UK power system balancing costs down 15% on month in Dec 2020

London — UK power system balancing costs fell 15% month on month in December 2020 to GBP165 million ($224 million) as constraint costs eased, but across full year 2020 UK balancing costs rose 48% on unprecedented volatility in supply and demand, National Grid data showed Jan. 18.

Constraint costs are paid by the system operator predominantly to gas and wind assets to amend production levels and safeguard network security.

The outturn for December "was significantly lower than November and only slightly above forecast" as transmission outages ended, and demand returned to more normal levels following the November lockdown, National Grid said.

At GBP96 million, December constraint costs were down more than GBP40 million month on month, November costs having been exacerbated by a 2 GW capacity reduction on the B7 transmission boundary just south of Teesside.

For full year 2020, UK balancing costs amounted to GBP1.789 billion, compared with GBP1.198 billion for FY-19 -- a 49.3% year-on-year gain.

The costs translated into an average balancing charge on bills of GBP4.12/MWh for December, compared with a year-ahead forecast for the month of GBP2.65/MWh.

Averaged across the whole year, UK consumers paid an estimated GBP4.66/MWh for balancing services, versus National Grid forecast GBP2.98/MWh.

UK balancing costs have risen dramatically this year due to various factors, most notably the impact on demand from the initial coronavirus lockdown, followed by the collapse of Calon Energy in August, taking three large gas plants out of the market at short notice.

Into 2021, it seems inevitable that increased grid actions due to tight generation margins will result in higher balancing costs.

"Several conventional baseload generation players are dining out on these high system balancing costs," Dan Taylor, founder of utility and energy storage infrastructure company Ion Ventures, told S&P Global Platts after the last series of capacity warnings Jan. 13.

Taylor said the commercial aspects of National Grid's available "toolkit" of actions would likely be revisited after this winter.

"National Grid is saying publicly that the current situation is not a sign of things to come, while others are saying that it is. I don't think either party is exactly right. There is a middle ground to be had -- once there is access to a lot more flexibility across the board," he said.