Curtailment costs to rise above £3bn before plunging

The annual cost of curtailment could rise to more than £3 billion by the end of the decade, before falling when major infrastructure projects unlock bottlenecks on the grid.

The Electricity System Operator (ESO) has warned that delays to National Grid’s so-called ‘Electricity Superhighways’ could see these costs rise even further.

The figures are revealed within the ESO’s inaugural Balancing Costs assessment, which forecasts a steep rise in the total cost of balancing the grid until 2030.

For the past financial year, £2.4 billion was spent on balancing costs – some £1.7 billion less than the previous year. The decrease is largely attributed to a substantial reduction in wholesale energy prices.

Around 40% of current balancing costs relate to thermal constraints which typically requires the ESO to pay curtailment fees – paying generators to stop generating electricity in constrained areas, while also paying other generators (typically gas) to come online in areas that are free of constraints.

At its peak – under what it calls its ‘leading the way’ scenario – the ESO predicts total balancing costs could reach around £4.5 billion by the end of the decade. This includes costs relating to constraints, reserve, response and restoration.

Thermal constraint costs alone would peak at more than £3 billion under the ESO’s modelling.

However, both constraint costs and total balancing costs are predicted to fall significantly from 2030 when major infrastructure projects under the ASTI (Accelerated Strategic Transmission Investment) framework come online.

By 2031/32 the ESO anticipates total balancing costs of less than £4 billion and by the 2040s it is forecasting total balancing costs of under £3 billion.

For thermal constraint costs, the ESO predicts costs to drop from a high of more than £3 billion in 2030 to less than £2.5 billion in 2031/32. Thermal constraint costs will then continue to fall and are estimated to land between £1 billion and £1.5 billion from 2037 onwards.

The ESO does, however, warn that a delay to National Grid’s Eastern Green Link 1 and 2 projects could lead to additional constraint costs of up to £409 million per year.

Both projects are designed to provide additional capacity across the B6 boundary between Scotland and England and have both cleared planning milestones in the past months.

The ESO’s report adds that without the ASTI framework total balancing costs could have reached more than £6 billion by the middle of the 2030s.

ESO analyst Laura Woolsey said: “Network build is going to have a really key role to play in reducing congestion on the system and reducing the need for balancing actions, which ultimately will lower balancing costs for consumers.

“But we are currently expecting balancing costs to rise out to 2030 which is due to the fact that we have got a lag between new generation connecting and new transmission investment coming online later into the 2030s.”

Balancing costs currently make up around 4% of customer bills, according to the ESO’s assessment.

The rising level of payments renewables generators receive to constrain their output was described as a “landmine” by the House of Commons energy security and net zero committee chair Angus MacNeil earlier this year, who warned that it could explode like the Post Office scandal.

He added: “[Constraint payment] will bubble up at some point because there’s a lot of money going for nothing.

“People are going to look at it and ask what they are getting for this money. There’s going to be a demand to do something: paying something for nothing isn’t going to wash.

“Giving money for nothing is really going to stick in the craw.”

Analysis carried out by developer Field earlier this year found that that wind farms in Scotland are being curtailed 40% of the time.

It also found that transmission capacity across key boundaries in the UK, including the B6 boundary, rarely has more than a 50% utilisation rate, further restricting the flow of electricity.

The developer claims that constraint costs could be cut by as much as 80% “if existing technologies like battery storage are used more effectively on the current grid”.

Responding to the ESO’s assessment, Field technical director Chris Wickins said: “As the report shows, grid constraints have historically created half of all balancing costs and the problem is likely to get much worse for bill payers – with consumers paying billions by the end of the decade to turn off wind farms and fire up gas power plants. Field’s analysis, which has been shared with the system operator, is that there are ways to dramatically reduce constraint costs that are faster and cheaper than building new network infrastructure.

“Billions have rightly been earmarked to upgrade network infrastructure, but these plans will take time to implement. There are ways for the system operator to dramatically reduce constraint costs that are faster and cheaper now, such as increasing the largest infeed loss to enable procurement of more intertrip services and deploying Grid Booster batteries to cut constraint costs by around 80%.

“Batteries are a vital technology to achieving a net zero power sector by 2035 and should be a larger part of the system operator’s plans to balance the grid, in order to keep the cost of managing it as low as possible. Welcome changes are being considered to maximise the use of batteries in the energy system. But, all of this needs to go much further and faster. We encourage the system operator to continue its work with industry to plan a net zero energy system that uses plenty of storage infrastructure for the benefit of consumers.”