Ofgem opens independent probe into Neso heatwave conduct after whistleblower claims

Ofgem opens independent probe into Neso heatwave conduct after whistleblower claims UK energy regulator will oversee an investigation into how grid operator Neso managed the electricity system during last month's heatwave, with market manipulation allegations in the background. Ofgem will oversee an independent investigation into whistleblower allegations about how transmission system operator Neso handled the UK electricity system during last month's heatwave, the regulator told Montel on Thursday (2026-07-16). The probe adds formal regulatory scrutiny to concerns that had been circulating privately among market participants.⁸ The timing matters for UK power market credibility. Ofgem has previously acknowledged instances where parties submitted bids to Neso's capacity auctions at prices far above imbalance levels subsequently observed, raising questions about whether balancing costs — ultimately passed to consumers — reflect genuine scarcity or something more deliberate.² An analyst told Montel in May (2026-05-21) that capacity hoarding during interconnector trading with Europe may be inflating Neso's balancing costs. The allegation, if substantiated by the independent investigation, would point to a systemic problem rather than an opportunistic one: firms exploiting the TSO's obligation to maintain system stability at whatever cost when alternatives are exhausted.² The heatwave episode brings this dynamic into sharper focus. During extreme demand periods, Neso's reliance on last-resort balancing becomes acute, and the spread between prevailing imbalance prices and auction bids can widen in ways that are difficult to police in real time. Whether last month's events produced a pattern consistent with the earlier allegations is what investigators will now examine.⁸ UK power prices remain high by historical standards. Day-ahead prices were sitting around £100 per MWh earlier this year, according to the Financial Times as cited in market commentary, which helps explain why the difference between competitive and inflated bids translates directly into material cost for suppliers and consumers alike.⁶ Ofgem's broader posture toward the sector has sharpened in recent months. The regulator was minded, earlier this year, to refer the entire energy sector to the Competition and Markets Authority for a thorough investigation — one that would carry powers to order structural remedies. That wider probe remains a live possibility alongside the more focused whistleblower inquiry announced Thursday (2026-07-16).⁴ Spain provides a useful recent reference point. After the April 2025 blackout, Spanish regulator CNMC opened a formal investigation against firms for possible non-compliance with power sector rules, and separately found that TSO Red Electrica should have flagged inadequate voltage control before the event. The CNMC case shows that regulatory inquiries into TSO conduct during system stress events can lead to sanctions — though they also take time.^1,5 The UK grid operator Neso itself called for a security standards review after a nationwide blackout affected some 1.1 million customers in early August. That incident — triggered by a lightning strike and two subsequent failures at large-scale power plants — was contained partly because around 475MW of operational battery storage helped restore grid frequency within four minutes. Estimates of the cost of procuring additional reserve capacity range from £50 million to £250 million per year, a bill that would fall on consumers.³ Those costs, and who ultimately bears them, sit at the heart of the whistleblower allegations. If balancing costs are being inflated artificially during interconnector trading, the reserve cost estimates on the table become secondary to the question of whether the auction structure itself is being gamed.² Ofgem provisionally selected 16 long-duration energy storage projects for financial support under its cap-and-floor scheme in late June (week of 2026-06-29), signalling continued effort to diversify the balancing toolkit available to Neso. More storage capacity would in theory reduce the TSO's dependence on any single set of providers during stress events — though it does not directly address conduct in capacity auctions.⁷ The independent investigation's scope and timeline have not been made public. How Ofgem defines the mandate — whether it covers only the heatwave episode or extends to the auction conduct patterns it has already flagged — will determine whether the probe produces actionable findings or sits alongside the broader CMA referral question as another unresolved thread in UK power market governance.^8,2