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Ofgem has granted urgent status to a proposed code modification that would put a temporary cap on balancing charges over the first three months of 2022 to relieve financial pressure on electricity suppliers and consumers.
The modification to the Connection and Use of System Code would limit Balancing Services Use of System (BSUoS) charges to £10/MWh between 1 January and 31 March 2022 and defer the additional costs until the 2022/23 charging year.
The deferred charges would be capped at £300 million due to limits on the liquidity of National Grid Electricity System Operator (ESO).
The modification, designated CMP381, was put forward by EDF Energy last week.
Explaining the motivation behind the proposal, Ofgem noted that similar caps of £15/MWh and then £10/MWh were imposed during 2020 after reduced energy demand as a result of the coronavirus pandemic led to increased balancing costs and forecast charges.
The regulator said the deferral of the additional charges until 2021/22 combined with the “unprecedented and unexpected rise in gas and electricity prices over recent months” have meant BSUoS charges have “considerably exceeded” the ESO’s forecasts so far this winter.
According to the proposal document submitted by EDF, BSUoS charges from August to November were £625 million higher than the ESO’s forecasts for the period. It said this issue will continue over the remainder of the winter season and “both industry and consumers will not be prepared or able to tolerate the actual extreme prices that will outturn next year.”
The document said it is “absolutely critical” that a cap is placed on BSUoS charges to “protect consumers and prevent further insolvency contagion to suppliers and generators,” which would be “devastating” for the stability of the energy industry.
Ofgem has agreed to fast-track the modification, saying it is satisfied that the issue could have a significant commercial impact on parties, consumers and stakeholders if not addressed urgently: “If this proposal was reviewed on a non-urgent timescale, it is likely that this modification process would be concluded in the next charging year, which is after the period with which this modification is concerned.”
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