The UK has incurred record power system balancing costs this summer as a result of Covid lockdowns and subsequent demand destruction.
Ofgem is now preparing a review into National Grid ESO’s preparedness and response to the situation, with balancing costs standing at £718m for March to July, up 39 per cent on National Grid’s predictions. Balancing costs are passed on to generators and suppliers, and ultimately their customers.
While summer transmission demand has been falling for some years, largely due to growth in solar PV, the lockdown saw demand plunge to new lows. That meant the ESO has had to work much harder to keep the system stable while managing Covid impacts on its own workforce.
It stuck a deal with EDF to halve Sizewell B’s output; created a new footroom tool (Optional Downward Flexibility Management, ODFM); and asked Ofgem to approve an urgent rule change that clarified its emergency powers to make DNOs disconnect distributed generation.
To date, the ESO has kept the lights on despite unprecedented challenges, with industry also gaining a clearer understanding low carbon future system requirements.
Ofgem will now launch a review into how the ESO handled the situation. Its findings will govern whether the ESO earns incentives or faces penalties, as well as future policy development more broadly, said the regulator.
It will look at how much the ESO could have foreseen and prepared for issues witnessed this summer, and how much was down to Covid or otherwise; how the ESO responded to the challenges, and whether this represented value for money; and how this summer can inform a low carbon market structure.
The regulator wants to complete its review by October and seeks industry views.
See details here.
“The record balancing costs incurred by the National Grid during lockdown are further proof of the immediate need for a system that operates more flexibly and is able to manage peaks and troughs in demand. This will become even more important as the UK continues to increase renewables within its energy mix and moves towards its ultimate goal of reaching net-zero. The solution to balancing the system of the future does not lie in spending billions on more centralised power generation or by curtailing renewables, as we saw during lockdown. Instead, we should encourage consumers of energy – both homes and businesses – to become more active participants in energy markets and adopt flexible technologies such as demand side response and storage to help balance the grid and create a more sustainable national energy system.” – Louis Burford, head of solution sales and optimisation, Centrica Business Solutions