UK power system balancing costs rise 48% in 2021 as BM prices rocket

UK power system balancing costs rose 48% year on year in 2021 to GBP2.65 billion ($3.59 billion) after balancing mechanism prices rocketed in the final quarter, data from National Grid Electricity System Operator showed Jan. 21.

National Grid ESO takes a variety of actions to balance electricity supply and demand close to real time. The growth in intermittent wind, closure of dispatchable coal and hike in market prices are driving the cost of these actions up.

"Continued high balancing mechanism prices impacted significantly on the costs of actions taken to operate the system, particularly when energy system margins were tight," National Grid ESO said.

While constraint costs were lower in December month on month, balancing costs of GBP327 million were close to double December 2021's GBP165 million, the data showed.

The latest month's costs translated into an estimated charge of GBP7.48/MWh.

In November, National Grid ESO said it would review the mechanism after observing excessive costs.

"In recent weeks there have been some very high-cost days in the balancing mechanism. As those costs are ultimately borne by consumers it is important to fully understand the factors driving the market," National Grid said Nov. 26.

UK day-ahead baseload wholesale power averaged GBP262/MWh in December, according to S&P Global Platts assessments, versus GBP59.23/MWh for December 2020.

UK BALANCING COSTS, 2021

*Balancing Services Use of System

Source: National Grid ESO