National Energy System Operator (NESO)

What is NESO?

The National Energy System Operator (NESO) is an independent public body responsible for managing and planning the UK's electricity and gas networks. Established under the 2023 Energy Act, its purpose is to facilitate the country’s transition to net zero, while ensuring the energy system remains reliable, efficient, and secure. NESO’s responsibilities combine real-time system operations with strategic, long-term planning.

Why was NESO created?

NESO was formally established in October 2024 in response to several challenges and policy objectives. The government’s current ambition to achieve clean power by 2030, earlier than the previous government’s target of 2035, requires significant change and investment in the energy system.  

Energy security has shot up the agenda in recent years. The UK’s heavy reliance on gas exacerbated the energy price crisis following the Russia-Ukraine conflict, causing household energy bills to rise dramatically, and revived the debate about the UK’s energy security. ¹⁶ Ralston J, ‘How has the UK’s energy security, prices and system been changed in the two years since Russia invaded Ukraine?’, blog, Energy & Climate Intelligence Unit, 22 February 2024, retrieved 4 February 2025, https://eciu.net/insights/2024/two-years-of-russias-war-on-ukraine-the-gas-crisis-price-rises-and-energy-security  Meanwhile, as intermittent renewables such as wind make up an increasingly large proportion of the UK’s electricity generation mix, the grid will need the capacity to balance fluctuating supply with demand. And there is an increasing need for integrated electricity and gas systems, which can coordinate onshore and offshore transmissions networks and connect emerging technologies, such as hydrogen and Carbon Capture and Storage, to the grid.  

A 2021 joint consultation by the Department for Business, Energy and Industrial Strategy and Ofgem highlighted several “system changes” needed to manage the net zero transition. These include the need for increased capacity and flexibility in the system to cover peak demand; more effective coordination and planning across the electricity and gas networks; and better consumer and stakeholder engagement to inform early policy decision making. ¹⁷ Ofgem, Review of GB energy system operation, Ofgem, 25 January 2021, retrieved 4 February 2025, www.ofgem.gov.uk/publications/review-gb-energy-system-operation, p. 30  The energy industry also agreed that there was a need for a single system operator to coordinate the sector. ¹⁸ Energy UK, ‘Energy UK comments on System Operator and Code Reform proposals’, press release, 20 July 2021, www.energy-uk.org.uk/news/energy-uk-comments-on-system-operator-and-code-reform-proposals/

In 2023, the government acquired the National Grid’s Electricity System Operator (ESO) in a £630 million deal, to create a publicly owned system operator that could make centralised investment decisions and coordinate planning. This acquisition also resolved a conflict of interest relating to the operator’s role as a private organisation providing strategic advice to government officials. ¹⁹ Energy UK, ‘Energy UK comments on System Operator and Code Reform proposals’, press release, 20 July 2021, www.energy-uk.org.uk/news/energy-uk-comments-on-system-operator-and-code-reform-proposals/

What does NESO do?

NESO’s objectives

NESO has three primary statutory duties:  

• help government meet the net zero target;  
• ensure security of energy supply for consumers;
• promote the efficient and economical transmission and distribution of electricity and gas. ²⁰ HM Government, Energy Act 2023 Section 163, legislation.gov.uk, (no date) retrieved 4 February 2025, NULL www.legislation.gov.uk/ukpga/2023/52/section/163#:~:text=163Duty%20to%20promote%20particular%20objectives&text=(a)the%20net%20zero%20objective,the%20…  

There is currently no clear prioritisation of these aims, which are placed on an equal footing in statute.  

NESO’s secondary duties are to:

• facilitate competition in the energy markets and network;
• consider system and consumer impacts;
• and facilitate innovation.

NESO’s activities

NESO has existing operational responsibilities inherited from the former ESO. It balances the electricity grid in real time, ensuring that electricity generation matches demand in real time to maintain the stability of the grid. This includes managing electricity imports and exports and responding quickly to changes in demand or generation capacity. NESO offers ‘constraint payments’ to generators to either increase or decrease output when necessary to prevent grid congestion or instability. The increase of renewables in the energy mix has led to an increase in constraint payments, as renewables are more variable sources of energy and usually located further from centres of demand. Part of NESO’s “efficiency and economy” objective is to minimise these payments, which are passed on to consumers through bills.  

NESO’s newly added responsibilities involve longer term strategic planning of the electricity and gas systems and markets. It has a duty to provide advice to the government and Ofgem on achieving energy policy goals, including the transition to clean power by 2030.  It will produce a Strategic Spatial Energy Plan (SSEP), which will map out the optimal locations, quantities and types of energy generation and storage infrastructure needed to meet the 2030 goal. It also has a role managing the queue of new electricity projects waiting to be connected to the grid, and is now working with Ofgem to reform this process.

How is it run, funded, and regulated?

NESO operates as a not-for-profit public corporation owned by the Department for Energy Security and Net Zero (DESNZ). The CEO of National Grid’s ESO, Fintan Slye, became the CEO of NESO, and the ESO’s existing staff remained in their roles. NESO’s activities are funded through energy consumers’ bills.  

NESO is regulated by Ofgem, which oversees its control centre operations, market development and transactions, and system insight and planning. It is currently regulated under the same RIIO-2 framework as Britain’s electricity network companies, which has been modified to emphasise reputational incentives rather than financial ones to reflect NESO’s public ownership model.