An Ofgem investigation has found that the electricity system operator, National Grid ESO has not provided accurate and unbiased electricity demand forecasts back non 2017. It is to pay £1.5 million into Ofgem’s voluntary redress fund that supports vulnerable energy consumers and innovation
National Grid ESO co-operated during the investigation and expressed a willingness to settle the case. By settling this investigation early, the company has qualified for a 30% discount for early settlement from the proposed £2.1 million penalty.
In 2017, Ofgem introduced a financial incentive to drive National Grid Electricity System Operator (National Grid ESO) to produce more accurate forecasts. The scheme incentivised the company for producing forecasts that were not systematically over or under GB demand.
Ofgem’s investigation found that for five months between April and October 2017, National Grid ESO’s forecasts were periodically either over or under GB demand. National Grid ESO received £130,000 from this incentive during 2017. The investigation found that National Grid ESO did not have sufficient compliance processes in place and there was a lack of oversight by the management at the time.
Publishing accurate and unbiased electricity demand forecasts is a critical responsibility of National Grid ESO under Ofgem’s rules. Participants across the energy industry, including suppliers, may rely on these forecasts to calculate how much electricity to generate and buy.
Buying too much energy can result in selling energy back to the market at a loss, while buying too little can result in paying more to cover the shortfall. This has the potential to increase the costs incurred by market participants. These costs can, in part or in full, be passed on to consumers in the form of higher electricity prices.
Ofgem’s Director of Enforcement Cathryn Scott said, “In 2017, National Grid ESO did not meet its obligation to provide accurate and unbiased 7-day ahead electricity demand forecasts which ultimately may have risked pushing up the cost of electricity for consumers.
“National Grid ESO plays a vital role in coordinating and managing the supply and demand of Britain’s electricity. Many suppliers rely on accurate electricity demand forecasts to buy electricity for their customers.
“Ofgem’s rules on publishing accurate information are clear and must be followed. The £1.5 million payment sends a strong message to the system operator that it must follow the rules.”