UK power system balancing costs rise in May on lower demand, lower inertia

UK power system balancing costs rose in May as National Grid ESO grappled with low levels of spinning plant due to falling electricity demand, system operator data showed.

Total balancing costs of GBP146.80 million ($207.22 million) were up 15% month on month but down 10% year on year, when the first COVID lockdown was in full swing with even more dramatic consequences for constraint costs.

"Energy Imbalance, Fast Reserve and Response prices all rose [month on month in May] as a result of managing a low inertia system with a high degree of uncertainty," National Grid said.

As the UK's conventional coal-fired power stations have closed so the system has lost much of the inertia (or spinning reserve) it once had, making it harder to cushion against volatility in a market with growing amounts of intermittent wind and solar generation.

Further, when electricity demand is low even less spinning reserve is available as gas plants become unavailable.

This saw Rate of Change of Frequency costs climb, as the Grid paid for generation to increase the amount of inertia on the system to cope in the event of a large infeed loss.

These effects contributed to an average balancing services use of system (BSUoS) charge for May of GBP4.36/MWh, up from GBP3.81/MWh for April, the data showed.

Looking ahead, National Grid forecast the BSUoS charge falling to GBP3.96/MWh in June based on total balancing charges of GBP114.40 million for the month.

Within this assessment, constraint payments (mainly to gas and wind assets due to instructions to turn up or down in response to grid bottlenecks) were forecast to drop to GBP35.2 million from GBP54.30 million in May.

Constraint payments were then seen rising into Q3 and Q4 of 2021, with overall balancing costs forecast to hit GBP186.80 million for November, driven higher by constraint payments of GBP97.20 million.

Finally, the latest detailed breakdown from National Grid on constraint payments to gas and wind assets showed a sharp decline for April 2021, to GBP36.72 million for gas and GBP2.87 million for wind (see chart).