Skip to content

Grid Balancing Costs Rocket

January 20, 2022

By Paul Homewood


An interesting article from Elexon about the costs incurred in balancing the grid:



The Electricity System Operator (ESO) plays an essential role in balancing supply and demand using the Balancing Mechanism (BM). Matching supply and demand requires payments to be made between the ESO and participating consumers and generators. Consumers and generators submit prices for volumes of energy they can provide within a half-hour period (Settlement Period) to balance the system. In this Insight article, analyst Angus Fairbairn looks at balancing costs of ESO since 2015.

System Operator role is becoming more challenging

The ESO role in Great Britain, performed by National Grid ESO, is becoming more challenging and costly. All electricity consumers pay for these costs as part of their bills. In 2020, some contributing factors were the move to a more decentralised system and increases in intermittent generation with a push to a net zero future. The ESO also faced forecasting challenges with changing demand profiles due to COVID-19.

Generation sources used to keep the system in balance

The graph below shows how payments for balancing energy produced from different fuel types has contributed to net balancing costs since 2015. This graph only includes payments for utilised balancing energy in the BM and outside the BM in Balancing Services Adjustment Actions. Additional payments, such as availability fees or start-up costs have not been included.

Net balancing costs were £506m in 2015. The system pressures mentioned above have pushed the net cost in 2020 to £1.3Bn, 67% higher than 2019 (£794m).


Net Bid and Offer cashflow

The graph below shows changes in net Bid and Offer cash flow between 2015 and 2020. Bids have a negative volume as they are a reduction in energy on the system. The Bid price represents the amount paid to the ESO by the balancing services provider and therefore the lower the Bid price, the more expensive it is to the ESO and a negative price will represent a payment to a BM Participant.

Bid cashflow is the price (£/MWh) of a Bid multiplied by the volume of the Bid (MWh). A net positive Bid cashflow across a year means more money was paid to Balancing Service providers for negatively priced Bids by the ESO than the ESO received from positively priced Bids.

Prior to 2020, the yearly net cost attributed to Bids was negative. This means more money was received by National Grid ESO for reducing energy on the system than was paid to Balancing Service providers to reduce energy on the system. Balancing Service providers will pay to reduce their generation as they may save costs of operation and/or fuel. They may also pay to consume more electricity.

The negative net Bid Cashflow from Bids reduced the overall cost of balancing the system by an average of £125m per year from 2015 to 2019. This trend significantly switched in 2020 with a positive net Bid cashflow, of £257m being paid from the ESO to Balancing Service providers to reduce energy on the system. This represented an additional 19% of cost on top of Offer costs.

Net positive Bid cashflow means more money is being paid to BM Participants from the ESO than Balancing Service providers are paying to the ESO to reduce energy on the system. Bids which result in payment from the ESO to the Balancing Service provider will have a negative price in £/MWh.

Bids with negative prices usually come from wind generators as they have no fuel costs and will lose payments from their Renewable Obligations Certificates (ROCs). ROCs are paid to certain renewable generators for each MWh of electricity generation delivered to the grid.

The Offer price represents the amount paid from the ESO to the Balancing Services provider. The higher the Offer price, the more expensive it is to the ESO. Offers have a positive volume as they are an increase in energy on the system. Offer cashflow is the price (£/MWh) of an Offer multiplied by the volume of the Offer (MWh).

Yearly net Offer cashflow has always been positive as it is very unlikely for Participants to pay to increase electricity on the system; to consume less or generate more.

Since 2016, net Offer cashflow has been rising. From 2019 to 2020, net Offer costs rose by 23%. As the cost increased for both Bids and Offers, this meant that balancing costs rose by 50% from 2019 to 2020.



Expenditure on balancing energy for the ESO has risen significantly in 2020. There has been more expenditure on all Bid and Offer volume with the greatest changes seen in money spent on reducing the energy on the system through Bids. Reducing energy on the system in 2020 came with significant financial expenditure rather than benefit to the ESO. More Bid volume was required, and at a higher price.

