Q3 2018: The cost of staying in balance

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by Dr Iain Staffell – Imperial College London 

Not only has the cost of generating electricity been rising, the cost of balancing the system has also hit a 10-year high. 

The day-to-day costs of running the transmission system, which National Grid passes on to all generators and consumers (but not to interconnectors), has doubled over the last four years. 
Balancing the power system cost £3.8m per day over the quarter, adding 6% to wholesale prices. On three days this quarter, the cost of keeping the system stable exceeded £10 million per day. This daily cost has been gradually increasing since 2010, but the cost this quarter was one-sixth higher than the previous record (2017 Q3). 

These balancing costs include deploying fast-responding generators for backup and reserve, and adjusting the output of generators around the country to keep the transmission system within operating limits. The growing costs highlight the importance of when and where – rather than just how much – electricity is produced and consumed. Over the quarter, there were 58 hours when managing electricity flows around the system cost more than generating the electricity in the first place. 

During September, the balancing costs spiked several times when wind output was high. The chart below left shows how balancing costs increase sharply once wind farms supply more than a third of Britain’s electricity. Wind cannot be forecasted with perfect accuracy, and generation occurs far from places where electricity is consumed, causing network constraints. Both of these must be corrected using short-term dispatch of flexible sources, which incurs balancing costs

The amount of flexible generation on the system is another key driver of the balancing cost. The chart below right shows that balancing costs rise when the output from flexible generators (gas, coal, biomass and hydro) is below 10 GW. Having a ‘brittle’ power system with limited room for manoeuvre will be expensive to control. More flexible generation, storage and demand-side response will be critical to minimising these system costs in future. 

Influence of wind and flexible generation on the balancing cost1 during 2018 Q3 

1: The Balancing Services Use of System (BSUoS) charge.

Authors: Dr Iain StaffellProfessor Richard GreenDr Rob GrossDr Malte Jansen, and Professor Tim Green.

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