The Balancing Act Part 2: Outturn

Continuing our short series on balancing costs, this blog looks at the 2025/26 outturns. Costs were up 16% on the previous year. Let’s unpack why and what NESO is doing with the levers in its control, with actions delivering a quantified saving of £0.9 billion in 2025/26. Read more in our reports (2025/26 edition out soon).

Balancing costs increased 16% in 2025/26 to £3.1 bn. A little under £0.5 bn of that was paid to wind farms to turn down. Thermal constraints, those bottlenecks where power lines can’t safely transport any more power, remain the largest component. The costs of keeping voltage steady and responding quickly to changes in supply and demand also rose, as the needs of the electricity system continued to change.

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NESO is taking more balancing actions to manage a more complex electricity system. For every unit of electricity the country uses, we’re now doing more than twice as much balancing as in 2018. That reflects how much more complex the system has become to operate. It was this increase in volume that drove higher costs in 2025/26.

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My clever colleagues at NESO and the Transmission Owners do a host of things that stopped costs being higher than they need to be, delivering £891m of quantified savings in 2025/26:

• Getting more out of the existing network
• Carefully managing network outages.
• Flexing demand and supply, including through trading.
• Finding cheaper, more flexible ways to meet the system’s needs.

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Outturn reporting helps us focus our efforts to reduce costs. It guides where network capacity needs to increase, when to plan outages, changing system needs, and where competition, better forecasting, trading and operational tools can help.

October and December 2025 give a neat example of the importance of the network. Despite similar wind conditions and prices, October had 34% higher balancing costs, reflecting more outages:

• December had higher unconstrained wind (9.2 TWh vs 7.9 TWh) and higher wholesale power prices (£64/MWh vs £53/MWh).
• But October had less network capacity available: 52% across the B4/B5 boundary in central Scotland, compared with 67% in December.

It’s natural to ask who to blame: Is it the wind (we didn’t have this problem before)? The network (that’s where the actual constraints are)? Or the gas (where most of the cost gets spent)?

Suspect 1: Would less wind solve the issue?

• 13% of GB wind (28% of wind above B6) was turned off in 2025/26 due to constraints. That adds costs that aren’t captured in their contracted strike price.
• But without it we’d still need the gas that replaces it. Plus more to replace the wind generation that isn’t constrained. That would add to costs.

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Bonus points on wind:

• Many coming additions are pretty cheap, and likely to be cost-effective even if partly constrained.
• Wind has also reduced our reliance on imported gas and reduced prices in the wholesale market – not just for gas, but also for nuclear, older renewables, imports and storage. That reduces costs for consumers.

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Suspect 2: Not enough network

• There’s a lot of truth here. If a magic wand conjured more network most of the constraint cost would be avoided.
• But the network has a cost too. And building more means outages in existing lines, which may increase balancing costs in the interim.
• And of course there’s no magic wand. New network takes time, and we’ll need more again in future.

Suspect 3: Gas and geopolitics

• Gas is the biggest part of the cost (~75% of thermal constraint costs are for the replacement energy, predominantly from gas units).
• The sensitivity of balancing costs to gas prices can be seen clearly in recent months: the average cost of actions taken in the BM has grown from c.£90/MWh in April 2026 to £126 in September, and balancing costs hit record levels in October.

Really, it’s the combination that results in high constraint costs. Lots of wind, not enough electricity network, and high gas prices are a tricky mix. Longer term we need a stronger network – it’s the single biggest lever to lowering costs. And we need better coordination across demand, network, and generation – that’s the goal for NESO’s strategic planning, and for the market reforms Government are developing.

Meanwhile, NESO and our partners are finding ways to get more from the grid we already have and keep costs down where possible.