Ofgem has approved a new Balancing Reserve service which it estimates could save consumers upwards of £820 million over the next four years.
The service, expected to go live in the middle of March, will enable the Electricity System Operator (ESO) to secure a guaranteed amount of energy generation a day in advance, rather than buying energy on the day – a process which can be expensive and expose consumers to high balancing costs.
Participation is open to all GB based Balancing Mechanism generators that are able to generate 1MW and above and Ofgem expects that the service will seek a reserve capacity of up to 3,000MW, enough to cover a large shortfall in generation.
The Balancing Reserve service will lock in a headroom of electricity generation capacity, guaranteed by participating generators, 24 hours in advance.
Generators will be paid a guaranteed sum, agreed by the ESO at daily auctions for each 30-minute settlement period they take part in. The ESO control room can then call-up its guaranteed reserve capacity of electricity as and when needed in response to real time energy demands.
It is argued that reserving capacity in advance, at a pre-arranged price, both balances supply and demand and shields consumers from sharp practices such as generators hiking costs when asked to generate at short notice.
In a statement on the matter, the ESO said: “We utilise a product called ‘Regulating Reserve’ to correct energy imbalances (differences between generation and demand) on the GB power system. We currently use optional bids and offers in the Balancing Mechanism (BM) to create Regulating Reserve in real time. The cost of bids and offers has risen significantly and during periods of scarcity procuring reserve through BM bids and offers can be extremely expensive.
“The new BR service will allow us to procure Regulating Reserve on a firm basis at day ahead. This will help reduce balancing costs and improve system security as the reserve capacity is guaranteed for the Control Room to access when they need it.
“BR will enable the ESO to procure firm Regulating Reserve capacity through a Day Ahead auction, both reducing balancing costs and providing improved system security by guaranteeing headroom (reduced consumption or increased generation) and footroom (reduced generation or increased consumption) for the Control Room to access when needed.”
Once the service is live, daily auctions will be run on the ESO’s Enduring Auction Capability (EAC) platform.
Commenting on the news Eleanor Warburton, Ofgem director for energy systems management and security, said: “Our focus will always be the best interests of customers and ensuring energy companies are providing the most efficient service possible. That is why we have approved the introduction of a Balancing Reserve service allowing the ESO to lock in a guaranteed amount of electricity a day in advance.
“It’s estimated that this could cut balancing costs by up to £800 million over the next four years. Reserving domestic electricity capacity a day ahead should protect consumers here from price hikes. Alongside tough new rules brought in by Ofgem to crack down on generators making excessive profits through the Balancing Mechanism, this should help further drive down consumer bills.”