Energy regulator Ofgem has rejected BSC modification P443 calling to cap National Grid ESO interconnector trades at the Value of Lost Load (VoLL).
The VoLL is an assessment of the value that electricity consumers attribute to maintaining security of supply, Ofgem said. Within the BSC, VoLL is set at £6,000/MWh, however it is important to note that this is not unique across the UK and not a cap.
For instance, Ofgem explained that the price of interconnector trades was extremely high in July 2022 in the South East because of system constraints. During this period, the price reached up to £9,500/MWh due to scarcity on the continent driven by the unavailability of the French nuclear fleet.
The modification, which had been brought forward by Saltend Cogeneration Company, a gas-fired power station in Hull, suggested that “ESO actions taken over interconnectors and priced above VoLL would not be prohibited, but the price of these actions used in the imbalance price calculation would be capped at VoLL by Elexon”.
Ofgem responded by rejecting the modification on the grounds that it does not better promote competition with the electricity market, does not promote efficiency in the BSC arrangements, it was discriminatory to focus on interconnectors and that it may not satisfy the Trade and Cooperation Agreement’s requirement for free price formation.
Ofgem eyes review of regulatory regime for IDNOs
Alongside the rejection of the BSC modification, Ofgem also announced on Thursday (19 October) its intention to launch a review of the regulatory arrangements for independent distribution network operators (IDNOs).
In an open letter, Ofgem revealed that the benefits of competition for IDNOs in extra high-voltage (EHV) connections “may need to be reviewed” including those that are directly connected to the transmission network.
For readers who are unaware of what an IDNO is, these fall under the category of licensed distribution network operators (LDNOs) and are smaller networks that are connected to the wider DNO network. Historically, LDNOs provided the “last mile” of the distribution network linking the existing DNO to new, typically domestic, consumers.
Ofgem has two primary concerns for IDNOs seeking to connect directly to the transmission network which has prompted the potential review.
Firstly, connection configurations may not be as shareable or economic and efficient as other options, and significant differences between DNO and LDNO solutions may give rise to higher overall whole system costs.
Secondly, Fair recovery of shared network costs among all customers may not be possible. We understand that the proposed arrangements are partly driven by the potential opportunity for reduced network charges for connecting customers.