This week National Grid Electricity System Operator (“the ESO”) released its latest forecast of Balancing Services Use of System (BSUoS) charges – levied on suppliers and large generators to recover costs incurred by the ESO in managing the system on a second by second basis. In this blog we look at the impact COVID-19 could have on BSUoS costs and a recent proposal to mitigate the impact.

The ESO has been forced to take unprecedented actions as a result of low demand on the system driven by the COVID-19 lockdown, including:

  • Launching a new commercial service (known as “Optional Downward Flexibility Management”) for demand turn-up/generation turn-down.
  • Clarifying its ability to instruct distribution network operators (DNOs) to disconnect generation connected to the DNO networks.
  • Reaching a deal with EDF to reduce output from the Sizewell B nuclear plant throughout the summer.

These additional services, along with increased use of existing services to (for example) reduce generation output through the Balancing Mechanism, are expected to materially increase BSUoS costs over the coming months. The ESO’s latest forecast for May to August 2020 totals £911mn compared to £439mn in the same period in 2019. Alongside the significant increase in absolute cost, demand in the same period is forecast to be down by around 13% between 2019 and 2020, further exacerbating the increase when converted to £/MWh. The average rate across May to August 2020 is now forecast to hit £7.45/MWh, compared to £3.13/MWh in 2019.

The ESO has been keen to point out that the costs would have been even higher without additional services. Its estimates show the costs across the same four-month period could have been as high as £1,124mn without new services. But that will provide little solace to parties facing materially higher BSUoS bills.

As a result of the unforeseen increase, SSE Generation has proposed a modification to the Connection and Use of System Code (CUSC) seeking to soften the impact. That modification (CMP345) would see £500mn of BSUoS go unrecovered between May and August and instead recovered across the entirety of April 2021 to March 2022.

The chart shows:

  • Historic BSUoS cost for the past year.
  • The ESO’s central forecast for actual BSUoS costs going forward and the associated BSUoS rate.
  • The ESO’s estimate of the BSUoS costs which would be incurred without its new services and the associated BSUoS rate.
  • The BSUoS cost to be recovered should CMP345 be approved with costs deferred into 2021-22 and the associated BSUoS rate.
  • We are running our Electricity settlements: from the meter to the bank course, online from 2-4 June where we will discuss MHHS in more depth. Find out more here.

Related thinking

Energy storage and flexibility

Revenue Stacking for Flexibility: A Deep Dive into GB Electricity Flexibility Services 

In the ever-evolving landscape of the energy sector, the role of flexibility services in ensuring a stable and resilient electricity grid has become increasingly vital. As the demand for renewable energy sources continues to grow, flexibility service providers play a crucial role in balancing supply and demand, optimising grid performance,...

Net zero corporates and ESG

Long-term regulatory and policy changes needed to avoid stalls to business decarbonisation

In light of the financial pressures faced by businesses from rising inflation and interest rates, tight supply chains and labour markets, alongside high energy bills, there is a high chance corporate investment in decarbonisation could be in trouble. In Cornwall Insight's latest Insight paper “Business net zero: Making progress in...

Commercial and market outlook

Winter 2023-24 price cap forecasts fall further below 2022-23 EPG, but long-term prospects remain uncertain

The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap. Our latest forecasts for the Default Tariff Cap (price cap) have shown energy bill predictions for a typical household1 have fallen to £3,208...

Commercial and market outlook

Tales of the unexpected: what’s happening with gas prices

The gas sell-off for contracts relating to this winter/spring & coming summer has continued in the last few days. On January 16th alone, contracts closed down c15%-17% on gas contracts for this spring and through into summer. This is despite some analysts predicting that gapping-up would occur on the promise...

Business supply and services

Early implications of the Energy Bill Discount Scheme  

People are beginning to take in the changes from the business Energy Bill Relief Scheme (EBRS) to the Energy Bill Discount Scheme (EBDS) that are scheduled for the end of March. As we outlined in our release earlier in the week, the government support is to be scaled back significantly....

Business supply and services

Our response to the announcement of the Energy Bill Discount Scheme 

The government have announced that the Energy Bill Relief Scheme (EBRS) will be replaced by a less supportive Energy Bill Discount Scheme (EBDS) from April 2023. The government have been managing expectations on reducing support levels for business energy costs now for several months and remain under pressure over control...

Home supply and services

Drop in wholesale energy prices sees price cap predictions fall below the EPG for second half of 2023

The predictions for the Default Tariff Cap in this piece are out of date, please click here to find our latest forecasts and commentary on the cap. Our latest forecasts for the Default Tariff Cap (price cap) have shown energy bills for a typical household are predicted to be below the government’s...

Energy storage and flexibility

Balancing Reserve: ESO proposes new regulating reserve service

In recent months National Grid ESO has been developing a new reserve service to improve the management of the system and enable the grid to accommodate zero carbon operation of the electricity system by 2025. On 28 September the ESO first announced at their Autumn 2022 Markets Forum, a proposal...