Ofgem has ruled that a CUSC Modification Proposal to defer winter 2021/22 Balancing Service use of System (BSUoS) costs to 2022/23 should be treated as urgent.
The modification, proposed by EDF Energy, seeks to set a temporary cap of £10/MWh that would apply between 1 January 2022 and 31 March 2022, with any BSUoS charges above this deferred to the 2022/23 charging year. These deferred costs would then be capped at £300 million.
The reason behind the requested deferral stems largely from the unprecedented rise in gas and electricity prices over recent months, which has led to significantly higher costs associated with balancing the electricity transmission system.
Indeed, earlier this week Ofgem published an open letter stating it “stands ready” to use its powers to change market rules if necessary after balancing costs doubled to £1 billion between September and November compared to the previous year.
As a result of the market conditions, alongside deferred charges from 2020 as a result of the COVID-19 pandemic, BSUoS charges have considerably exceeded National Grid ESO’s forecasts so far this winter, with the outturn being £625 million higher for the period August 2021- November 2021.
Therefore EDF proposed the modification on 16 December, with the CUSC Modifications Panel considering the urgency request on 17 December. The same day, it informed Ofgem of its unanimous view that the modification should be treated as urgent.
Having considered the panel and proposer’s arguments, Ofgem has now deemed the modification should progress as urgent. The regulator said it believes the proposal has identified a current issue regarding the differences between forecast BSUoS costs and outturn costs, and recognises that these differences may impact market participants.
Additionally, it is satisfied that the progression of this modification proposal is related to a current issue that if not urgently addressed may cause a significant commercial impact on parties, consumers or other stakeholders, although the actual extent of that impact is still uncertain.
However, Ofgem was clear that in granting urgency, it wasn’t making an assessment of the merits of the proposal, and it will still need to evaluate the proposal on a holistic basis before making its final decision.
Last year, Ofgem approved a cap of £15/MWh to supplier and generator BSUoS charges until 31 August as a result of the increases in balancing costs and higher ESO forecasts for BSUoS charges due to reduced demand associated with COVID-19.
These deferred charges are scheduled to be recovered in 2021/22 through an increase in BSUoS charges in all periods, and form part of the higher expected BSUoS costs for this winter.
Ofgem also approved a second modification last year, which further reduced the cap to £10/MWh and extended it until 25 October 2020, introducing a limit of £100 million for the amount of deferred BSUoS charges.
Last year also saw National Grid ESO apply for an urgent modification, this time to the Grid Code. The proposal would clarify the ESO’s ability to disconnect embedded generation during periods of low demand ahead of the May bank holiday, when exceptionally low demand was forecast.