Britain’s publicly owned electricity system operator has selected US technology company Palantir for a contract worth more than £21 million without inviting competing bids.
The National Energy System Operator, known as NESO, used a direct-award procedure to continue licensing and support for two business processes described in procurement documents as critical to its operations.
The agreement covers systems dealing with applications to connect projects to the electricity grid and the monitoring of “skip rates”, which can affect whether cheaper sources of power are selected when supply and demand are balanced.
NESO said moving immediately to a different supplier would create significant costs and risk disruption because the existing systems are built using Palantir’s proprietary Foundry platform.
The award comes amid warnings from MPs that Britain has become too dependent on Palantir across sensitive public services.
Contract worth £21.2 million including VAT
The contract has a stated value of £17.7 million before VAT and £21.24 million after VAT, according to the official procurement notice.
It is expected to run from September 8, 2026, until July 31, 2027. NESO can extend the arrangement in six-month stages until July 2028 if more time is needed to maintain the services or transfer them to another platform.
The operator relied on an exemption contained in the Procurement Act 2023, citing an “absence of competition for technical reasons”.
A direct award is permitted where the relevant legal conditions are met. In its justification, NESO said the Palantir platform was supported by proprietary architecture licensed exclusively by the company.
It said Palantir possesses the specialist technical knowledge required to maintain the systems and that changing supplier would involve replacing or substantially redeveloping the existing data environment.
Any transition would also require data migration, new security accreditation and staff training.
NESO said disruption could affect customer-facing services and its ability to fulfil regulatory obligations.
NESO promises future competition
The agreement is described as an interim measure rather than a permanent decision to retain Palantir.
NESO said it plans to conduct a competitive procurement process for a future strategic modelling platform. A preliminary market engagement notice has already been published.
The interim contract is intended to keep the existing systems running while that competition is prepared and a possible replacement is introduced.
However, the explanation illustrates the wider problem of vendor lock-in, where a public organisation becomes so dependent on one company’s proprietary technology that changing supplier becomes expensive or operationally risky.
The Financial Times reports that the agreement extends a relationship with Palantir dating from 2023.
NESO was transferred into public ownership in October 2024 after the government agreed to acquire the electricity system operator from National Grid for an enterprise value of £630 million.
It now occupies a central position in Britain’s energy system, overseeing electricity supply and demand while planning how the country’s power infrastructure must change.
What Palantir’s systems will be used for
One of the processes covered by the agreement concerns grid connections.
Renewable energy projects and other developments can face lengthy waits before they are connected to the electricity network. Managing the connections queue has become increasingly important as new power stations, battery projects and data centres compete for capacity.
The second process deals with skip rates.
NESO defines a skip as a non-economic dispatch decision, such as passing over a cheaper available option and selecting a more expensive source of electricity instead.
Battery operators have criticised high skip rates because their facilities can be overlooked despite offering power at a lower price. The additional balancing costs are ultimately recovered from consumers through energy bills.
NESO has reported improvements, with average battery skip rates falling during the first half of 2026, but it has acknowledged that further work is required.
The Palantir platform is therefore supporting systems connected to the cost and operation of Britain’s electricity network, rather than being limited to an ordinary administrative function.
MPs have warned about Palantir dependency
The award is likely to intensify scrutiny of Palantir’s growing presence across the British public sector.
In June, the Commons Science, Innovation and Technology Committee described the government’s reliance on the company as an “unacceptable point of weakness”.
The committee warned that placing vital public services on proprietary technology could strengthen a supplier’s negotiating position and make it harder for the government to move to competing platforms.
MPs called for a strategy to reduce vendor lock-in and encourage alternative suppliers, including British technology companies. They also urged ministers to consider using a 2027 break clause in Palantir’s £330 million NHS Federated Data Platform contract.
Committee chair Dame Chi Onwurah said Britain’s dependence on a small number of large US technology firms left the country “seriously exposed”.
The committee’s findings did not relate specifically to the new NESO contract. They do, however, raise questions about a direct award justified partly on the basis that another supplier could not take over without substantial difficulty.
Palantir’s expanding public-sector presence
Palantir’s software is already used in the NHS and across defence, while the company has also sought a greater role in British policing.
The company says its platforms allow public bodies to bring together fragmented information and make faster, better-informed decisions. Supporters argue that replacing working systems can introduce unnecessary expense and operational risk.
Critics have questioned whether Palantir has gained too influential a position within essential services and whether public bodies have adequate plans for eventually changing suppliers.
As The Daily Britain previously reported, the company has also recruited dozens of former senior UK government and public-sector officials.
Separate concerns have been raised over its £330 million NHS contract and the handling of sensitive health information.
Coventry campaigners have meanwhile demanded that the city council end its own £750,000 relationship with Palantir. The council has agreed to examine how it can move away from the company at the next lawful opportunity.
Grid operator already facing scrutiny
The contract has emerged while NESO is under separate scrutiny over its management of Britain’s electricity system during extreme heat in June.
Ofgem has commissioned an independent investigation into whistleblowing allegations concerning operational decisions and record-keeping.
The regulator has stressed that there was no disruption to customer supplies and that it remains confident in Britain’s security of supply.
That investigation is not connected to the Palantir procurement.
However, it adds to the attention being placed on the technology and decision-making systems used by the operator responsible for keeping Britain’s lights on.
NESO’s stated position is that the temporary contract is necessary to protect continuity while a competitive process is conducted.
The eventual competition will show whether another supplier can realistically replace Palantir, or whether the technical dependency cited to justify this award has already become too difficult to unwind.
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