The Daily Mail recently published an article with the heading “The energy giants pocketing £420bn profit while millions struggle with cost-of-living crisis: New data shows 20 firms have made staggering sums since 2020 while hard-up households grappled with soaring bills”.

It displayed the Daily Mail’s rather casual approach to the accuracy of its headlines. According to the table displayed within the article, National Grid’s profits for the year ending 2020 were £1.754Bn; for 2021 were £2.083Bn; for 2022 were £3.441Bn; and for 2023 were £3.59Bn.

While many companies in the energy sector may have made, and continue to make, exorbitant profits, it seems that the figures attributed by the Daily Mail to the National Grid are not profits, but revenue, which is very different.

And, for the sake of clarity, the revenues in question are those of National Grid Electricity System Operator Limited (a subsidiary of National Grid plc). This article is essentially about National Grid Electricity System Operator Limited, not its parent company. I will for convenience refer to it – the subsidiary – as National Grid.

Among other things, National Grid is paid for the amount of transmission lines it operates, under regulatory approval from Ofgem. Due to the wide dispersal of renewable energy sources, more transmission lines are needed – lots more. This appears to result in National Grid being paid more than would otherwise be the case. That being the case I thought I’d take a look at its Annual Report & Accounts for the last couple of years, starting with 2021/22 .

Its revenue for the year ended 31 March 2022 was £3,486m (2021: £2,127m). This is the figure which the Daily Mail article suggests is profit. It isn’t. It’s revenue. The Accounts explain how this is received. They tell us that the Electricity System Operator (ESO) is the system operator for Great Britain, which involves the procurement of services to balance the electricity transmission network. For this activity the company applies a BSUoS charge, which is payable by generators and suppliers of electricity (BSUos standing for Balancing Services Use of System). The ESO also holds the role as revenue collection agent for charges to customers on behalf of the owners of the transmission network. These TNUoS revenues are collected in accordance with international accounting standards (IFRS15) and revenues are shown on a net basis (TNUos standing for Transmission Network Use of System). We are told that further details relating to the collection of revenues can be found in Note 2 of the financial statements

This is where it gets interesting, albeit the accounting jargon has to be translated into normal English to make sense of it. Note 2 deals with revenue, and tells us that revenue arises in the course of the ordinary activities of the company and principally comprises balancing transmission services. The company’s role in transmission services is as the system operator for Great Britain (note that other companies also have network responsibilities in Scotland), which involves the procurement of services to balance the electricity transmission network and ensuring security and quality of electricity supply across the transmission network. For this activity the company applies a (‘BSUoS’) charge, which is payable by generators and suppliers of electricity. So far so good.

The ESO also “earns revenue through rewards for progress against an ambitious plan to meet its commitments and targets in relation to the future energy transformation.” I take it that this is a reference to converting the grid to net zero. We are told that the scheme is evaluative with the outcome determined by Ofgem following the recommendations of a performance panel including industry stakeholders. The outcome of the Forward Plan incentive scheme is estimated to be income of £6m for the financial year (2020/21: £1m income). So the work in converting the grid is looking like a handy little (and increasingly lucrative) earner.

In its role as system operator, the company is also responsible for the administration of charges to customers on behalf of the owners of the transmission network: National Grid Electricity Transmission Plc, Scottish Power Transmission Plc, Scottish Hydro Electric Transmission Plc and various Offshore Transmission Owners. Under international accounting standards this arrangement is considered to result in the company acting as an agent on behalf of the transmission network owners. Accordingly, “revenues are presented on a net basis (amounts collected from customers and consideration paid to transmission network owners). This comprises the entire billing cycle (invoicing and cash collection) and our performance obligation is deemed satisfied when funds have been remunerated to transmission network owners.”

This is where it get really interesting, as we establish that National Grid benefits financially from increasing numbers of far-flung renewable energy generation projects, with associated additional transmission lines. The Transmission Network Use of System charges relate to use of the transmission network. The accounts tell us that use of the transmission network involves the supply of high-voltage electricity, and that revenue is billed based on capacity and volumes. Where the customer pays up front, revenues are deferred and released when the relevant transmission network owner has provided their services to the customer. The company also administers other charges on behalf of transmission network owners principally for construction work they have completed for customer connections. It’s as clear as mud, but in essence, the more transmission lines there are, the more National Grid receives by way of TNUoS charges.

