Ofgem has overruled the Balancing and Settlement Code (BSC) panel to end the liability of interconnectors to pay a segment of BSC charges referred to as funding shares.
The regulator said they are not compliant with an EU regulation from 2010 preventing interconnectors from being subject to network access charges.
BSC costs refer to those incurred by the code administrator Elexon. Around a third are recovered through specified charges on signatories, for example, for the basic BSC subscription or each balancing mechanism unit they operate.
The rest are recovered through funding shares, of which there are two main types.
The first covers the costs of operating the supplier volume allocation system and is charged to generators based on their share of monthly output.
The second covers general BSC costs and is charged to both generators and suppliers based on their share of monthly generation and consumption. Trading units can offset their generation against their consumption within settlement periods and vice versa.
The code modification P396 proposed by power exchange operator Nord Pool in December would end the liability of interconnectors to pay these funding shares.
Nord Pool argued in its proposal that the charges conflict with the EU’s view that interconnectors should not been treated as consumers or generators but as part of the transmission network.
It said the application of the charges to cross-border flows creates a price differential between markets that “has the effect of reducing the number of occasions where potentially beneficial trades could have taken place”.
The BSC panel voted to reject the proposal on the grounds that it would harm competition by putting domestic generators at a disadvantage when compared to rivals in neighbouring countries.
Ofgem said there is insufficient evidence to support the view that the proposal would either promote or hinder competition. But it nevertheless approved the modification, saying the funding shares covered by the modification clearly constitute network access charges.
It said interconnectors are required to pay these charges to gain access to the electricity network and the services they fund are not an “optional add-on” that a party could decline to use.
The regulator said the charges no longer paid by interconnectors will recovered from the rest of the market through the same mechanism as before.
The changes will take effect on 5 November 2020 to allow time for the system for calculating BSC charges to be updated accordingly.