UK power grid balancing costs near GBP140 million in July, up 96% on year

London — UK monthly power system balancing costs remained at unprecedented levels in July as constraint payments to gas, wind and interconnector assets boomed, National Grid data showed Sept. 2.

UK electricity demand of 17.35 TWh in July was down 9% year-on-year as the economy emerged fitfully from lockdown, making for challenging balancing conditions at weekends in particular due to excess renewable energy supply.

July balancing costs were stable on June and down on May's GBP163 million, but at GBP139 million ($185 million) were 96% higher in a year-on-year comparison, boosting 2020-to-date costs to GBP996 million, 60% up on the year.

Escalating costs were driven by constraint payments to gas plants, wind farms and interconnectors, while payments to the "other" catch-all category (hydro, open cycle gas, nuclear, demand side) again rocketed on year (see table).

UK BALANCING COSTS: BREAKDOWN OF CONSTRAINT COSTS BY FUEL TYPE (GBP mil)

Other - hydro, open cycle gas turbine, nuclear, demand side

Source: National Grid ESO

In an earlier forecast in August the electricity system operator said Balancing Services Use of System (BSUoS) charges in July averaged GBP4.79/MWh, versus GBP3.44/MWh for 2019/2020.

Assuming a 10% decline in demand due to COVID-19 in August, it forecast BSUoS charges for the month at GBP6.43/MWh.

A lesser demand decline of 5% would result in an average BSUoS charge of GBP5.64/MWh in August, it said.

Regulatory review

On Aug. 17 energy regulator Ofgem launched a review into increasing BSUoS costs during spring and summer this year.

UK balancing costs of GBP718 million for March to July were 39% higher than forecast by National Grid as the coronavirus lockdown changed consumer behavior, Ofgem said.

In response to historically low power demand, National Grid contracted Sizewell B nuclear plant to reduce output by 50%, designed and procured a new distributed generation service called Operational Downward Flexibility, and clarified emergency arrangements for disconnection of distributed generation.

Ofgem sought evidence from the system operator through August and is holding industry round tables in early September. The review is due to be completed by end-October.

A key area of discussion will be whether National Grid should have been better prepared for erratic, low-demand conditions ahead of the pandemic.

The evidence is that, while the lockdown has been lifted in the UK, system challenges and therefore costs remain above average due to the changing fundamentals of increased renewables and falling dispatchable plant levels.

Battery storage system operators have criticized National Grid for not calling on these emerging assets more often in the balancing mechanism, preferring to sign bilateral contracts with large gas plants and, more recently, nuclear units.

On Aug. 3, National Grid extended its 625 MW contract with EDF Energy for a reduction of output at the 1,250 MW Sizewell B to Sept. 24.

Reduced output from the 1.25 GW nuclear power plant would continue to give "vital additional options" to National Grid's control room engineers as they manage the stability of the system, it said.

From May 7 to June 19, the contract cost was in the range of GBP17 million to GBP23 million, as it was for June 19-Aug. 10.

For Aug. 10 to Sept. 24, "we forecast that the contract will cost in the range GBP21 million-GBP27 million," National Grid said.