Ofgem fires warning shot over Balancing Market costs

Ofgem has warned energy generators that “We will not hesitate to take action if we find evidence of market manipulation” in an open letter to companies who participate in the so-called ‘Balancing Market’ (BM).
General electricity trading applies in half-hourly time slots and ‘gate closure’ is a half-hour before the time of dispatch. The BM applies after this time, when electricity system operator NGESO calls on generators or buyers to provide or take more or less power so it can manage system flows, ensure voltage and frequency stability and generally keep the system in balance.
Balancing costs have been moving upwards during the transition and kicked up sharply when the pandemic began. But this year they have risen to record levels – Ofgem notes that costs between September and November 2021 were double the cost incurred in the same period in the previous year.
Ofgem says in an open letter that coal- and gas-fired units have been charging NGESO more to generate in the BM. Although fuel, emission and other costs have risen “the increase in costs does not alone appear likely to fully explain the scale of the increases we have seen in offer prices submitted by some generators in the BM,” Ofgem says, and it says this implies “extremely high margins over direct costs”.
Ofgem says it is monitoring the accuracy of information submitted to NGESO by generators and fired a warning shot for companies, saying: “Market participants will be aware of a number of actions that we have taken against companies that have been found to have breached their obligations under REMIT and the Grid Code in recent years. We will not hesitate to take action if we find evidence of market manipulation.”
The regulator specifically referred BM participants to:
• The requirements of the Grid Code, including the requirement that physical notifications reflect parties’ best estimate of their expected output; and for generators, the requirement that dynamic parameters “reasonably reflect the true current operating characteristics of the BM Unit” (or, where submitted at the day ahead stage, the unit’s “expected” true operating characteristics).
Regulations that prohibit market manipulation, including disseminating information which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products; as well as making it appear that the availability of electricity generation capacity is other than the capacity which is actually technically available, where this affects or is likely to affect prices;
• The Competition Act 1998, which prohibits agreements which prevent, restrict or distort competition, as well as requiring that one or more undertakings with a dominant position in a market should not abuse that position;
• The Transmission Constraint Licence Condition, which requires that generation licensees must not submit bid prices in the BM which are excessively expensive during a period in which a transmission constraint occurs’.

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