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.