Under the current electricity market arrangements in Great 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’ price, for the difference.
Electricity balancing arrangements, in particular the cash-out prices, provide incentives for generators and suppliers to invest in secure supplies to ‘balance’ positions and meet demand when the system is tight. They are therefore central to the delivery of a secure and competitive electricity market.
In August 2012, we launched the Electricity Balancing Significant Code Review (EBSCR). We launched the review to address long-standing concerns on electricity balancing arrangements raised in our 2010 Project Discovery report.
In particular, we expressed concerns that cash-out prices are not creating the correct signals for the market to balance, which could increase the risks to future electricity security of supply and undermine balancing efficiency, unnecessarily increasing costs.
In May 2014, we completed our review following extensive stakeholder engagement and published our conclusions and recommendations for reform, below.
Industry will now begin a process to modify the industry codes based on our conclusions, primarily the Balancing and Settlement Code. Once complete, the proposed modifications must be approved by the Authority for them to come into effect.