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Balancing Mechanism costs soar to £967m between September-November

The average daily cost of the BM was £16.4 million in November 2021. Image: Getty.

The average daily cost of the BM was £16.4 million in November 2021. Image: Getty.

The top ten most expensive days in the Balancing Mechanism (BM) ever have occurred in the last three months, as costs soar to £967 million.

This is up significantly from £337 million for the same period – September to November – in 2020, representing a jump of 294% according to new analysis from consultancy LCP.

For November alone, the average daily cost of the BM was £16.4 million, which is an increase of 192% from 2020 when it sat at £5.6 million. Additionally, this is a jump of 756% from the average daily cost in 2019, which sat at £1.92 million.

BM costs reached an all-time peak on 24 November, when it cost £63.3 million to keep the system balanced. This beat the record set earlier that month, with it hit £18.6 million on 2 November. During the three months from September, 13 power stations had offers accepted at over £3,000/MWh in the BM.

The ten most expensive days in the BM ever occurred between September and November 2021. Image: LCP.
The ten most expensive days in the BM ever occurred between September and November 2021. Image: LCP.

Suppliers are therefore being exposed to higher costs through the Balancing Services Use of System (BSUoS) charges, through which BM costs are redistributed to generators and suppliers.

For many suppliers – which are struggling amidst high gas prices and the energy price cap, leading to record numbers of collapses – increases to the BSUoS will be particularly challenging. There have been well over 20 suppliers to shutter in 2021, with the vast majority folding since September.

Most recently, Zog Energy became the first supplier to collapse in December, following on from Social Energy Supply, Neon Reef, Omni Energy, MA Energy, Zebra Power, Ampoweruk and Bluegreen Energy Services in November.

Goto Energy, Pure Planet, Colorado Energy, Daligas, ENSTROGA, Igloo Energy, Symbio Energy, Hub Energy, Green Network Energy, Simplicity Energy, Avro Energy, Utility Point, People’s Energy, PfP Energy and MoneyPlus Energy have all also ceased to trade this year.

“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,” said Rajiv Gogna, partner at LCP Energy Analytics. “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.”

LCP has estimated that the cost of BSUoS charges will reach around £600 million for November. This is nearly triple the cost in November 2020, when it was £203 million.

For the three months from 1 September 2021, the total BSUoS cost reached £1.25 billion, more than double the £524 million figure for the same period in the previous year.

National Grid ESO has announced that it is to undertake a review of the balancing market due to the “very high-cost days” in the BM. Spikes in the market are expected to continue throughout winter, as the system’s margins remain tight.

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

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