NESO Electricity System Operator Licence

Page type: primary-anchored (mirrors Electricity System Operator Licence Standard Licence Conditions)

Source: neso-slc.md

Last updated: 2026-04-05

What this licence is

The Electricity System Operator Licence is the regulatory instrument that governs NESO (National Energy System Operator) in its role as the Independent System Operator and Planner (ISOP) for Great Britain's electricity system. It was created by the Energy Act 2023, which inserted a new licence type -- section 6(1)(da) -- into the Electricity Act 1989. NESO was designated as the ISOP under section 162 of the Energy Act 2023, replacing the former ESO functions that sat within National Grid's Electricity Transmission Licence.

NESO also holds a companion Gas System Planner Licence. The two licences share 17 documents that must be produced in identical form (SLC A2.19).

The licence is consolidated to 10 June 2025. It contains 47 Standard Licence Conditions across 7 Sections, spanning 318 pages.

Section A: Definitions and interpretation (SLCs A1-A3)

Condition A1 defines over 220 terms used throughout the licence. The most important for understanding NESO's role are:

• ISOP (Independent System Operator and Planner): the person designated under s.162 of the Energy Act 2023 who holds both this licence and a Gas System Planner Licence (A1).
• ISOP Business: the functions described in s.161(2) of the Energy Act 2023, functions exercisable in connection with those, and any activity the Authority has consented to in Writing (A1).
• Potential Conflict Party: any party whose interests might be affected by NESO's decisions, broadly defined to include all regulated persons, their holding companies, trade associations, and material suppliers (A1).
• National Electricity Transmission System (NETS): the high voltage system owned by Transmission Owners and operated by NESO (A1).
• Zero Carbon Energy System: a whole energy system compatible with the net zero target in the Climate Change Act 2008 (A1).

Condition A2 establishes interpretation rules. Notably, A2.3 requires the licence to be read as if it were an Act of Parliament with the Interpretation Act 1978 applying. A2.18 requires the licensee to comply with all directions from the Authority or Secretary of State.

Condition A3 provides a streamlined process for housekeeping modifications to the licence by Authority direction.

Section B: Business conduct and independence (SLCs B1-B7)

This section establishes NESO's distinctive governance framework. NESO is publicly owned by the Crown but must be operationally independent from all Potential Conflict Parties.

B1 -- Independence Requirements is the centrepiece, with 7 Parts: - Part A requires the licensee to maintain independence from Potential Conflict Parties through governance arrangements (B1.3) and to use best endeavours to avoid conflicts of interest (B1.4). - Part B requires at least half of non-executive directors to be Sufficiently Independent Directors with max 8-year terms (B1.7, B1.14). - Parts C-D require the licensee to maintain Operational Services (B1.17) and Transitional Services (B1.20) until the Authority issues OSA/TSA Notices, managing the separation from National Grid. - Part E requires an Independence Statement within 30 days, reviewed annually (B1.23, B1.29). - Part F requires appointment of a Compliance Officer and annual compliance reporting (B1.32, B1.38).

B2 -- Activity restriction: NESO must only carry out ISOP Business and may not hold investments without Authority consent (B2.2, B2.4).

B3 -- Conduct: NESO must ensure no party gains unfair commercial advantage and must not distort competition across 9 listed markets (B3.2, B3.3).

B4 -- National security: The Secretary of State can issue directions which override other licence obligations (B4.3, B4.7).

B5 -- Cross-subsidies: Prohibited between NESO and its Affiliates/Related Undertakings (B5.2).

B6 -- Non-discrimination: NESO must not unduly discriminate between users of the NETS, and UoS Charges must not distort competition (B6.2, B6.6).

B7 -- Information ringfencing: NESO must identify, protect, and govern confidential data through a code of conduct (B7.2, B7.8).

Section C: Strategic and operational functions (SLCs C1-C17)

The largest section, covering NESO's core operational and strategic duties.

C1 -- General obligations sets out NESO's overarching duties in 7 Parts: - Operate the NETS effectively and consider competition impacts (C1.2) - Best endeavours to support the zero carbon transition (C1.3) - Publish transparent information and accurate forecasts of Indicated Margin, Electricity Demand, Wind/Solar Generation Output, Carbon Intensity, and Balancing Costs (C1.4) - Procure Balancing Services transparently and non-discriminatorily, using market-based procedures (C1.5) - Coordinate energy system development with TOs and DNOs, manage connections fairly (C1.6) - Establish whole energy resilience function and provide guidance (C1.7)

C2 -- Strategy and Policy Statement: NESO must explain in its Business Plan how it has regard to the SPS under s.165 of the Energy Act 2023 (C2.2).

C3 -- Digitalisation: NESO must maintain a Digitalisation Strategy, Action Plan, comply with DSAP Guidance and Data Best Practice Guidance (C3.3, C3.6, C3.9, C3.13).

C4 -- Electricity System Restoration Standard: NESO must comply with the restoration standard directed by the Secretary of State, procure Restoration Services, and submit an annual Assurance Framework for Authority approval (C4.2, C4.3, C4.6).

