Balancing Mechanism costs ‘skyrocketed by 294%’

Balancing Mechanism costs ‘skyrocketed by 294%’

The top ten most expensive days in the Balancing Mechanism (BM) ever have occurred in the last three months, as costs soar to £967 million.  From September to November, the BM cost reached £967m, compared to £337m the same period last year.

What is the Balancing Mechanism?

The Balancing Mechanism (BM) is one of the most important tools which National Grid uses to balance electricity supply and demand in real-time. When electricity generation and consumption are not in balance, National Grid uses the BM to purchase changes in generation and consumption to correct the mismatch.

Analysis suggests that the top ten most expensive days in the BM of all time have occurred in the past three months. It also notes that the all-time peak was breached on 24th November, where the cost to balance the UK’s electricity network totalled £63.3 million, a leap of £18.6 million from the previous most expensive day recorded on 2nd November.

Record Daily Costs

BM costs reached an all-time peak on 24th November, when it cost £63.3 million to keep the system balanced. This beat the record set earlier that month, with it hit £18.6 million on 2nd November. During the three months from September, 13 power stations had offers accepted at over £3,000/MWh in the BM.

The crisis in the energy market has so far had many collateral damages – one of them, the cost of the Balancing Mechanism (BM) that soared by 294% during the three-month period, from September to November.

The reason for the increase being increased constraint payments to Gas fired power plants. Constraint payments are made on both sides of a grid bottleneck when system stability is threatened. This usually results in turn-up instructions for flexible gas generators and turn-down instructions for wind farms.

For November alone, the average daily cost of the BM was £16.4 million an increase of 192% from 2020 and 756% from 2019 when the average daily cost was £1.92 million.

How will this affect me and my Business?

Suppliers are being exposed to higher costs through the Balancing Services Use of System (BSUoS) charges, through which BM costs are redistributed to generators and suppliers. This may see higher costs being forecast in future fixed price costs.

Record high balancing costs, which will feed through to suppliers via BSUoS charges at the worst time. With no mechanism to pass the increased cost onto customers, suppliers have had to tackle this huge cost increase from their already stretched balance sheets.

National Grid ESO has announced that it is to undertake a review of the balancing market due to the “very high-cost days” in the BM. Spikes in the market are expected to continue throughout winter, as the system’s margins remain tight.

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