Balancing costs
An introduction to balancing costs
At National Energy System Operator (NESO), our role is to ‘balance’ the grid. We must ensure supply meets demand every second and manage the network's physical constraints.
We need a wide range of tools to be able to balance the grid effectively and economically. This process involves NESO energy trading, balancing services, and the Balancing Mechanism. Self-dispatch and re-dispatch strategies are used in the UK energy market to handle supply and demand imbalances and and system constraints.
Balancing costs are those expenses associated with (A) the Balancing Mechanism, (B) balancing services, and (C) energy trading.
(A) Due to the complex nature of balancing the grid, many segments contribute to the overall Balancing Mechanism costs. These actions can include costs in the following categories:
- Energy actions fix system imbalance by moving generators to make generation match supply.
- System actions link to the physical parameters of the network or grid constraints. Operators interpret these activities as re-dispatching generators to balance the system’s voltage, heat, frequency, and inertia in the short term.
The costs of these actions depend on the bids and offers submitted in the BM by the market participants. We dispatch BMUs in the most economically efficient way.
(B) Balancing services are services we procure outside of the Balancing Mechanism to provide specific market and procurement efficiencies
(C) We conduct energy trading to balance the system with a foreseen energy need. This way, we secure the system, expect constraints, and minimise costs to meet our balancing requirements. While trading with our counterparties during the day and intraday, in the short term, and close to real time, our ultimate goal is to minimise the total cost of our balancing actions.
Rising balancing costs
The last few years have seen considerable increases in balancing costs. The most notable drivers of the rise in costs are associated with the procured ancillary services, higher wholesale prices of electricity, and higher bids and offer prices submitted in the BM. It’s important to note the substantial increases in wholesale prices over the last few years, their knock-on effect on the Balancing Mechanism, and their impact on the marginal generation of electricity.
Further, the electricity system is becoming more volatile on the generation side of balancing (increasing variable sources of electricity) and on the demand side of balancing (more significant variability from DER participation and integration).
While we do not control electricity prices, we undertake many significant endeavours, initiatives, and reforms to equip ourselves and the industry with the suitable systems and markets. And the capabilities to manage an evolving electricity market and system at the optimal cost.
You’ll find more information on our cost balancing analysis of our reports and data.
Our strategy to minimise balancing costs
Read our balancing costs strategy
Balancing costs have risen significantly over the last few years due to a multitude of factors. We have developed a strategy to minimise these rising costs by leveraging initiatives in:
These are initiatives that we have implemented to improve the design of the GB network and to manage the delivery of changes that optimise availability and reduce constraints.
Costs associated with congested electricity networks make up a large proportion of balancing costs. Network planning and optimisation initiatives therefore have potential to make a significant impact on constraint costs. These initiatives are, and will continue to be, in alignment with industry, government, and public interest.
Some of these major initiatives include our Constraint Management Pathfinder (Intertrip Service), which generates about £200m per year in balancing cost savings, and the analysis and recommendations that we have contributed to the Accelerated Strategic Transmission Investment (ASTI) framework, which is estimated to provide £2.1b in savings beyond 2025.
These are initiatives where we design and procure new services to balance the system, with greater competition at an optimised price.
We're always improving the market and service design in GB. As part of this, we've made many changes to our ancillary services. For example, the Response Reform added three new response products. And the Reserve Reform added three new reserve products. The introduction of these products has produced an estimated £33m in savings before 2025 and more than £165m in savings after 2025. These new response and reserve products also enable the decarbonisation of our network by securing losses on a lower inertia system and enabling new technologies to enter into these markets.
In an evolving energy industry, we want to ensure that we are most effectively using innovative solutions to drive down costs. We engage in many projects
Some of these include our innovation D Heat project with SSEN and the engagement and analysis that is produced for the frequency risk and control report, which includes an assessment of the magnitude, duration and likelihood of transient frequency deviations, forecast impact, and the cost of securing the system. This confirms which risks will or will not be secured operationally.
Balancing GB’s electricity system is an incredibly complicated task, with significant and difficult decisions being made from second-to-second. Our control room has fantastic capability in balancing the grid, but we are always looking to optimise our systems and processes to ensure that we are keeping up to date with the high standard that we like to set, and that we are adapting to industry changes.
Our Balancing Programme has many initiatives that will improve the capability and forecasting of our control room even further. There is room for improvement around real time metering protocols and requirements that would benefit the control room’s visibility over generators in Great Britain.
Balancing costs reduction portfolio
We keep trying to strike the right balance between balancing costs. We're running an evolving system. And we've been taking many initiatives to cut expenses in our cost balancing strategy. Explore our portfolio on cutting these costs. You will discover the savings it creates and how.
Events and engagement
We regularly organise workshops with key industry members to discuss balancing costs. The aim is to provide an open forum for views on the causes and ways of mitigating high costs in the future. If you would like to know about any future engagements send an email to [email protected].
Questions about balancing costs
Our FAQs will help you answer any questions. You can submit new questions or suggestions via [email protected].
Balancing costs data and reporting
Datasets
We publish a suite of data relating to balancing costs, including data on forecast and historic balancing costs, including Balancing System Use of Service (BSUoS) and balancing services charging reports.
BSUoS reports
The BSUoS charge recovers the cost of day-to-day operation including the cost of balancing the electricity transmission system.
Incentives reporting on balancing costs
We are regulated by Ofgem and all of our procurement of balancing services are outlined under our Standard License Condition C16. Ofgem assess our performance against their RIIO (Revenue = Incentives + Innovation + Outputs) framework. One of the criteria to which we are measured against is 'value or money' - relating to balancing costs.
Operational Transparency Forum balancing costs analysis
Every Wednesday, we hold an open technical industry forum to discuss recent operational actions we have taken in the Electricity National Control Centre (ENCC) and answer any questions. Often the analysis and commentary provided in these forums is purposefully based around Balancing Costs.
Documents
Work to Improve Information Accuracy
Since October 2023, we have been undertaking a piece of work to quantify the scale of the inaccuracy of certain information submitted to us for the purposes of Balancing. There are several information inaccuracies that we have identified that create additional challenges for us in balancing the GB electricity system. In some cases, inaccurate information can lead to greater Balancing Costs being incurred, but more accurate information can also help us balance the system and maintain system security more effectively.
The NESO balancing costs winter report assesses the market and system conditions of the most recent winter compared to previous winters, and how the costs in Balancing Mechanism were impacted.
Balancing market review 2022
The NESO Balancing Market Review reports look at trends in the balancing markets and key drivers of cost in the Balancing Mechanism. It covers the work led by our market monitoring team, including a review of market activity to support the process.
Daily balancing costs archive
Name | Published Sort ascending |
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Daily balancing costs - April 2021 | 1 Apr 2021 |
Daily balancing costs - March 2021 | 1 Mar 2021 |
Daily balancing costs - February 2021 | 1 Feb 2021 |
Daily balancing costs - January 2021 | 1 Jan 2021 |
Daily balancing costs - December 2020 | 1 Dec 2020 |
Daily balancing costs - November 2020 | 1 Nov 2020 |
Daily balancing costs - October 2020 | 1 Oct 2020 |
Daily balancing costs - September 2020 | 1 Sep 2020 |
Daily balancing costs - August 2020 | 1 Aug 2020 |
Daily balancing costs - July 2020 | 1 Jul 2020 |