Low demand due to the impact of COVID-19, combined with the difficulty in forecasting new demand profiles in 2020 is likely to have increased the need for balancing energy. This looks set to be a short term influence on the system. As lockdown restrictions ease and working behaviours return to normal, balancing the system may become more predictable and less costly.

Significant increases in balancing costs from low carbon sources, such as biomass and wind were seen in 2020. This has been a long-term trend, with the cost of biomass balancing energy rising from 2017 and wind from 2016.

Economic incentives for renewable generation with low fuel and operational costs result in the costs for turning down generation from these sources being more expensive. This was seen with wind Bids where no fuel costs and financial benefits of generating (ROCs) contributed to the lowest (most expensive) Bid prices in February and November 2020.

Increased costs for managing renewable generation looks set to continue with the push to a net zero future. National Grid ESO is addressing these costs with projects like the ‘4D Heat project’ with Scottish and Southern Electricity Networks (SSEN) mentioned in their 5-Point Plan. Also, new technologies such as battery storage) may also provide new tools that help to  integrate wind and other intermittent generation into the system.


The chart is actually highly misleading, because it implies most balancing payments were for natural gas. In reality, payments to gas are to ramp up output when supply is short.

The real takeaway comment is :

 Net balancing costs were £506m in 2015. The system pressures mentioned above have pushed the net cost in 2020 to £1.3Bn, 67% higher than 2019 (£794m).

This figure will continue to rise as more and more intermittent generation is brought in.

  1. Joe Public permalink
    January 20, 2022 7:31 pm

    (24th Nov 2021) “….yesterday was the most expensive day in the UK balancing mechanism on record, beating the previous record by £18.6m (a 42% increase).” >>>>

  2. Robert Christopher permalink
    January 20, 2022 7:37 pm

    Everywhere you look, the costs for NET Zero are rising, usually from nowhere. Here is an example, about Lithium:

    (30 mins, and it’s quite a sophisticated analysis)

    Car manufacturers take roughly two years to set up a new model car. However, it takes five years at least to develop a mine. (With ESG+ for virtue signalling, make that 10 to 15 years for a big mine.) And that is after an economical deposit has been found. It needs to be big enough, have access to roads, power, water, and a processing plant, either already near by or constructed.

    In the video, it states that procurement teams have now realised this, so they have built a car plant and don’t have a plentiful supply of materials to make the cars. But this realisation hasn’t yet reach the boardroom.

    And it isn’t only Lithium: Copper, Zinc, Cobalt you name it, it’s probably a good time to start digging! 🙂

    • It doesn't add up... permalink
      January 20, 2022 10:24 pm

      Lithium carbonate is still rocketing. His $60,000 target is already under threat. Almost $54,000 today.

  3. January 20, 2022 7:50 pm

    This news comes as no surprise to anybody who frequents this site or the REF or NetZero Watch. The problem is that the message cannot be got through to the government and its advisers and you won’t see it mentioned by the BBC or other green media outlets. According to them, the price rises are solely due to the price of gas and so we need more ruinables.

    • MrGrimNasty permalink
      January 20, 2022 8:19 pm

      The usual proposal discussed on the BBC news is a windfall tax on the profiteering fossil fuel companies (further discouraging new exploitation of reserves, hence further increasing energy prices); and more cheap renewables; and any mention of green costs in bills is batted away as “pftttt that’s only £120 and historic”. Never any mention of the vast bungs to renewables and the vast imposed system costs and unfair market/supply rigging fossil fuels face.

      • January 20, 2022 9:08 pm

        I know. I keep suggesting that there should be a windfall tax on onshore and offshore wind farms. Let’s face it, “windfall” is the right word – or should it be a windfail tax?

      • Gerry, England permalink
        January 21, 2022 11:39 am

        Rather than a tax on windmills, the operators should be required to ensure they can supply a certain amount of electricity 24/7.

      • ThinkingScientist permalink
        January 21, 2022 1:31 pm

        Gerry is correct. Suppliers to the grid should only be able to bid dispatchable supply and there should be no preference between grid sources just lowest price bid to supply.

        If wind and solar paid their own balancing costs it would level the playi g field.

        Unfortunately government policy is what’s screwing it up. Then compounded by trying to fix the resulting energy poverty at the domestic end. Utter madness and it will inevitably end in tears.

