Ofgem calls for data to head off €500M settlement change required by EU

Ofgem is seeking fast feedback from power industry participants on how much it would cost to  change their systems to accommodate an imbalance settlement period of 15 minutes, instead of the 30 minutes currently used, in order to head off market changes that could have a net cost in GB of €500 million.

The change is required to fit in with the EU Internal Energy Market’s ‘TERRE’ cross-border balancing arrangements. 

The change may benefit some market participants, but comes with potentially high set-up costs. In 2016 the UK won a derogation from the requirement, arguing that the overall cost to consumers outweighed the benefits. However, the delay to Brexit means that now we will leave the EU with the Clean Energy Package in place, so the UK derogation will not automatically apply.  The case has to be made again.

The 2016 decision was backed up with an analysis by Frontier Economics which estimated an overall cost in GB of €786 million (central case) for a benefit of €284 million. Ofgem believes that evidence base remains valid. But it has asked for immediate feedback from electricity market participants if their cost estimate has changed.

The UK’s Joint European Stakeholder Group, which tracks and responds to changes in EU market arrangements, said that Ofgem is confident that the costs presented in the 2016 CBA were a reliable estimate of the costs at that time. However, to ensure their reliability three years on, Ofgem wants stakeholders to consider whether there has been a significant change to the cost estimates that they submitted to Frontier Economics.

If stakeholders think that there has been a significant increase or decrease in their costs relating to a change from 30 to 15-minute settlement, Ofgem would like to know what costs they estimated for the 2016 CBA and how much more or less their estimated costs are now.

Participants should contact Alastair Owen (Alastair.Owen@ofgem.gov.uk) by 7 June 2019 if their estimated costs have changed significantly. For parties that do not submit a re-evaluation of their estimated costs, Ofgem will assume that costs are unchanged since 2016.

Frontier Economics’ CBA of a change to the imbalance settlement period is here.

Further reading

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