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Energy insightsBSUoS reform: what to expect in 2023
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BSUoS reform: what to expect in 2023

20 January 2023 | 5 minutes

Find out more about what you can expect from BSUoS charges in 2023

The Balancing Services Use of System (BSUoS) charge recovers the day-to-day operational costs of balancing the electricity transmission system. It’s a half-hourly charge based on the costs incurred by the Electricity System Operator (ESO), part of National Grid, to balance the system within each settlement period. The actual BSUoS rate (i.e £/MWh) for each half-hour varies and is known post the delivery period. 

Since electricity cannot be stored easily and cheaply, the ESO is responsible for making sure the system is effectively balanced 24 hours a day. If the system wasn’t kept balanced, allowing energy input to the grid to fall less than consumption demand, there would be a national risk of blackouts. To avoid this situation, the ESO balances the system every second to ensure that supply and demand requirements are met - the cost of performing this important function is settled every half hour. 

However, while seemingly simple, BSUoS charges have become more volatile and harder to predict, with various factors impacting the cost. The increasing trend towards renewable generation is also introducing a lot of uncertainty into suppliers’ BSUoS bills. To mitigate this risk, suppliers have been adding a risk premium for BSUoS, when pricing customers’ contracts. 

As part of the efforts to create more certainty, the industry has been looking at how it can improve the charging structure for customers and suppliers by giving more accurate cost certainty. This is going to be vital, especially as updates to BSUoS will see 100% be recovered from demand side (i.e., suppliers and demand consumers) from April 2023.

Regulation changes explained

In 2020, the second BSUoS Task Force recommended that BSUoS charges should be changed, recovering costs only from Final Demand, i.e., electricity which is consumed for purposes other than the generation or export onto the electricity network. CMP308 saw the recommendation approved (CMP308: Removal of BSUoS charges from Generation | Ofgem).

In addition, the Task Force recommended that BSUoS costs should be recovered as a flat volumetric charge set on an ex-ante basis. This means that the tariff is set in advance of a delivery period, which in turn provides greater transparency. To facilitate this, CMP361 and CMP362 were raised to introduce an ex-ante fixed volumetric BSUoS tariff set over a total fixed and notice period of 15 months.

The cost of balancing the electricity system

Due to the nature of BSUoS cost volatility, National Grid ESO needs access to sufficient funds at all times to pay for balancing the GB electricity system and, therefore, has access to a £300m working capital fund to meet any short term cashflow needs.

However, under a fixed BSUoS tariff model, it was argued that ESO would need extra funds to meet cashflow requirements and avoid having to reset the fixed BSUoS tariffs within the fixed period. Ofgem consulted the industry on options with various notice periods, various fixed periods, various levels of BSUoS funds or no fund and various levels of fund recovery periods.

Following the consultation, Ofgem published its minded-to-decision in the form of an industry consultation in September 2022. This notified the industry that the option which would fix BSUoS for 12 months with 3 months’ notice with a BSUoS fund at P99 level built up over five years (option WACM5), was likely to be approved. A P99 level BSUoS fund would have reduced the probability of having to reset the fixed BSUoS tariff within the fixed period considerably (i.e., a one in 100 years chance). This certainty would have come at a cost to consumers as they would have had to pay an additional BSUoS fund tariff on top of the main BSUoS fund.

Consequently, in December 2022, Ofgem approved an alternative option (WACM3) out of the original options under CMP361 to come into effect on 1 April 2023. WACM3 requires National Grid ESO to publish a fixed volumetric BSUoS tariff for six months with nine months advance notice.

The key feature of this option is that there is no additional tariff required to build a BSUoS fund. With six months fixed BSUoS tariff and a nine months’ notice period, suppliers and consumers will get much better cost certainty. In turn, this means suppliers are anticipated to reduce their BSUoS risk premia for the published fixed tariff period, which will benefit customers. However, with no BSUoS fund under this approved option (WACM3), there is an increased the probability of having to reset the fixed tariffs within a fixed period to one in four years.

Notice periods

Due to the timing, for the first six months (i.e., from April 23 to September 23) the notice period would be just two months. For the second six months (i.e., from October 23 to March 24) the notice period would be eight months. A separated modification is expected to be raised to get the first two fixed tariff periods exempted from the nine months advance notice condition.

National Grid ESO is expected to publish the fixed tariffs for the first two six-month periods (Summer 23 and Winter 23) by the end of January 2023. Shell Energy UK will be closely monitoring any further developments and will update our customers accordingly. 

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