That’s the background. Let’s take a look at the more recent 2022/23 accounts to see what else we can discover as to how this business makes money from net zero, and what issues it reveals regarding the problems associated with net zero.

While these Annual Report & Accounts reveal a 31% year on year increase in revenue, they also show a 30% increase in system balancing costs, and adjusted operating profit actually declined by 52% from £42M to £20M. I assume that the system balancing costs are the costs associated with balancing a system that is increasingly reliant on unreliable and unpredictable sources of electricity generation. Those numbers look, to my unqualified eye, to represent a problem.

It’s also interesting to note that imports are making up a steadily increasing proportion of the UK’s electricity needs. In 2021/22 they represented 10.1%, but in 2022/23, they were 14.1%. That looks to me like another problem.

The Chairman’s Foreword tells us:

All this innovation sets us up to deliver a future, where we are less dependent on imported oil and gas, have cleaner and cheaper power and lower energy bills. We’re on track to being able to operate the electricity system at zero carbon for periods in 2025 and we’re continuing to evolve to be ready for 2035, when we will have a fully decarbonised electricity system.

Although I very much doubt that the trilemma of energy security, net zero and cheaper power/lower energy bills can be solved so easily, it’s interesting that no plans seem to be in place for a fully decarbonised electricity system by 2030. Perhaps someone should have a word with Mr Miliband and Sir Keir Starmer.

In terms of that challenge, it’s interesting to see the key statistics, which show “zero carbon” generation (wind, nuclear, solar and hydro) contributing 44.6% of our electricity needs in 2021/22, increasing only to 46% in 2022/23. It looks as though the process is going to have to accelerate significantly if a 2035 target is to be met for “decarbonisation” of the UK’s electricity generation, and it will have to accelerate spectacularly if Labour’s 2030 target is to be achieved (let’s say it here and now – it can’t and won’t be).

The accounts are full of propaganda-type claims. We are told that moving to net zero means “we need to plan and operate the system with lower levels of inertia”, and “we implemented the first ever Frequency Risk and Control Report (FRCR), which changed how we manage frequency and saved consumers circa £435 million in balancing costs”. Similarly, “[i]n managing inertia, we will be reducing costs by approximately £65 million annually.” Very good, but you don’t tell us what the costs of inertia are. In other words, you don’t tell us what the costs of net zero are, you tell us only how you are managing to reduce them. No percentage savings figures here – they might let us work out the cost!

Similarly:

We continually take action to reduce balancing costs and have reduced the volume of actions taken to balance the system by a third through long-term initiatives to improve our system operation. Our actions have enabled us to avoid balancing costs of £5.6 billion over the last 2 years.

We have to look elsewhere to find out what the balancing costs are, but they have to include them in the accounts, and so we know that – as I touched on above – in the single year from 2021/2022 to 2022/23 they increased by 30% from £3.153Bn to £4.109Bn. Thank goodness for those savings!

I trust I’m not alone in finding this less than reassuring:

Our world-leading innovative Demand Flexibility Service was launched through the Role 2 winter programme and came about through our pioneering domestic demand flexibility trials which ended only 5 months prior, and also included testing the viability of Vehicle-to-Grid (V2G) .

That sounds like plans for rationing to me. There’s more on this a few pages further on in the report:

Our Demand Flexibility Service (DFS), a world first, was rapidly developed in the run up to winter, as a key tool, in helping preserve security of supply. In total 21 suppliers signed up to be part of this critical operational service. During winter 2022/23, two live uses of the product were made on the 23 and 24 January 2023, where just under of 300MW of demand flexibility was provided. Between the live events and test events the ESO has spent approximately £11 million through to the end of March 2023.

The hints of the problems associated with net zero are there, and you don’t really have to read between the lines. Limiting demand was a “critical operational service” in order to help “ preserve security of supply”. And predictions for the demise of coal have proved to be a little premature:

Also, contracts with the 3 coal-fired power stations due to close in September 2022 were negotiated and put in place for the winter 2022/23 period. There were a number of occasions when we warmed some of these units, but we only actively ran 2 units for 1 day on the 7 March 2023 for approximately 6 hours.