C5 -- Transmission Service levels: Technical levels in the STC must not be exceeded (C5.2).

C6 -- Critical national infrastructure: NESO must review and apply CNI identification methodologies on request from the Secretary of State (C6.2, C6.4).

C7 -- Energy resilience reporting: An extensive condition requiring: - Risk and threat advice to Authority and SoS (C7.2) - Post-event and post-emergency analysis (C7.5, C7.6) - Annual Energy Resilience Assessment Report by 30 June (C7.8) - Annual Emergency Processes Assessment by 1 December (C7.11) - Biannual Industry Readiness and Preparedness Report by 31 October and 30 April (C7.14)

C8 -- EMR arrangements: CfD and Capacity Market delivery body obligations.

C9 -- Balancing Services procurement and use: Detailed procurement, reporting, and methodology obligations.

C10 -- Network Access Policy: Liaison with TOs on NETS planning and operation.

C11 -- Connect and Manage: Requirements for C&M Connections and Derogations.

C12 -- NETS information: Production of ETYS and system information.

C13 -- NOA: Network Options Assessment process and reporting.

C14 -- Innovation Strategy: Electricity Network Innovation Strategy requirements.

C15 -- Future Energy Pathways: Replaces the former Future Energy Scenarios (FES). NESO must develop optimal decarbonisation pathways.

C16 -- Strategic Spatial Energy Plan (SSEP): A new function -- NESO must prepare the supply and demand pathway for Great Britain per the Commission issued by the Secretary of State.

C17 -- Centralised Strategic Network Plan (CSNP): A new function -- NESO must develop a 25-year strategic plan for electricity and gas transmission infrastructure.

Section D: Provision of advice and information (SLCs D1-D5)

D1 -- ISOP Advice: NESO's statutory advice function under s.171 of the Energy Act 2023.

D2 -- Information requests: NESO can require information from licensees via the ISOP Information Request Statement.

D3 -- Information to the Authority: NESO must provide information the Authority requires.

D4 -- Offshore transmission: NESO must assist the Authority with OFTO tender rounds.

D5 -- Data assurance: Risk Assessment and Data Assurance Activities per the Data Assurance Guidance.

Section E: Industry Codes and charging (SLCs E1-E17)

NESO maintains four of the eleven GB industry codes and several charging methodologies:

• E1 -- BSC: The Balancing and Settlement Code, governing imbalance settlement. NESO maintains it via a Framework Agreement with the Secretary of State's approval.
• E2 -- CUSC: The Connection and Use of System Code, governing connections and use of system. Same Framework Agreement structure.
• E3 -- Grid Code: The technical code governing grid connection and operation. NESO draws it up and maintains it.
• E4 -- STC: The System Operator - Transmission Owner Code, governing the SO-TO interface.
• E5 -- Distribution Codes: NESO must comply with obligations imposed by Distribution Codes.
• E7 -- SQSS: NESO must plan and operate the NETS to the security and quality of supply standard.
• E10 -- UoS charging: NESO prepares and maintains the Use of System Charging Methodology.
• E11 -- Connection Charging: NESO prepares and maintains the Connection Charging Methodology.
• E12 -- Requirement to offer terms: NESO must offer connection/UoS terms within specified timeframes.
• E15-E17 -- Connections reform: New conditions for Gate 2 Criteria, Connections Network Design, and Project Designation Methodologies.

Section F: Finance and funding (SLCs F1-F10)

F1 -- Revenue control: The allowed revenue framework, with expenditure allocated between Electricity Licence Expenditure and Gas Licence Expenditure via the Total Cost Allocation Methodology.

F2 -- Innovation funding: Governance for NIA, NIC, and SIF innovation mechanisms.

F3 -- Transmission network revenue recovery: The Maximum Revenue formula.

F4 -- Assets and resources: NESO must maintain sufficient resources and may not dispose of Relevant Assets without Authority consent.

F8 -- AAHDCS: The Assistance for Areas with High Distribution Costs Scheme (primarily benefiting Shetland).

F10 -- ISOP implementation funding: Covers FSO transition costs, including the Day 2 CTA Contract with National Grid.

Section G: Regulatory reports and assessment (SLCs G1-G3)

G1 -- Business Plan: NESO submits a Business Plan; the Authority issues a Plan Determination.

G2 -- Performance reports: NESO prepares performance reports; the Authority assesses against the NESO Performance Arrangements Governance Document.

G3 -- RIGs: NESO must comply with the Regulatory Instructions and Guidance published by the Authority.

Defined terms

See the source file for the defined terms register. Over 220 terms defined in Condition A1.

Cross-references

See the source file for the full cross-reference table. Key external instruments referenced include: - Electricity Act 1989 (parent statute) - Energy Act 2023 (NESO designation and functions) - BSC, CUSC, Grid Code, STC (industry codes maintained by NESO) - SQSS (security standard) - Gas System Planner Licence (companion licence) - Electricity Transmission Licence (related licence for TOs)

Character positions

No secondary-source positions have been captured for this instrument yet.