Electricity is unlike other commodities in the sense that it cannot be stored, so supply and demand must remain balanced at times. Through trading, industry participants are incentivised to balance their generation and consumption accounts, with National Grid the System Operator, being responsible for the remaining imbalance.
‘Cash-out’ refers to the imbalance price that a market participant is exposed to if they consume or generate more or less energy than they are contracted for once the wholesale markets are closed (an hour before physical delivery of energy).
Under the current electricity market arrangements, Britain has dual cash-out prices with a System Sell Price (SSP) and the System Buy Price (SBP). SSP is paid to participants who have a net surplus of imbalance energy, and SBP is paid by those who have a net deficit of imbalance energy. The two prices are different and the rationale behind the arrangement is to incentivise balancing; parties are not meant to be rewarded for not trading effectively on the wholesale market. These cash-out arrangements are integral to maintaining secure electricity market supply in Britain.
significant code review
Ofgem decided to launch a Significant Code Review (SCR) of the electricity cash-out arrangements in summer 2012. An SCR is a mechanism designed to facilitate complex and significant changes to the industry arrangements. In a consultation document published 30 July 2013, Ofgem set out its Draft Policy Decision which includes the following package of reforms:
- More ‘marginal’ cash-out prices
- Including a cost for disconnections
- Improving the way reserve costs are priced
- Moving from a dual to a single cash-out price
There will be a Final Policy Decision and Impact Assessment published in the spring of 2014, with planned implementation in 2015.
company position statement
SmartestEnergy believe that if the current balancing arrangements are to be changed, the best combination of market arrangements would be to move towards single trading accounts, assist balancing by reducing gate closure, and maintain dual-cash out.
As many of the proposals cannot purely be assessed as stand-alone changes (due to the nature of the system) we have given our view of the best combination of complementary arrangements. However, in general we are satisfied with the current arrangements and the case for change still needs to be made.
latest policy updates
To keep up to date on the latest news and policy updates on cash-out visit our news archive.> See the policy updates archive on cash-out