Ofgem has approved a request by British Gas to grant urgent status to its proposal to put a tighter cap only balancing costs than the one already approved by the regulator as part of its response to the coronavirus pandemic.
Towards the end of last month, Ofgem approved an alternative version of a proposed modification to the Connection and Use Connection Code (CUSC) named CMP345 that capped Balancing Services Use of System (BSUoS) charges at £15/MWh until the end of August 2020.
The amendment, put forward by SSE, was intended to prevent a surge in balancing costs from being passed straight onto suppliers and instead delay the collection of the excess until the next financial year.
Last week, British Gas proposed a further modification named CMP350 that would reduce the cap to £5/MWh, while also extending the scheme to the end of September and introducing a £100 million cap on the overall amount that can be deferred.
“CMP345 introduced a £15/MWh cap for BSUoS to provide protection against exceptional BSUoS price levels,” the company explained in the proposal document.
“However, the solution introduced by CMP345 fails to consider the impact Covid has had on the exceptional frequency of higher BSUoS rates across a much broader range of BSUoS price levels.
“We believe a cap of £5/MWh provides a necessary and more appropriate level of protection for market participants which addresses both the instances of exceptionally high levels of BSUoS prices as well as the exceptional frequency of high levels of BSUoS prices.”
British Gas said there is clearly the potential for the coronavirus pandemic to increase balancing costs beyond the August, meaning an extension is required, but overall deferrals should be capped at £100 million as there is a limit to amount National Grid Electricity System Operator will be able to cover from its own funds.
The firm also asked that the modification be granted urgent status to enable its implementation by 1 August.
Despite the CUSC panel voting against it by a margin of five to four, Ofgem approved the request for urgency, agreeing with the proposer that there could be a significant commercial consequences if the issue were not addressed promptly.
The regulator stated that although CMP345 has gone “some way” towards mitigating the impact of increased balancing costs, it also accepts that market participants “remain exposed to a general uplift”.