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Increasing electricity balancing costs and an increasing System Operator role

Emma Burns Senior Consultant

Last week saw the publication of Ofgem's review of GB energy system operation. This makes recommendations that the roles and functions of the electricity and gas system operators need to change in light of net zero. In this week's 'Chart of the week', I wanted to focus on one aspect of National Grid's role – the cost of electricity system balancing. This is just one relevant element that will feed into the costs and benefits of creating more independent system operators. But nonetheless an interesting metric to look at is to consider how the system’s balancing needs, and with it the Electricity System Operator’s (ESO) role, has changed over time. In its document, Ofgem highlights the change in balancing costs over time. It shows how they have increased from a total of £868mn in 2015-16 to £1,268mn in 2019-20. Constraint costs were the biggest driver of increased balancing costs over this period. System Balancing costs have increased over time, which is important context to Ofgem’s recommendation to review the role of Future System Operator (FSO) in GB This is important because a key design feature of the System Operator’s role in our market arrangements was as ‘residual balancer’ – whereby wholesale market participants delivered most actions to balance the systems via trading activity, and the ESO taking only a small role to resolve ‘residual’ imbalance that the market could not trade for. The data shows ...

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