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UK utilities attack electricity balancing system reform proposal

12 Sep 2012 10:52:52 | edem

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UK utilities have urged network manager National Grid to postpone a controversial plan to shift electricity balancing system charges from generators to suppliers.

National Grid has predicted that the wholesale price would fall by around £1.00/MWh (€1.25/MWh) - to £47.29/MWh from £48.29/MWh based on 2010-2011 data - if generators no longer pay the balancing services use of system (BSUoS) charge (see EDEM 16 August 2012).

In a series of consultation responses published by National Grid at the end of last week, energy giant Centrica claimed the move could cost British utilities £150m, citing National Grid analysis.

The scheme would reform the balancing code so that suppliers are wholly liable for BSUoS charges - costs that are today shared equally between suppliers and generators.

Fellow utility EDF said it would need 18 months to introduce the changes. Centrica and ScottishPower called for a two-year grace period, and E.ON and International Power said a three-year transition would be preferable.

RWE said the transition period must fall "outside current hedging timescales" to reduce the potential for electricity market participants making windfall gains and losses.

The UK's largest independent generator, Drax Power, asked for "reasonable time to transition to the new arrangements".

Consumer lobby group Customer Focus said the UK is so far ahead of liberalising its energy markets that the reform should be postponed until other EU member states have caught up.

Cross-border boost?

Drax said in its submission that the move would facilitate cross-border trade and would better align the UK with the balancing rules of other EU member states. Removing the 50% share of BSUoS from generators would allow them to offer lower wholesale electricity prices, its submission added.

However, Centrica argued that if generators did not have to pay the charges, it would increase flows to markets in mainland Europe along the BritNed and UK-France interconnectors, which would ultimately push domestic prices higher.

"Although the wholesale power price should reduce the corresponding increase in flows across interconnectors would increase the power price, resulting in a negative impact to Britain," Centrica's submission argued.

One utilities analyst disagreed that volumes of flows would increase. He said the prevailing direction of both French and Dutch interconnectors is already towards the UK. "A dip in UK wholesale prices is likely to reduce interconnector flows by curbing flows imported to the UK from Europe," he said.

The analyst added that prices in mainland Europe are already lower than in the UK, and the discount will widen further when the UK implements its carbon price floor next April.

"I think the removal of BSUoS would simply ease the present situation [of lower mainland prices] rather than trigger a whole new interconnector flow pattern," the analyst said.

Liability

National Grid is proposing to alter the system user charges to bring the UK more in line with charges levied in European countries, which are typically borne by suppliers.

If the review is implemented, suppliers would need to increase their credit cover - at present they must offer National Grid one month's BSUoS liability.

Customer Focus said the increased credit requirements would raise barriers to entry for new independent suppliers.

There are also fears that generators would fail to pass the savings down the supply chain in the form of lower wholesale power prices.

The reform, known as CMP201, follows the introduction of a parallel change known as CMP202. A related plan exempting the operators of interconnectors from BSUoS charges was approved on 15 August and came into effect on 30 August.

National Grid is seeking responses to its latest publications, a draft modification report, by Friday 14 September, before it makes a final decision on whether to implement the reform. KB

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