Ofgem to allow deferral of additional balancing costs

Ofgem has capped balancing services costs at £15 per MWh until the end of August and has introduced a licence modification allowing any additional costs due to Covid to be deferred to the next financial year.

Balancing services use of system (BSUoS) costs are the means by which National Grid Electricity System Operator (ESO) recovers costs from generators and suppliers that it has incurred in balancing the electricity transmission system.

As a result of significant reductions in demand over lockdown, these costs have increased. For example in May system balancing costs were around £163 million, £60 million higher than the March forecast. Ofgem says this increase includes the impact of Covid-19 lockdown measures, which alongside warmer weather, drove the suppression of demand by 15 – 20 per cent compared to recent levels.

In May the ESO published a new forecast for the rest of 2020/21 which included the additional costs brought about as a result of Covid-19. The May to August system balancing costs were forecast at £826 million – representing an increase of £406 million on the March forecast.

A further updated forecast for June predicts that if current demand suppression of 5-10 per cent continues, the balancing costs for May to August will be £593-£656 million (an increase of £173-£303 million compared to the March forecast).

The modification proposal was raised by SSE Generation last month, which said the unprecedented and unexpected increase in BSUoS charges will have “significant commercial impacts on generators and suppliers and will adversely impact competition in the generation and supply of electricity”.

Under the modification to the connection and use of system code (CUSC) BSUoS charges will be capped at £15 per MWh, while any additional costs arising from Covid-19 that are incurred from 1 May 2020 to 31 August 2020 will be deferred to the 2021/22 charging year.

The ESO says the modification, due to come into effect tomorrow (25 June), will provide more certainty to generators and suppliers, helping them manage their finances over the uncertain summer period.

In addition, the ESO says it is currently developing another network support scheme for those who pay the transmission network use of system (TNUoS) charge which is paid for by network users and recovered on behalf of the transmission operators in Great Britain.

Ofgem’s chief executive Jonathan Brearley, as well as interim executive director of systems and networks, Cathryn Scott and director, future retail, Philippa Pickford, will answer questions from Utility Week readers on Friday 26 June from 11am in the latest of our #AskUsAnything online shows. You can register to take part or watch on-demand here.