UK power grid balancing costs up 49% in April as gas fees boom

London — Balancing costs for April on the UK electricity grid were up 49% year on year as constraint payments to gas plants more than doubled to GBP56 million ($70 million), according to data from National Grid.

Costs of GBP125 million for the month compared to GBP84 million for April 2019, the increase reflecting the challenges posed by low demand and, as a proportion of the generation mix, much higher renewable energy production.

April data also showed a small constraint payment (GBP1.9 million) to coal-fired generation, proving that while coal generators may have been out of the wholesale market for a record run of days this year, they have not been entirely inactive.

Wind farm constraint costs meanwhile came to GBP8.3 million for April, down from GBP18 million in March reflecting a calmer period and fewer north-south bottlenecks.

For the four months to end-April, UK balancing costs were up 40% or GBP226 million on year to GBP557 million, an ominous sign in the light of National Grid's mid-May statement that an extended period of low demand could push balancing costs up to GBP826.3 million for the four months to September this year, almost GBP500 million more than for the same period last year.

Related to this announcement, on June 1 National Grid released a workgroup consultation on a modification to the Connection and Use of System Code proposed by SSE Generation, which along with other generators and suppliers has to pay the balancing costs.

SSE has proposed deferring payment of additional balancing costs due to the coronavirus incurred in the year to end-March 2021 by a year, to the 12 months to end-March 2022.

To put the potential cost hit facing generators and suppliers in perspective, SSE noted that in February this year the system operator forecast that 2020/21 balancing costs would amount to GBP1,478 million.

Then on May 15, National Grid updated its forecast to around GBP2,000 million.

"This 25%+ increase in the quantum to be recovered is further compounded by it being applied, in practical terms, over a third of the 2020/21 year (May – August) rather than the whole year, and over a smaller charging base, with demand in GB down circa 20% due to Covid-19 lockdown," SSE said.

The combined impact is that balancing costs are forecast to increase by around 90% on average from June to August, with a high probability of the costs in individual periods "effectively doubling the total cost of electricity," the generator said.