Ofgem has reduced the cap on balancing charges introduced as part of its Covid support scheme and extended the provision until October.
Balancing services use of system (BSUoS) costs are the means by which National Grid Electricity System Operator (ESO) recovers costs from generators and suppliers incurred in balancing the electricity transmission system.
In June, Ofgem capped balancing services costs at £15 per MWh until the end of August and introduced a licence modification allowing any additional costs due to Covid to be deferred to the next financial year.
British Gas initially raised CMP350, a proposal which sought to address a higher frequency of high BSUoS charges by reducing the cap to £5 per MWh, extending it to 30 September and introducing the £100 million limit for deferred costs.
Ofgem assessed the proposal and several variations of the cap and its expiry date and ruled in favour of CMP345 WACM6, which reduces the cap by £5 to £10 per MWh and extends it until 25 October. In addition, total charges deferred under the cap will be limited to £100 million.
Explaining its rationale, Ofgem said the £15 per MWh cap has to date deferred more than £8 million in charges, allowing suppliers and generators to pass through a limited amount of the exceptional Covid-related costs this summer. Furthermore, it has mitigated “extreme volatility”, which can send “unhelpful price signals” at times of very low demand.
“We expect that reducing the cap to a lower level (from £15/MWh to £10/MWh) and extending it until October 2020 will provide further benefits on both of these fronts. We believe that there will be benefits to competition from this option, because it would enable deferral of exceptional BSUoS charges which prudent market participants could not have foreseen, facilitating competition in the longer term”, Ofgem said.
The regulator added that it believes £10 per MWh represents the right balance of risk between consumers and market participants, in particular suppliers, while avoiding the market distortions likely under a lower cap.
The new modification comes into effect today (14 August).