Page 26 of the Report sees a section headed “Transformational projects” and we learn (optimistically, I think) that [t]he ESO continues to play a leading role in major transformational projects” which will “deliver significant positive impacts for consumers by promoting competition, holistic thinking, and putting consumer interest at the heart of what we do.” This consumer thinks his interests are best served by maintaining an electricity generation system that doesn’t rely on unreliable, unpredictable and expensive renewable energy whose infrastructure is blighting the UK’s natural environment, and also by allowing me to continue heating my home and cooking using gas at a much lower cost than electricity, but what do I know?

Seven examples of the “significant positive impacts for consumers” are offered up for our edification, but the benefits aren’t explained, nor can I see what they are. First is “zero carbon operability”. I think we are just supposed to assume that this is a good thing (as National Grid seems to think). Second is “network planning for net zero”. There is a lot of bluster here, but basically it seems we are supposed to think that facilitating the delivery of 50GW of offshore wind (plus a further 21GW in Scotland and 4GW in the “Celtic Sea”) is inevitably a good thing. We are not told why, nor is there any discussion of the costs, financial and environmental. Third is “net zero market reform”. This is necessary, we are told, because “the status quo market design is not fit for purpose for net zero, and that dynamic locational signals are needed to solve some key market challenges such as rising constraint costs and inefficient dispatch in the wholesale market”. They seem to think they have a plan to benefit consumers, but I don’t see it. Fourth is “Frequency Risk & Control Report”. They claim that their report has enabled them to “reduce the overall spend on frequency management”, without telling us what the (reduced) overall spend is. They also tell us confidently that this is “delivering additional benefits for consumers”, but again they don’t tell us what those additional benefits are. Fifth is “Dynamic Containment, Regulation and Moderation”. This is so as:

to provide a quicker response to different frequency fluctuations, from significant trips to second-to-second balancing of network frequency needs. By drawing on a diverse mix of technologies, including variable generation, storage, and demand-side participants these services also offer greater competition which, alongside a move from month-ahead to day-ahead auctions, contribute to both improved security and cost efficiency for consumers.

But as I see it, none of this would be necessary if we weren’t obsessed with net zero. The cost efficiency for consumers they refer to is relative, not absolute. They may be reducing the extra costs by a margin, but extra costs remain. I believe consumers would be seeing greater cost efficiency if the complexities and difficulties imposed on the grid by “decarbonisation” weren’t being foisted on us.

Sixth is connections reform. This is a reference to the huge backlog of projects (presumably mostly wind and solar farms) waiting to be connected to the grid. We are told that although their “initial recommendations would require significant changes to regulations and industry codes, there is an opportunity now to work together with industry stakeholders to expedite these reforms to fundamentally reform and future proof grid access”. Solving problems caused by net zero and decarbonisation, in other words – problems that didn’t previously exist. Finally, we see the stability pathfinder. This paragraph contains a lot of technical jargon, and no explanation that enables me to see consumer benefit. Rather, it appears to bear the hallmark of the previous six – a lot of work associated with solving the problems of decarbonisation.

Balancing Costs are dealt with on page 29, and the information there is so revealing regarding the scale of the problem arising from our headlong rush to rely on renewable energy, that it’s worth quoting at length:

Balancing costs in 2022/23 were higher than expected owing to a number of factors. In 2022 we saw an unprecedented increase in wholesale prices (from £162.5/MWh on average in 2021/22 to £195.7MWh on average in 2022/23) which led to a significant increase in prices in the Balancing Mechanism (BM). Scarcity pricing was another factor contributing to higher balancing costs. We saw extreme peaks in prices (e.g. £8,300/MWh on 20 July 2022 at 17:00 vs a peak of £4,950 per MWh in 2021/22) submitted in the BM during periods of tight system margins or during high wind generation. ESO was asked to undertake procurement of winter Contingency contracts by DESNZ, to ensure security of supply of electricity over the winter months. These costs amounted to £304 million of the total balancing costs for 2022/23.

More broadly, the growth of renewable generation and consequent changes to the generation mix are creating a less predictable system than conventional generation. This makes operating a secure and reliable network more challenging...

