The Electricity System Operator (ESO) led task force issued its final report on 31 May, recommending that all the costs in balancing services use of system (BSUoS) charges should be treated solely as cost recovery. The report will feed into Ofgem’s decision on the Targeted Charging Review (TCR) Significant Code Review (SCR) that will be issued this summer.
BSUoS has fallen between the two stools of the two main parts of Ofgem’s network charging reviews; the SCR on residual charging and the SCR on forward-looking charges, as the regulator was unclear exactly what type of charge it should be. The task force was set up by Ofgem in November to consider whether any components of BSUoS could be charged in a more cost-reflective and forward-looking way that would effectively influence user behaviour.
The charge is presently around £1.2bn annually and recovers the cost of day-to-day operation of the transmission system and is made up of several elements, including the costs of constraints, frequency response services, provision of reserve, the costs of actions taken in the Balancing Mechanism and the ESO’s internal costs. It is currently calculated half-hourly and charged out to generators (except licence exemptible generators) and suppliers equally on a non-locational volume basis (per MWh basis). It is not charged on interconnector flows. The task force report now provides a strong steer on how BSUoS should be treated.
In its minded-to decision for the TCR SCR in December, Ofgem proposed that there should be changes to the way that BSUoS is charged to remove the current embedded benefit available to distributed generators. Its current proposed implementation date for these proposals is April 2021.
Meanwhile, under the CUSC arrangements, a proposal, CMP308 Removal of BSUoS charges from Generation, is being taken forward that seeks to place BSUoS charges entirely on demand. Raised by EDF Energy in October, this argues a current distortion would be removed by aligning GB with the practice of most European markets. Although Ofgem requested at that stage that no further work be done on the proposal, work has continued at the proposer’s request and with the CUSC Panel’s agreement; it is due to report to the CUSC Panel this month.
The strong support for the BSUoS task force conclusions in the short consultation on its draft findings gives weight to the charge continuing to be treated as a cost recovery charge, rather than a forward-looking charge that users can reasonably respond to. Who bears the charge and on what basis it is recovered is still to be determined. It is not out of the question, for example, that an alternative combining current initiatives could be considered: to place the charge only on suppliers and to remove the net charging arrangements, a combination that in effect removes both the current BSUoS embedded benefits, while being in line with Ofgem’s approach with cost recovery of residual charges.
Cornwall Insight will be holding a webinar on 27 June at 10am that will explore the key changes being considered by Ofgem’s network charging reviews, their implications and the timescales for implementation. For more information please contact training@cornwall-insight.com or call Richard on 01603 604400.
