Under the current electricity market arrangements in Britain, if a market participant generates or consumes more or less electricity than they have contracted for, they are exposed to the imbalance price, or ‘cash-out’, for the difference.
As cash-out directly affects the incentives on the electricity market participants to invest in secure supplies, the arrangements are central to the delivery of a secure and competitive electricity market.
We have expressed concerns about problems with cash-out prices. We have suggested that this could lead to future electricity security of supply being undervalued and could unnecessarily increase the costs of balancing the system.
To address these concerns, we have launched the Electricity Balancing Significant Code Review (EBSCR) to look at the current cash-out arrangements. The process allows us to complete a holistic review of the cash-out arrangement and consider the need for reform to these arrangements.
At the core of this review is the aim to provide incentives for sufficient investment in capacity to ensure an efficient level of security of supply. In order to achieve this we are working to improve price signals, to make them more reflective of the costs of balancing, and to incentivise participants to balance and improve overall efficiency of the balancing arrangements.