Balancing Mechanism costs ‘skyrocketed by 294%’

From September to November, the BM cost reached £967m, compared to £337m the same period last year

The crisis in the energy market has so far had many collateral damages – one of them, the cost of the Balancing Mechanism (BM) that soared by 234% during the three-month period, from September to November.

The BM is a tool used by the National Grid to balance electricity supply and demand in real-time. Where these two metrics are not balanced, participants submit bids to either increase or decrease their generation or likewise for consumption.

New research by the consultancy LCP suggests the BM cost has jumped to £967 million from the £337 million that it was in the same period last year.

The analysis suggests that the top ten most expensive days in the BM of all time have occurred in the past three months.

It also notes that the all-time peak was breached on 24th November, where the cost to balance the UK’s electricity network totalled £63.3 million, a leap of £18.6 million from the previous most expensive day recorded on 2nd November.

For November alone, the average daily cost of the BM was £16.4 million an increase of 192% from 2020 and 756% from 2019 when the average daily cost was £1.92 million, the report concludes.

Rajiv Gogna, Partner at LCP Energy Analytics, said: “The energy crisis has torn apart the sector, driving multiple suppliers into non-existence and forcing millions of customers to change supplier, and there will undoubtedly be more energy suppliers struggling to cover costs from this autumn and winter for many months.

“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.

“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.”

Mr Gogna said that the increase in BM costs will result in suppliers facing higher Balancing Services Use of System charges.

A few days ago, National Grid ESO unveiled plans to review the balancing market. 

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