UK gas plant constraint costs up 250% month on month in Oct: Nat Grid ESO

A 250% month on month increase in constraint payments to GB gas-fired power plants was behind October's record Balancing Mechanism costs, National Grid Electricity System Operator data showed Dec. 9.

A breakdown of constraint costs showed payments of GBP144 million to gas generators for October, up from GBP41 million in September.

The spike was also 76% higher than the previous record of GBP80 million set in November, 2021.

At just below GBP14 million, meanwhile, constraints payments to wind farms were also up strongly on the previous six months' average of GBP2.6 million, reflecting a month of much stronger wind speeds after a long lull for the sector.

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.

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

On Nov. 27 National Grid ESO said it would review the BM after observing excessive costs in recent times, although it acknowledged there were many potential drivers.

One is the general surge in wholesale prices, feeding through into imbalance prices. 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.

Full month November balancing mechanism costs have not yet been published, but in a mid-month report National Grid forecast costs again over GBP300 million.

Looking further ahead, it forecast overall balancing costs of GBP2.948 billion for 2021/22 (12 months to end-March), this estimate translating to an average system charge of GBP5.76/MWh, up around 24% year on year.

The UK needed to move towards energy self-sufficiency via renewables and electricity storage to manage electricity prices and constraint management issues, Managing Partner of VEST Energy Aaron Lally told S&P Global Platts.

"If we continue to manage power supply and constraint management through gas generation, UK power prices will remain high with a high correlation to global gas prices," he said.