Ofgem rejects UK Power Reserve’s bid for change in balancing services

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Ofgem has rejected a call from UK Power Reserve to change balancing services rules.

The peaking plant firm, now owned by Sembcorp, wanted to stop larger generators in the Balancing Mechanism from getting paid multiple availability payments for different services with the same asset.

For example, being paid to be available to provide Black Start, a grid reboot service that is currently the preserve of large generators, as well as short-term operating reserve (STOR), where National Grid pays for increased generation or demand reduction when demand is higher than expected or when a power station or interconnector trips.

UKPR argued this creates a market distortion, because large generators with multiple contracts can bid lower for other services, while driving up costs for consumers, because generators are effectively being paid twice to be available to provide a service if needed.

It proposed capping the revenues for such assets at the level of the highest service they are available to provide – e.g. a generator with a £100,000 availability payment for Black Start and £130,000 in STOR availability payments would only receive £130,000 with the rest ‘netted off’.

UKPR proposed putting that solution into immediate effect. An alternative proposal was that the changes could be implemented once existing contracts have run their course.

However, the Connection and Use of System Code (CUSC) panel, a body of power industry professionals that run the rule over any proposed changes, thought neither proposal was better than the current set up.

Ofgem agreed. It said adopting the proposed changes could drive up costs, as generator bidding strategies may change to target only the highest value services. If generators stopped bidding for some services, it could potentially make it harder for National Grid to procure its minimum requirements, the regulator argued. It added that it could stifle competition and reduce investment in flexible technologies that rely on the ability to stack multiple revenue streams.

National Grid is working on plans to bring distributed energy into Black Start as well as bring more distributed generation into the Balancing Mechanism.

See Ofgem’s decision here.

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