Energy regulator's three month review geared at better managing UK grid costs in future as more renewables and green technologies come online
Ofgem has ordered an investigation into National Grid's energy balancing system, after costs of managing the grid skyrocketed to a record high of £718m in just five months during the coronavirus lockdown.
In an open letter published yesterday, the energy regulator said it plans to review the actions National Grid ESO took to balance the energy system and maintain operations as the shuttering of businesses, offices and industry during lockdown saw power demand plummet in the UK, while output from renewables rose to record levels due to increased capacity and favourable weather conditions.
Between March and July of this year, Ofgem said balancing costs were 39 per cent higher than usually expected at that time of year, as high levels of output from wind and solar combined with a dramatic decline in electricity demand spurred by the nationwide lockdown to halt the Covid-19 infection rate.
The regulator is therefore keen to assess potential lessons from the period to avoid similar high costs in future, as the UK grid shifts even further towards renewable energy and battery storage technologies in pursuit of net zero emissions.
"Given the high balancing costs incurred this summer, it is important that we understand in more detail what happened in this period and identify whether there are lessons for the ESO to learn to manage these kinds of issues in future," Ofgem's deputy director of energy systems operation and gas systems, Eleanor Warburton, wrote in yesterday's letter.
An evaluation of the lockdown bill is needed, she explained, in order to explore how to keep consumer bills down in the future as the UK transitions towards a zero carbon grid, as although balancing costs are paid by electricity suppiers and generators, these costs are ultimately passed on to their customers.
Over the five month period set to come under the microscope, National Grid ESO introduced three changes over the period to keep the system stable. It stuck deal a with EDF to halve the output of the Sizewell B nuclear power station, introduced a new service called Optional Downward Flexibility Management (ODFM), and successfully asked Ofgem to give it new powers to disconnect distributed generation - such switching off wind farms, for example - an arrangement it is yet to use.
Ofgem's review aims to evaluate the effectiveness of these actions and the market's response, as well as gauging the extent to which the challenges experienced over the period were down to Covid-19 or to existing trends. Lessons learned from balancing challenges over the period could then be used to inform future market design and running a "carbon free network", Ofgem said.
Louis Burford, Centrica Business Solutions' head of solution sales and optimisation, argued the record balancing costs seen in 2020 demonstated the "immediate need" for a flexible and agile energy system able to manage peaks and troughs in demand as renewables start to dominate the UK's energy mix.
"The solution to balancing the system of the future does not lie in spending billions on more centralised power generation or by curtailing renewables, as we saw during lockdown," he said. "Instead, we should encourage consumers of energy - both homes and businesses - to become more active participants in energy markets and adopt flexible technologies such as demand side response and storage to help balance the grid and create a more sustainable national energy system."
Ofgem's review is expected to be completed by the end of October, after evidence is gathered and several industry roundtables are held in September.