Ofgem caps UK power balancing costs

UK energy regulator Ofgem has decided to cap balancing service payments to help market participants manage increased balancing costs owing to the Covid-19 pandemic.

The Balancing Services Use of System (BSUoS) price will be capped at £15/MWh (€6.56/MWh) in each settlement period until 31 August, and any under-recovery of revenue will be recovered through BSUoS charges equally across all settlement periods in 2021-22. This will take effect from 25 June.

Balancing costs are rising as the National Grid Electricity System Operator (ESO) takes a number of measures to help it deal with reduced demand, including paying a unit at the Sizewell B nuclear station not to run.

The ESO in May forecast total BSUoS costs for May-August at around £826mn, under an assumed fall in demand of 15-20pc. This was an increase of £441mn compared with a forecast made in February.

But UK power demand has since recovered to around 5-10pc below normal levels, Ofgem said.

The ESO this month reduced its forecast BSUoS costs for May-August to £593mn-£656mn, assuming demand remains 5-10pc lower than usual.

Ofgem expects deferred payments will be less than 5pc of total BSUoS charges from 25 June-31 August.

If the amount of deferred costs exceeds £100mn, Ofgem will examine how to mitigate the ESO's exposure to the loss on revenue.

The deferred charges would have totalled £8.5mn last month, had the cap been in place, from 112 settlement periods, the regulator said.

By Killian Staines