Indeed it does, which is why it would make sense to pause and take stock before continuing this headlong flight to economic suicide. Sir Keir Starmer and Mr Miliband take note, please. Take note also of these hard facts – balancing costs in 2021/22 amounted to £3.153Bn; in 2022/23 they had risen to £4.109Bn. I suspect this trend will continue, despite National Grid’s claims that it “is focused on mitigating the impact of the forecast increases to balancing costs as we progress to achieving key power system outcomes in the next 15 years as part of the GB transition to a net zero economy”.

From page 42 onwards the Report is particularly interesting. There is much talk here about committing to being a responsible business and to helping to create a sustainable environment. Yet all this seems to mean is achieving decarbonisation of the grid – no concern whatsoever is expressed about the march of the pylons and wind and solar farms, as they trash our environment. This paragraph left me more angry than pleased:

In today’s world, business needs to be a positive force for good. This belief is central to the way we work and why we do what we do. We believe businesses should leave a positive legacy for future generations and at the ESO we are passionate about operating in an environmentally responsible way. It is the right thing to do – for the communities that we serve, for society and for ourselves. Sustainability shapes our thinking and decision making. We balance the efficient running of our business with providing value for consumers and protecting the environment. For us, being a responsible business means being a good citizen and driving social change. We sponsor Bright Green Future, a free UK-wide environmental leadership and empowerment programme for 16-19 year-olds. The 6 month programme helps participants unlock their potential as an environmental leader.

All that would be fine if they weren’t blighting our wild places. Instead we are treated to this toe-curling nonsense:

Our ambition is to operate a carbon free electricity system by 2025 and we are enabling a fair and affordable transition to this clean energy economy through groundbreaking innovative projects with the environment and consumers at their very heart.

The truth is that neither consumers nor the environment are seeing any benefit at all from the drive to net zero – quite the contrary.

On page 44 we are told that “We will deliver sustainable energy safely, reliably and affordably. The ESO is part of the fabric of the communities we serve – we keep the lights on, we keep homes powered, we help economies to thrive. We are an operator, an employer, and we use local suppliers. We support our communities with the time and expertise of our people, and through corporate giving programmes.” It’s such a shame, then, that local communities have been trampled underfoot, with local concerns going unheeded when it comes to objections to wind farm developments.

The Bright Green Future programme sounds worryingly like brainwashing, as a case study offered up for our edification demonstrates:

Mahnoor graduated in 2020. As a result of her involvement in Bright Green Future, Mahnoor was invited to speak at the Association for Decentralised Energy’s Heat and Decentralised Energy Conference in 2021 and became a founding member of Good Energy’s Youth Board. She said: “I started the BGF programme with no clear indication of a specific career path, and ‘left’ it as a Youth Board Member at Good Energy. Also, I spoke at UN Conference of Youth 16 in Glasgow about the Climate Crisis from a Global South perspective due to the knowledge I gained from my projects at BGF, as well as the online courses we were given access to. I am now certain that I want to pursue a career in policy-making thanks to the skills I gained at BGF. As an A-Level Economics and Geography student, what I have witnessed as part of the Good Future Board helped me make the connections between the two disciplines. It’s shown me how economics (micro and macro) will have, and is having a key role in driving the UK’s approach to reducing climate change. It also demonstrated the global prominence and importance of the energy sector in achieving net zero emissions targets.”

Had Mahnoor been properly educated, she would have learned that the UK can do absolutely nothing to reduce climate change while the rest of the world is resolutely increasing its emissions of greenhouse gases. The other two case studies on offer are equally disturbing.

The similarities between National Grid’s Reports and Accounts and Energinet’s Annual Magazine for 2023 in Denmark are quite striking. Both make a show of being enthusiastic about net zero, while hiding in plain sight in both cases are the profound difficulties associated with it and with “decarbonising” the grid in both countries. Energinet’s enthusiasm seems a little less obvious than that of the National Grid. Perhaps it is paid differently, and doesn’t receive the financial benefits that National Grid obviously receives as a result of the Net Zero agenda.

The Daily Mail article which I referenced at the beginning of this article was published on 1^st April. It doesn’t appear to be an April Fool, but in any event the joke is on us. No wonder National Grid is so keen on Net Zero.