A ‘perfect storm’ of surging world demand for gas, reviving power demand, low UK renewables generation and 2021’s cull of retailers has pushed costs of balancing Britain’s grid to eye-wateringly unprecedented levels, new analysis reveals.

The costs of marrying electricity supply to demand across the nation’s network rocketed to £967 million for the three months to end November, a rise of 294% on the same quarter in 2020, according to  LCP Energy Analytics.

The National Grid uses its Balancing Mechanism to match power supply and power demand.  In cases of imbalance, generators and retailers make bids priced to reflect their ability to vary generation or offtake.

The Mechanism’s top ten most expensive days ever recorded have all fallen in the past three months, researchers led by partner Rajiv Gogna found.

For November alone, the average daily cost of the BM was £16.4 million, nearly double 2020’s equivalent, and 756% higher than 2019. Two years ago, November’s average daily cost was a mere £1.92 million, LCP report.

Wednesday 24 November saw an all-time peak, as the system’s daily cost of balancing reached £63.3 million.

The new record exceeds the previous peak by £18.6 million, when equivalent costs hit £44.7 million a mere three weeks earlier on  November 2.

“The energy crisis has torn apart the sector, driving multiple suppliers into non-existence and forcing millions of customers to change supplier,” Gogna wrote.

“There will undoubtedly be more energy suppliers struggling to cover costs from this autumn and winter for many months.

“Across a number of days, we also saw energy from the GB market being exported to Europe to overcome some of the generation issues faced there, compounding our own problems.”

“We have seen the perfect storm of low renewable generation and an increase in global demand for gas which has put the UK’s limited capacity on the edge, forcing prices to repeatedly break new ground.

“Coming down the line, we expect to see further instances of high pricing to balance the system. With proposed changes of moving BSUoS entirely onto suppliers in 2023, unexpected hikes in prices could add further pressure to their balance sheets.

In its Winter Outlook last month, the National Grid announced an imminent review of the BM by its market monitoring team, assisted by external consultants.  The ESO cited “very high-cost days” in the Balancing Mechanism in recent weeks.


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