How lockdown is affecting the costs of managing the electricity system

We've recently written about some of the new approaches we are taking to manage the electricity system during the lockdown. As we have previously explained, managing the electricity system during periods of low demand is difficult and addressing the challenges it poses costs money.

It may seem strange that having less electricity on the system causes problems.

The problems arise due to some of the technical properties of a grid such as:

1. Voltage
2. Inertia
3. Frequency

These properties are never stable and require constant management. We use the generators connected to the network to manage these properties by varying their output up or down depending on what is required.

With demand at unprecedented lows, fewer generators are needed to meet national electricity requirements than ever before.

However, having fewer generators connected means we have access to fewer generators to provide stabilising services.

Therefore, our approach is to ensure that those generators capable of providing the most stabilising services are connected.

To achieve this, we have a range of tools available to us. In the last couple of weeks, we have also developed some new approaches to managing system stability.

These new approaches are essential to ensure we continue the safe and reliable supply of electricity.

Both the existing and new tools cost money and using them more frequently drives up the overall costs.

We know that our industry stakeholders and end consumers want as much transparency as possible regarding the costs of the actions we are taking.

It is true that costs this year are higher than in previous years; this is driven by the extra actions we have to take to manage system stability during the lockdown.

Providing more cost forecasts

The costs we incur in balancing the system are recovered through a charge known as Balancing Services Use of System charges (BSUoS).

This is paid by market participants and you can find out more about BSUoS here. To help market participants manage their business finances we provide BSUoS forecasts on a month ahead basis.

In response to the increase in BSUoS costs brought about by the lockdown, we are providing more forecasts and more detail.

As uncertainty over BSUoS is primarily driven by uncertainty in weather forecasts, we have produced two forecasts – one assuming ‘normal’ seasonal weather and one assuming ‘extreme’ weather.

We are using these forecasts to create a single most likely view of upcoming conditions and costs for market participants.

Transparency on costs

As BSUoS costs are paid by industry participants, they are ultimately included in end consumers bills.

Therefore, we want to provide as much transparency as possible on these costs.

For summer 2019 (May-August) BSUoS charges were £333.2m. We are currently forecasting a ~£500m rise for the same period this year.

We understand that this is significant, both for industry participants and consumers. We have worked hard to minimise this increase.

The table above shows our actual forecast of £826.3m for summer 2020, our analysis shows that BSUoS for summer 2020 would have been £1,039.5m had we not developed the new products and services.