Balancing costs rose 39 per cent during pandemic

Ofgem has launched a review of the high balancing costs on the electricity system during spring and summer.

The regulator identified that between March and July, balancing costs of £718 million were 39 per cent higher than National Grid Electricity System Operator (ESO) had forecast.

The probe will seek to establish whether the spike was entirely driven by the Covid-19 pandemic or if minimum demand falling year-on-year and/or other system trends played a significant role. It will also examine how prepared ESO was for the challenges and evaluate the success of its response.

In particular, the implications of three changes made during the spring and summer will be analysed:

• Asking Sizewell B to reduce output by 50 per cent
• Introducing a new service allowing it to access downward flexibility from distributed generation that do not normally provide balancing services to the ESO
• Clarifying the emergency arrangements for the disconnection of distributed generation if necessary. To date these have not been used

Actions made by the ESO to manage demand are then charged to suppliers and generators via the Balancing Use of System charges. Ofgem has already reduced the cap on these charges introduced as part of its Covid support scheme and extended the provision until October.

The review will seek to establish lessons for the future and what changes are needed to further develop the three amendments.

Finally, Ofgem will analyse the extent to which the ESO response to operability challenges met the standard required of it, how it engaged with the market and whether it delivered value for money.

Ofgem will seek evidence from the ESO throughout August and intends to hold virtual industry roundtables in early September to gather stakeholder views. The review is set to be completed by the end of October.

Interested parties who do not receive an invitation but would like to attend or make a representation by email can contact esoperformance@ofgem.gov.uk.