Cost of keeping energy market in check rises by 294% as crisis leaves its mark

Media centre

New analysis of the energy crisis that has gripped the UK’s energy sector and forced more than 20 energy suppliers to collapse has shown that over the three months from 1st September, the cost of the UK’s Balancing Mechanism (BM) has reached £967m, an increase of 294% compared to the same period last year, which totalled £337m.

The Balancing Mechanism is the within-day mechanism that National Grid uses to balance the electricity supply and demand in real-time for each half-hour trading period. Where the expected generation and demand for electricity is not balanced, participants submit bids or offers to either increase or decrease their generation, or likewise for consumption.

These high costs have largely been driven by high offer costs, the price to turn units up or on to provide additional power, with 13 stations having offers accepted at over £3000/MWh in the period of September to November.

Cost of balancing the market has reached highest peaks ever

Analysis from consultancy LCP also reveals that the top 10 most expensive days in the UK’s BM of all time have occurred over the past three months. Data from LCP’s Energy Analytics team shows that:

  • the all-time peak was breached again on the 24th November, where the cost to balance the UK’s electricity network totalled £63.3m, a leap of £18.6m from the previous most expensive day recorded on the 2nd November.
  • For November alone, the average daily cost of the BM was £16.4m an increase of 192% from 2020 (£5.6m average per day) and 756% from 2019 when the average daily cost was £1.92m.

Suppliers facing near tripling of charges

The current energy crisis has seen providers such as Bulb, People’s Energy and Pure Planet forced into administration, with these businesses facing heavy loses due to the rising cost of gas. As well as having millions of customers locked into cheaper tariffs, the increase in energy prices and the BM market has meant that suppliers have been exposed to higher costs through the Balancing Services Use of System (BSUoS) charges. The BSUoS charge is the cost for the BM that is redistributed to generators and suppliers and ultimately charged to consumers. LCP estimates that the cost of BSUoS charges for November will reach around £600m, representing a near tripling from the £203m in 2020.

Calculating the cost of BSUoS for the three months from the 1st September 2021, the total cost reaches £1.25bn, more than double the £524m in 2020 for the same period.

National Grid has this week announced an investigation into the mounting balancing mechanism prices.

Commenting on the ongoing energy crisis Rajiv Gogna, Partner, LCP Energy Analytics said: “The energy crisis has torn apart the sector, driving multiple suppliers into non-existence and forcing millions of customers to change supplier, and there will undoubtedly be more energy suppliers struggling to cover costs from this autumn and winter for many months.

“We have seen the perfect storm of low renewable generation and an increase in global demand for gas which has put the UK’s limited capacity on the edge, forcing prices to repeatedly break new ground. Across a number of days, we also saw energy from the GB market being exported to Europe to overcome some of the generation issues faced there, compounding our own problems.

“This has resulted in record high balancing costs, which will feed through to suppliers via BSUoS charges at the worst time. With no mechanism to pass the increased cost onto customers, suppliers have had to tackle this huge cost increase from their already stretched balance sheets.

“Coming down the line, we expect to see further instances of high pricing to balance the system. With proposed changes of moving BSUoS entirely onto suppliers in 2023, unexpected hikes in prices could add further pressure to their balance sheets.”

Sign up

Sign up

Receive the latest news and information from our energy experts.

Sign up