Ofgem drops 'radical' ideas from GB electricity balancing review
British energy regulator Ofgem on Monday dropped the "more radical considerations" from its review of the electricity market balancing code to avoid clashes with other ongoing reforms.
The dropped measures included aggregating output from wind farms - the very proposal that the regulator said last year would mitigate rising system balancing costs for renewable generators - potentially paving the way for their costs to rise, while sweeping away their ability to offset these costs.
The decision was taken after a large number of participants took issue with the timing of the review. Along with the aggregation of renewables volumes, the proposals to be dropped from the review are:
Payments to parties that submit bids and offers to help balance the system to equal the most expensive bid accepted, as opposed to all parties being paid the price they had bid.
A new balancing energy market, allowing parties to trade off imbalances close to real time and system operator National Grid to procure balancing volumes.
The consideration of a separate market for reserve capacity, providing a reformed means of managing imbalances in the system.
The dropped proposals will now fall under the regulator's nascent work on future trading arrangements - a longer-term project that is still under discussion in terms of scope.
A series of other measures remain under the scope of the significant code review (SCR).
These include: more marginal cash-out prices based on a smaller number of trades; the establishment of a single cash-out price, as opposed to separate system buy and system sell prices; and a review of the distorting influence of providing generation reserves on cash-out prices.
The significant code review was launched last August. Ofgem warned at the time that the reforms could raise system balancing costs for generators (see EDEM 7 August 2012).
But the regulator said this could be mitigated by pooling individual wind farms into a larger, more geographically diverse portfolio.
"This aggregation of individual wind farms can lead to lower overall volatility," Ofgem said.
However, the regulator has now shifted focus away from the aggregation proposal, leaving little in place to mitigate the rise in generators' balancing costs.
Ofgem had not responded to requests for comment at the time of publication.
Renewable Energy Systems (RES), a major wind farm developer in the UK, said in response to the initial proposals that they "had a specifically detrimental impact on wind and intermittent generation, which will lead to an adverse impact in terms of the cost they incur".
These proposals "should not be taken forward unless the benefits significantly outweigh those costs", RES said. A spokeswoman said she was unable to add to this on Tuesday until the company had studied the latest decision.
Ofgem put its decision to drop the more "radical proposals" down to changes taking place under the UK government's electricity market reform (EMR) programme and the EU's push to create a single power market, in line with concerns raised by a number of respondents to its initial consultation.
"It is vital that any changes made under this review are in accordance with the European target market to be implemented by 2014," UK utility Centrica said in its submission.
National Grid echoed this view: "It will be important for the SCR to consider developments under the government's EMR work and also to be consistent with the wider aim to harmonise European energy markets and facilitate cross border trade."
And one of the country's biggest wind farm operators agreed: "[Denmark-based] DONG Energy believes that the balancing SCR process is premature and that there is a high risk the suggested changes in the initial consultation document will not be aligned with the outcome of the EMR and the EU network codes."
Participants have until 12 April to submit views on the new scope of the SCR via Ofgem's website. Jamie Stewart
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