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TSO proposal could see £1/MWh wiped from UK electricity curve

16 Aug 2012 15:45:26 | edem

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A proposed modification to the electricity balancing code in the UK could be set to wipe £1.00/MWh from wholesale power prices.

The reform would see the bill for balancing charges paid by the supplier alone, rather than the existing supplier-generator split.

But UK power traders polled by ICIS generally have not factored the potential change into curve pricing, suggesting a downward movement on future prices if the modification is approved.

Transmission system operator National Grid put forward the modification, CMP201, which would stop the balancing services use of system (BSUoS) from being charged to generators. National Grid said removing the charge from generators would bring the UK market more in line with markets in mainland Europe, where the cost of operating the system generally falls to the demand side.

The existing 50:50 split in the UK between generators and suppliers makes domestic generation appear more expensive than equivalent generators based in mainland Europe. Removing BSUoS liability from generators would allow them to compete more fairly across Europe, a National Grid spokesman said.

The more competitive nature between generators should ensure the BSUoS charge removed from generators is reflected in lower wholesale prices, according to the theory.

Analysis by National Grid of removing the BSUoS charge from generators based on 2010/2011 data said the wholesale price would be £47.29/MWh without, but £48.29/MWh with BSUoS included.

However, it is thought some of the net effect of removing BSUoS charges from generation will see a net increase in exports from the UK, so the reduction in wholesale prices is less than the increase in BSUoS liability for suppliers.

Interconnector change

British energy regulator Ofgem approved on Wednesday a related modification, also tabled by the system operator, to remove BSUoS liability from interconnectors. The flows are classified as generators in the UK market and so are liable for BSUoS charges.

Removing the charge from interconnectors improves EU-wide competition and better meets the objectives of the EU third energy package, Ofgem said. The removal of the charges will take effect on 30 August, which means all flows from that date will no longer be subject to BSUoS charges.

Two corresponding modifications have been tabled with balancing code company Elexon relating to the RCRC (residual cash-flow reallocation cash-flow) element of balancing and settlement code's settlement imbalance charges, which would correct some potential anomalies from the changes.

Price change

Most UK power traders said that any change had yet to be factored into the curve, with many still waiting on more information from staff in charge of regulatory developments and ultimately a clearer description of the changes before deciding how to reflect the potential reform.

If the change is approved it will see the risk transferred to suppliers. Ultimately it is thought end-users will pick up the bill.

"The grid still needs to balance, and the need for it to do so will become more pronounced in line with greater saturation of wind and other intermittent renewable generation, so the absolute level [of BSUoS charges] stays the same but the payable amount shifts fully to suppliers who pass through the to the end-user," said analyst Nick Campbell of Inspired Energy.

A potential teething problem if the proposal is adopted could be a one-off windfall for generators, while suppliers are effectively charged twice because of contracts fixed before the potential change.

Suppliers would have agreed to pay the generation BSUoS in the forward contract, but, should the modification go ahead, they would also be exposed to the new 100% liability for the charge.

Introducing a transition period to allow parties to take account of the changes in their agreements is being considered to counteract this. Participants have until 30 August to comment on the modification via National Grid. FOR

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