  4. Cheshire Red permalink
    January 20, 2022 8:33 pm

    Has anyone been following Chris Skidmore on Twitter?
    Endless misdirection on gas and energy prices. I’d almost call him a liar. Obviously been put up to a firefighting response to huge MSM / BTL reader attacks against the costs of Net Zero. Disgraceful stuff.

    • Gamecock permalink
      January 20, 2022 10:36 pm

      “combined with much better energy efficiency”

      I can translate: “When you people quit using electricity.”

    • Tim Pateman permalink
      January 20, 2022 11:08 pm

      The really sad part is that Bojo’s team thinks that people might buy this drivel.

      So, what Skidmore is really saying here is – don’t worry about how high your bills are now, we’ll have it sorted for you by 2050……..probably

    • Martin Brumby permalink
      January 21, 2022 8:30 am

      I’ll help you out. Chris ‘Pants’ Skidmore is a deliberate, barefaced liar.

      • Cheshire Red permalink
        January 21, 2022 1:25 pm

        Martin; I Can’t disagree!

    • Phoenix44 permalink
      January 21, 2022 10:01 am

      The above is a classic. Gas prices haven’t always risen so why will they now “always rise”? If we brought lots of gas on stream the price of gas would fall. His statements are completely false.

  5. Gamecock permalink
    January 20, 2022 10:38 pm

    I’d wager a Mensa brain could read this and understand what they are saying.

    ‘The negative net Bid Cashflow from Bids’


    • Phoenix44 permalink
      January 21, 2022 11:12 am

      The net cashflow from bids is negative – people were paying to not generate. As they say, if offtake price is lower than fuel costs, its cheaper for gas & coal not to generate. The incomprehensible one is wind, where I don’t understand the arbitrage with RoCs.

      • It doesn't add up... permalink
        January 21, 2022 3:42 pm

        A wind farm will produce so long as it is getting a positive income. They only get paid ROCs and REGOs (guarantees of green origin, now trading for over £6/MWh – the famous greenwashing certificates) if they generate. An ROC is worth about £56/MWh, including the payout on the buyout volumes that are cash settled). So prices have to drop below minus £62/MWh to encourage those windfarms to curtail.

        When there is excess wind in Scotland beyond the capacity of the transmission lines to move power South it must be curtailed, and if necessary, generation in England fired up instead. Wind farms will therefore seek compensation for the loss of revenue from their subsidy gamut. Since it is an auction, they may try to get away with even more compensation than is justified by the subsidy compensation, particularly if there are major grid constraints close to the point they feed into it, since they will have to be curtailed.

  6. MrGrimNasty permalink
    January 21, 2022 8:45 am

    My latest EDF electric bill claims a 4% loss for supplying me.

  7. pochas94 permalink
    January 21, 2022 11:01 am

    All above courtesy of government by people who don’t know what they’re doing.

    • Phoenix44 permalink
      January 21, 2022 11:23 am

      If you leave out renewables it works pretty well as the incentives of producers, grid and consumers are all aligned. You end up with supply that closely matches demand at the cheapest possible price. But renewables have misaligned incentives as they can generate at zero marginal cost but only on a random basis. So we can have far more free generation than we need and have to pay not to have the excess (and I’m not clear on the arbitrage for wind when this happens) and then swing quickly to too little generation and have to pay whatever is bid to meet demand it from an increasingly smaller pool of non-renewable suppliers. In the previous system essentially generation starts at the cheapest end and turn increasing demand is met with increasingly costly generation and vice-versa. Now it’s a horrible mess where we turn off the cheapest stuff first.

      • ThinkingScientist permalink
        January 21, 2022 1:34 pm

        …all whilst pretending the most expensive and unreliable is the best and cheapest!

        Utter madness.

  8. January 21, 2022 3:48 pm

    The cupboard is bare if they’re still trying to hype up battery storage.

  9. It doesn't add up... permalink
    January 21, 2022 4:04 pm

    Wait till they add in 2021. £2.35bn, with a worrying rising trend.

Comments are closed.

%d bloggers like this: