Balancing Market Review - Terms of Reference

6 Dec 2021 - 2 minute read

Background 

National Grid Electricity System Operator Limited (the ESO) has an obligation to co-ordinate and direct the flow of electricity onto and over the national electricity transmission system in an efficient, co-ordinated and economic manner. One of the ways we do this is through the procurement of balancing services which we use to enable us to buy or reduce electricity as and when this is needed.  

In recent weeks there have been some very high-cost days, driven by generator costs in the balancing mechanism (one of the tools we use to balance electricity supply and demand close to real time). As those costs are ultimately borne by consumers it is important to fully understand the factors driving the market. 

The ESO is therefore looking to undertake a review of the balancing market.  There are many issues that can, and will, have contributed to the high costs. Our review will seek to ensure that, at a time when households’ budgets are under strain, consumers can continue to have confidence in the market. 

The review will be managed by the ESO’s Market Monitoring Team with support from external consultants. The work will culminate in a report.  

Scope of the Review 

There are three key areas in scope of this review: 

  1. Current Behaviours: Review of the bids into the balancing market on high cost days since 1 August 2021, for example 2nd, 15th and 24th November. In particular, we will look at price and technical parameters on these days. This data review, along with wider electricity market information, will be used to provide insights as to what might be driving the behaviours.   

  2. Market rules: Review the current market rules to determine whether there is anything inherent in those rules that is perpetuating the current behaviours, such as timing of information sharing or the de-rating of generators.   

  3. Stakeholder engagement: Seek engagement from all market participants to obtain insights on their current behaviours as well as any thoughts they may have around the current market rules to feed into the work in areas 1 and 2 above.  

Where appropriate we will consider behaviours and learnings from other markets, for instance in Europe and the US, to support our conclusions. 

Indicative Timeline 

We will have consultants onboard prior to the end of the calendar year and initial thoughts by the end of January. As the work progresses, we will keep this timeline under review and confirm when we have a date for the final report.