The announcement in early January, was made in a joint statement by the Department for Business, Energy and Industrial Strategy (BEIS), energy regulator Ofgem and transmission operator National Grid.
Detailed proposals for a separate systems operator were published in a , which closes in March.
The non-binding joint statement stopped short of the break-up of National Grid, which has been called for by many stakeholders and the former House of Commons Energy and Climate Change Committee in 2016 in its enquiry into smart energy barriers.
Even so, Ofgem noted it is consistent with a National Infrastructure Commission report examining smart energy priorities, which called for a phased approach. It added that a fully independent systems operator could eventually be appropriate as the smart grid evolves.
Stakeholders are concerned there is a lack of clear governance of the emerging smart grid, conflicting incentives and access arrangements have held back flexible energy solutions such as electricity storage, distributed generation and demand-side response.
There had been particular concern about the potential for National Grid's interconnector interests to undermine domestic power generators.
Instead of a completely new entity, the proposals envisaged a legally separate systems operator housed within the National Grid group by April 2019, subject to approval.
The statement recognised that, as the roles of parties evolve, "it is important to consider whether they could give rise to conflicts of interest".
A new systems operator would become a separate company within National Grid Group, with a governance structure that mitigates potential or perceived conflicts of interest.
The new body will be incorporated into a separate company with its own board and employees, but wholly owned by National Grid.
It would have a transmission licence for operating the electricity system separate to that of the transmission owner. Relevant information would be ring-fenced from other National Grid businesses to prevent conflicts of interest.
The statement stressed that a more independent systems operator could benefit consumers by enabling a more "secure, competitive and flexible system". It said the new body should be transparent, driven by markets and competition.
Currently, National Grid's role includes balancing the electricity system, running electricity capacity market auctions, overseeing and administering industry rules and codes and supporting efficient transmission network development.
A key part of the new body's work would involve better coordination of the national transmission system and regional distribution networks, including new arrangements for trialling and testing balancing and smart systems with industry and in partnership with distribution network operators.
The new systems and charging structures should allow equal access for new entrants and technologies such as demand-side response and storage, and better governance for distributed generation.
The Ofgem consultation further discussed the principle of separation of National Grid's functions, the processes needed to achieve this and how the new systems operator company might need to evolve.
Ofgem noted complaints over a confusing array of balancing services and over capacity market rules, with lack of transparency for new entrants.
It stressed reform of balancing services is a priority, particularly given increasing levels of renewables on the system.
The consultation also acknowledged longstanding complaints that these flexibility providers cannot supplement income by supplying other markets because National Grid demands exclusive access to their capacity.
The latest moves are part of a wider policy push by BEIS, expected in the spring, aimed at removing obstacles to smart energy.
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