Posted on: 17/05/2022
Following their minded-to decision late last year, Ofgem has announced a final decision on Balancing Services Use of System (BSUoS) charges. From 1 April 2023, generators will no longer pay BSUoS charges. In this blog, Alexander Walmsley, Head of Pricing, shares further information on the BSUoS changes and the effect on our Generation and I&C Business customers.
BSUoS charges are how the Electricity System Operator (ESO) recovers costs associated with the day-to-day operation and balancing of the electricity transmission system. Generators and electricity suppliers are currently liable for these costs which are calculated daily based on the amount of energy imported from or exported onto the network (£/MWh) within each half-hour period. However, following Ofgem’s announcement, large generators will no longer pay BSUoS charges, and costs will be charged solely to end customers from 1 April 2023.
The announcement follows Ofgem’s Targeted Charging Review (TCR) decision, as a task force was implemented to seek insight on proposed changes to the way BSUoS charges are recovered. Ofgem will implement the decision by modifying the Connection and Use of System Code (code modification CMP308).
What do you need to know?
Transmission connected generators will no longer pay BSUoS charges from 1 April 2023 and will save around £7/MWh (based on 2021/22 BSUoS charges). However, there is no impact on distribution connected generators, who are already exempt from BSUoS due to CMP333, which came into effect in April 2021.
The recent changes also prove beneficial for successful projects in the Contracts for Difference (CfD) Allocation Round 4 (AR4). For these generation projects that would otherwise have been liable for the charges, the announcement means that their strike prices will be adjusted downwards after contracts are awarded.
As generators will no longer pay BSUoS charges, moving forward, they will likely be able to offer cheaper wholesale power, lowering the wholesale market price on average. It was the view that if the modification was implemented, it would be necessary to assess whether the reduction in wholesale prices is equivalent to the additional cost of BSUoS charges to consumers; checking that consumers were not disadvantaged by this modification.
End-users will now face significantly higher BSUoS charges, which we estimate could increase to 75-80%. The underlying cost of BSUoS is difficult to forecast, but it is possible an additional £6/MWh could be added to charges.
Whilst I think this decision on BSUoS charges is the right way forward, it is important to highlight that there is another modification sat with Ofgem for decision (CMP361/CMP362) regarding potentially moving BSUoS to a fixed rather than variable charge. Moving forward with the current decision without deciding on these other modifications exposes to suppliers and customers to greater volatility which could lead to higher risk premiums and make it more difficult for customers to budget.
We’ll be providing the latest updates on BSUoS charges in our next Non-Commodity Costs webinar on the 21st June – register your interest here to receive an invite to this webinar.