THE COST of maintaining the UK's pricing system for the country's energy sector has quadrupled over the past two years, exacerbating issues in an industry already suffering from the embroiling chaos of the Covid-19 pandemic and soaring wholesale prices.

New analysis released yesterday by LCP Energy Analytics (LCP) reveals the cost of the Balancing Mechanism (BM) has skyrocketed to £967m for the 12 months up to September, an increase of 294 per cent on last year's £337m total, and over four times higher than the pre-pandemic price of £236m.

BM is the within-day mechanism the National Grid uses to balance electricity supply and demand in real-time for each half-hour trading period.

When the expected generation and demand for electricity is not balanced, participants submit bids or offers to either increase or decrease generation.

The National Grid announced earlier this month it will investigate the mounting balancing prices.

The high balancing costs have largely been driven by high offers - with the price to turn units up or on to provide additional power.

Between September to November, 13 stations made accepted offers at over £3000 per megawatt hour.

During the same time window, over 20 UK energy firms ceased trading.

The eye-watering price spikes have been compounded by a trebling of Balancing Services Use of System (BSUoS) charges.

The BSUoS charge refers to BM costs that are redistributed to generators and suppliers and ultimately charged to consumers.

LCP expects BSUoS charges for November will reach around £600m, up from £203m in 2020.

The issue exacerbates already established problems in the market - such as wholesale gas costs rising five-fold over the year - with customers locked into cheaper tariffs and protected by the domestic consumer price cap.

Rajiv Gogna, a partner at LCP, argues the crisis "has torn apart the sector", pointing to a "perfect storm" of low renewable generation and increased demand for gas.

Gogna said: "With no mechanism to pass the increased cost onto customers, suppliers have had to tackle this huge cost increase from their already stretched balance sheets."

(c) 2021 City A.M., source Newspaper