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UK power system balancing costs rise to new record in October

Highlights

Costs above GBP300 million for first time

Similar levels foreseen for November

2021-22 costs seen close to GBP3 billion

UK monthly balancing costs rose above GBP300 million for the first time ever in October as National Grid Electricity System Operator warned similar levels of expense were likely for November.

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October costs of GBP314.30 million ($421.75 million) were 31% higher than in September and 109% higher year on year.

"Continued high Balancing Mechanism prices impacted significantly on the costs of actions taken to operate the system," National Grid ESO said in a monthly report.

System imbalance prices have reached intra-day highs of GBP4,000/MWh during recent periods, largely due to the cost of calling coal- and gas-fired power generation during lulls in wind output.

S&P Global Platts assessed the average price of UK gas (NBP, day-ahead) at 205 pence per therm in October, up from 39 p/th for October 2020.

Over October in general, however, increased wind generation caused network constraint costs to rise "due to increased congestion on the system and synchronising machines for voltage support and inertia," National Grid ESO said.

Constraint payments result from instructions by the system operator to turn generation up or down in order to balance supply and demand on the transmission network.

These totaled GBP153.60 million in October, up from GBP37.60 million in September and well above a previous monthly high of GBP138.80 million in November 2020.

Looking ahead, National Grid forecast balancing costs of GBP301.80/million in November, and GBP2.948 billion for 2021/22 (12 months to end-March), this estimate translating to an average balancing system charge of GBP5.76/MWh, up around 24% year on year.

Among those benefiting from heightened system prices into November were coal units at Drax and EDF's West Burton power station, according to S&P Global Platts Analytics.

Low wind output on Nov. 2 saw Drax units 5 and 6 and West Burton A unit 2 brought online at GBP4,000/MWh, with coal-fired generation reaching 2.1 GW within day.

"Gas-fired generation also lifted sharply, reaching 17.1 GW on both Nov. 2 and Nov. 3," Platts Analytics said, with offered accepted from Shoreham, Rye House and Seabank CCGTs at between GBP3,300-GBP3,995/MWh.