UK power balancing costs top GBP140 million in June as contract costs sink in

London — UK Balancing Services Use of System (BSUoS) costs remained unusually high in June, with constraint payments to gas, wind and "other" contracted plants nearing GBP95 million ($124 million), National Grid data showed August 3.

UK electricity demand of 16.32 TWh in June was down nearly 12% year on year as lockdown restrictions inhibited activity, forcing National Grid to take emergency action particularly at weekends due to excess renewable energy supply.

June total BSUoS costs dipped on May's GBP163 million, but at GBP140 million were still 57% higher than a year earlier, boosting six month 2020 BSUoS costs to GBP858 million from GBP550 million for H1 2019.

Escalating costs were once again driven by constraint payments to gas and wind generators, while payments to the catch-all "other" category (hydro, open cycle gas, nuclear, demand side suppliers) were around GBP20 million for the second month in a row, compared to GBP3.5 million in April.

This reflects the cost of bilateral turn-down contracts signed by National Grid notably with nuclear generators as the drop in demand from lockdown became apparent.

In detail, gas plant constraint costs topped GBP60 million in June, wind constraint costs came to GBP19.77 million and "other" costs came to GBP22.90 million.

In June 2019 "other" constraint payments were actually receipts to National Grid of GBP21 million, reducing total net constraint costs to just GBP24.63 million versus this June's GBP94.44 million.

"We're heading into unprecedented times, volatility is going to be exponential," a London-based power trader said in July.

"Blindly running your assets without any understanding or reaction to the markets is going to be extremely inefficient from a price and a carbon angle," he said, noting the increasing amounts of money to be earned in the balancing market.