Increasing electricity BSUoS costs: fix your energy costs now!

June 24, 2020

Balancing services use of system charges (BSUoS charges)

The BSUoS charge recovers the cost of day-to-day operation of the transmission system. Your electricity tariff consists of more than simply the cost of wholesale energy. More than half of the tariff is formed of government levies, distribution costs and the operational costs of maintaining and balancing the system. Charges levied to users of the national electricity transmission system (NETS) by National Grid, as the electricity system operator (see System operator (SO)), that aim to recover the costs of the day-to-day operation of the electricity transmission system. Generators and electricity suppliers are liable for these charges. They are calculated daily as a flat tariff across all users. BSUoS charges vary depending on the balancing action taken each day. The methodology for calculating the charges is set out in the Connection and Use of System Code (CUSC) and is under review by Ofgem.

What is BSUoS?

BSUoS is the Balancing Services Use of System charge and reflects the cost of balancing the
system – for example running the national control room, frequency response arrangements,
other ancillary services and constraint costs (paying generators to turn on or off to maintain
system security).

BSUoS charges are charged on a half hourly basis, and are based on the volume of energy put onto or taken off the transmission system in that time. For each half-hour, the BSUoS tariff is set as a £ / MWh tariff. Both generation and demand pay BSUoS charges, although interconnectors do not since August 2012.

The tariff for BSUoS is set ex post meaning that the tariff only becomes known after the half hour period has taken place.

The BSUoS charge recovers the cost of day-to-day operation of the transmission system.

Generators and suppliers are liable for these charges, which are calculated daily as a flat tariff for all users. BSUoS charges depend on the balancing actions that we take each day, but we provide a monthly forecast of BSUoS. You can also consult historical BSUoS charges.

The methodology that calculates BSUoS is set out in Section 14 of the Connection and Use of System Code (CUSC). The monthly forecast of BSUoS is provided as part of the current Monthly Balancing Services Summary report.
Balancing Service Use of System (BSUoS) is a charge that National Grid levy in order to balance the electricity system and recover the costs incurred as the System Operator. BSUoS are based on the cost incurred by National Grid ESO in balancing the system; chiefly the administrative and operational costs of the balancing mechanism, investment in future projects, cash flow from incentive schemes and contract costs. These costs are passed on to suppliers for payment.

In 2016 National Grid had to sign additional contracts with electricity generators to secure ‘Black Start’ services which would enable them to re-power the network in case of a black-out. National Grid is recovering the cost of these contracts by revising the BSUoS prices for the period April – September 2016.

July 2017 is the first month suppliers have seen the change and it will continue each month for the next 6 months.

The BSUoS charge recovers the cost of day-to-day operation of the transmission system. One of the more complex cost components, with charges calculated on a half hourly granularity and changeable on settlement runs, it has typically hovered around 0.25p/kWh for the best part of two years but began increasing sporadically from mid-2019, seemingly plateauing around 0.4p/kWh in 2020. Arguably embedded generators, by virtue of being notionally located closer to where electricity is consumed, reduce the losses inherent in transmitting electricity across the transmission network.

What has driven the BSUoS change?

The chief reason behind the sharp and now consistent increase is down to the increased reliance on wind generation in the generation mix. BSUoS is a cost driven by unpredictability as National Grid ESO experiences more issues in its continued balancing of the UK system and the sheer intermittency of wind generation in the mix has nearly doubled these costs. This is a good move for the long-term sustainability of supply but not for system forecasting and balancing. With the cost of balancing the system rising, Ofgem have decided to take a look at BSUoS as part of its Targeted Charging Review (TCR). Current proposals could see the embedded benefit either floored to zero for distribution-connected generators, or even turned into a charge as the regulator looks to protect consumer bills.

Has Covid-19 contributed to BSUoS?

The ongoing Covid-19 pandemic has subdued demand for electricity as businesses’ usage decreased and this has certainly caused spikes in BSUoS over the last few months as the impact is spread across less demand. While some of the more extreme pricing and general costs should hopefully decrease from these recent levels when we see some economic recovery, the intermittency of supply still remains and these increased costs were already evident in early-2020 prior to the pandemic.

The other issue that has impacted the market is the increase in the range of BSUoS prices we’ve seen over the past few months. During lockdown, BSUoS charges have ranged from £1.17-29.97/MWh, while in 2019 this range was nearly £10/MWh less at -£0.75-19.37/MWh. With this increased volatility comes greater risk exposure, so companies are forced to place higher risk premiums on their BSUoS pricing. This premium is a bit of a Goldilocks problem. Too high and they become uncompetitive, while too low and they face a potentially expensive spike in BSUoS, wiping out profits or even causing losses.

What BSUoS changes can we expect in the future?

The view of market analysts is that if anything, the costs could increase in the coming years as more windfarm projects begin development and previous baseline generation volume disappears from the mix, chiefly coal plants but also older gas plants who are feeling the pinch of subsidy-free generation costs. Coupled with a 5-year low in fuel costs, right now is a great time to consider fixing a new, low-rate business energy supply.

If you’re concerned about the recent cost increase and how non-energy costs might change in the future, contact UGP for a 100% fixed, 100% renewable electricity quote on 0800 669 6697.

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