Ofgem proposes electricity generator EPSHB pays £23m
Press release
Publication date
Company
Industry sector
Generation and Wholesale Market
Licence type
Electricity Generation Licence
Ofgem has today published notice that it intends to require electricity generator EP SHB Ltd to pay £23.63 million for breaching its generation licence in a way that unfairly raised consumers’ bills.
Following a detailed investigation, Ofgem has concluded that EPSHB secured an excessive benefit as a consequence of prices it submitted in the Balancing Mechanism during periods where what is known as a ‘transmission constraint’ occurred.
Ofgem’s investigation found that between October 2019 and May 2021, EPSHB breached the Transmission Constraint Licence Condition (TCLC) by submitting excessive bid prices at its South Humber Bank gas-fired power station (SHBA) during periods when the ESO needed it to lower its output.
This reduction in SHBA’s output was required due to the risk to consumers’ supply should a fault have suddenly disconnected the Lincolnshire facility from the transmission system.
The breach resulted in significantly higher costs being incurred by the Electricity System Operator (the ESO) to balance the system, ultimately increasing costs for consumers.
The large sum proposed – to be paid to Ofgem’s Energy Redress Fund, which supports energy-related charities and community projects that help vulnerable consumers – reflects the scale of the excessive payments secured by EPSHB and the extended period of the breach.
This is the third action that Ofgem has taken against electricity generation companies this year in relation to breaches of the TCLC, following actions involving Drax Pumped Storage Limited (resulting in a payment of £6.12 million) and SSE Generation Limited (which was required to pay £9.78 million).
Cathryn Scott, Director of Enforcement and Emerging Issues at Ofgem said:
“Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.
This latest enforcement action sends another strong signal to all generators that they must put in place controls to ensure that their bid prices are set in a way that ensures that they do not obtain excessive benefits during transmission constraint periods.
If they fail to do so, licensees should expect to face large penalties, particularly in light of the repeated warnings which have been given regarding our expectations of generators in respect of the TCLC.”
This investigation is part of the ongoing compliance work undertaken by Ofgem to ensure that the market is fair for everyone. Ofgem expects licensees to be fully aware of their legal obligations (including compliance with the TCLC) and have adequate procedures in place to prevent breaches from occurring.
Any written representations or objections to Ofgem’s proposal must be received no later than 10 November 2023 and will be considered prior to Ofgem reaching its final decision on whether to impose a penalty on EPSHB.
Notes to Editors:
- Penalty Notice
- A transmission constraint is defined in the TCLC as any limit on the ability of the National Electricity Transmission System, or any part of it, to transmit the power supplied onto the National Electricity Transmission System to the location where the demand for that power is situated.
- In order to manage transmission constraints, the ESO routinely uses the balancing mechanism (BM) to increase and decrease the amount of electricity produced by different generators.
- In the BM, generators submit offer prices to turn up generation, or bid prices to turn down generation. Bid prices are the amount a generator is willing to pay (if positive) or be paid (if negative) by the ESO in the BM to turn down its generation when needed to help balance the transmission system. When turned down, the station can still sell power as if it were generating.
- Typically, when managing a transmission constraint, the ESO will only have a limited number of alternatives available to it. This creates a risk that generators could exploit their position by charging excessive bid prices to reduce their output. The TCLC prohibits them from doing so.
- The Energy Redress Fund provides money to charities to deliver energy related projects that support energy consumers in vulnerable situations. It also helps to deliver benefits to consumers, who were negatively impacted by the specific issue that triggered the redress payment.