that what happens next will be closely scrutinised, both in the UK and further afield.

— Lew 👋

As ever your feedback is important to me. Please help by letting me know what you love or what you think can improve.

The Transition’s work is provided for informational purposes only and should not be construed as advice in any capacity. Always do your own research.