UK power balancing costs up 57% in June as constraints soar

UK power system balancing costs rose 57% month on month to GBP332.43 million ($405.72 million) in June as constraint payments rocketed, National Grid ESO data showed Aug. 2.

Escalating power prices, growing volumes of intermittent wind and falling levels of inertia aided the cost of balancing the power network, National Grid said.

Buy-side balancing trades by the system operator were steeply higher on the month at 482 GWh in June, at a cost of GBP50.2 million, data showed. For June last year the comparable figures were 74 GWh at a cost of just GBP4 million.

Energy imbalances of plus 87 GWh (GBP23 million cost) were also exceptionally high, compared to June 2021's minus 18 GWh (GBP7 million).

But the biggest driver of inflation in the balancing market remained the cost of paying generators to constrain output, due to regional bottlenecks in the transmission grid, which jumped to GBP181 million in June, up 98% from May 2022 and 376% from June 2021.

"We're at the point now in a developed economy where people really can't pay their energy bills. It is becoming unthinkable to be wasting GBP2 billion a year on balancing costs. This is a tipping point because of public awareness of energy prices," Electron CEO JoJo Hubbard told S&P Global Commodity Insights in July. Hubbard was referring to an option in the UK's current review of electricity market arrangements (REMA) to move to locational or nodal pricing.

National Grid ESO said that if left unchanged, the current market design will impose excessive costs on consumers.

"The existing wholesale market design is contributing to a dramatic rise in constraint costs and inefficiencies in balancing the network, while undermining the capability to deliver demand-side flexibility," it said.

A nodal, location-based, wholesale market as the ESO's preferred operational redesign to unlock low-cost, low-carbon electricity "when and where it is abundant," it said in May.

Meanwhile, distribution companies were looking at local solutions to the national constraints problem.

Network operator Electricity North West is rolling out its BiTraDER project for a bilateral market allowing flexibility providers to trade directly with local generators. The four-year project, backed by innovation funding from regulator Ofgem, with trial the market live on its network.

Platts assessed the price of Winter 2022-23 UK power at GBP542.35/MWh Aug. 1, a new record for the winter season and up 141% since the start of May.