National Grid will have to pay up to £17.7 million to recover extra costs incurred under a grid services contract with Drax.
Ofgem made the ruling following the grid operator’s request to recoup spending on power station contracts with Drax and SSE totalling £113 million.
National Grid signed two contracts in April with Drax and Fiddler’s Ferry in Cheshire to pay both to be able to start up even if there is a loss of power across the grid.
The request was made as an ‘Income Adjusting Event’ where the grid operator applies for an increase in its cost targets to cover unforeseen events beyond its control.
Such contracts are awarded to generators to help re-energise the grid following a partial or total loss of power on the network, commonly referred to as ‘Black Start’. It is an insurance policy for the unlikely event National Grid needs to re-energise the system.
The regulator has allowed National Grid to recover only £95.3 million of the total cost – all of the Fiddler’s Ferry contract and part of the Drax contract – via balancing charges on suppliers and generators that are ultimately paid for by consumers.
National Grid said the contracts were awarded through an open process “which ensured compliance with our obligation to maintain black start capability across the whole country”.
A spokesperson added: “It is good news that Ofgem has understood this in the context of the Fiddler’s Ferry contract. We are disappointed by the decision in relation to Drax but National Grid will only bear a maximum capped cost of £17.7m, equivalent to 30% of the maximum cost of the Drax contract.
“In addition, for the benefit of bill payers, National Grid has put profit claw backs into these black start contracts to ensure that money is returned to consumers in the event that market conditions improve.”
The grid operator has cancelled its Demand Side Balancing Reserve tender for this winter as it wasn’t successful.