New balancing tools will not distort UK wholesale market - National Grid

11 October 2013 18:26 Source:ICIS

British electricity system operator National Grid on Friday insisted that newly proposed balancing mechanism tools will not “distort” the wholesale power market, despite industry fears to the contrary.

Concern was initially raised in August because National Grid’s proposed supplemental balancing reserve (SBR), which the system operator could turn to if tightening margins pose a threat to supply security, could appeal financially to mothballed gas-fired power plants.

This could hold back capacity from the market, blur pricing signals and exert a “negative impact” on investment, industry body Energy UK said ( see EDEM 27 August 2013 ).

In addition, the grid operator has since received feedback from industry stating that allowing mothballed plants to re-enter the market via the SBR would constitute distortion, and therefore mothballed plants should be precluded from providing SBR, meaning only plant that is closing permanently should be eligible.

But in its final proposal, published by National Grid on Friday, the system operator said: “We believe that allowing plant to re-enter the market does not represent a material distortion to the market, and hence we do not think either that allowing mothballed plant to tender for SBR is inappropriate.”


Margins

National Grid has proposed the introduction of two new balancing services against an anticipated background of falling power plant margins in the middle of this decade – the SBR and Demand Side Balancing Reserve (DSBR).

SBR would secure additional reserves from generation that would not otherwise be available to the market. It would be despatched by the system operator “as a last resort” in the “unlikely” event that there is insufficient generation available to meet demand, National Grid explained.

DSBR is, as the name suggests, aimed at the demand side. The model offers payment to large non-domestic consumers of electricity to reduce demand on occasional winter weekday evenings.

In addition to the fears over mothballed plant, concern was also aired that wholesale electricity prices would be capped at the point at which SBR plant was fired up.

But to allay these concerns, National Grid has proposed that British regulator Ofgem incorporates the tools into the calculation of imbalance prices under its significant code review of the balancing system.

National Grid will decide based on industry feedback whether to put forward one, both or neither of the newly proposed tools to Ofgem for approval.

If approved, the operator will tender for the services early next year.

Industry has until 11 November to respond to National Grid’s final proposals. Jamie Stewart

By Jamie Stewart