INCREASING MAGNITUDE AND VOLATILITY IN BSUOS PRICING COULD HURT SOME CONSUMERS
30 May 2019

The Balancing Services Use of System (BSUoS) half-hourly charge is charged by National Grid to recover the cost of balancing the grid and acting as system operators. BSUoS is charged to Suppliers and Generators and is responsible for recovering several costs. These can be spilt into two main types:

  • External costs – payments made to generators and DSR providers for getting the grid into balance through the Balancing Mechanism and other Balancing Services Contracts (curtailment)
  • Internal costs – costs incurred by National Grid in providing the above functions

Historically, BSUoS has been a relatively low but volatile charge. For 2017/18 the average half-hourly BSUoS tariff was 2.52 £/MWh, with maximum and minimum charges of 19.54 £/MWh and -1.07 £/MWh respectively. However, since then the average has risen to 2.99 £/MWh, with maximum and minimum charges of 26.67 £/MWh and 1.41 £/MWh for 2018/19. While a move of 0.47 £/MWh in the average price may not seem particularly significant, this value hides the increased volatility we have seen in this fickle non-commodity cost. September and October of 2018 saw monthly averages of 4.85 and 4.34 £/MWh respectively and the variance (a measure of the spread of data from the average) of BSUoS prices has approximately doubled from 2017/18 to 2018/19. A common cause of BSUoS price spikes is paying generators to reduce output due to congestion on the grid, particularly common for Scottish wind farms where generation frequently outstrips demand.

Whilst after October 2018 these highs were tempered by the functioning HVDC Western Link cable (reducing grid congestion), the cable tripped in late February 2019 and BSUoS again reached an average of 4.19 £/MWh in March 2019. While other factors including wind load factors, weather-driven demand and Balancing Mechanism clearing prices are surely drivers, the apparent correlation of BSUoS pricing with the functioning of the Western Link is troublesome as it is entirely unpredictable.

In the future, we see the potential for BSUoS to remain on a volatile but upward trajectory as more intermittent supply is brought on to the grid causing further curtailment and higher BSUoS pricing. There is a possibility that BSUoS pricing no longer continues to rise as sharply should BSUoS embedded benefits be removed, spreading the cost across more market participants. However, changes to the energy mix could outweigh this.

BSUoS is often passed through to customer as part of non-commodity pass-through contracts, however we see little value in this for customers. The half-hourly and region-specific nature of BSUoS means that it is a complicated cost for customers or consultants to reconcile. Furthermore, there is very little a customer can do, or even should do, to implement demand flexibility around BSUoS price spikes. Given the unpredictable nature of BSUoS, our view remains that BSUoS can create significant noise in customer billing and cashflows and is typically a cost perhaps best fixed.

For any further information or comments on this piece, please contact Sam from our Solutions Team on 020 787 04959 or at s.hill@brookgreensupply.com

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