Friday 1 September 2023

Ofgem cracks down on winter energy price manipulation

Ofgem cracks down on winter energy price manipulation

In a bid to curb the manipulation of energy prices by generators, Ofgem has unveiled today new regulations aimed at preventing artificial inflation of energy costs that burden household bills.

The focus of these changes is to thwart generators from exploiting the electricity system's balancing mechanism for disproportionate financial gains.

This balancing mechanism is the primary tool used by the electricity system operator (ESO) to ensure the equilibrium of supply and demand across Britain's electricity transmission network.

The origins of these new rules trace back to Ofgem's thorough investigation into the issue, which began last year.

The inquiry was prompted by concerns arising from the staggering tripling of balancing costs during the winter of 2021/22.

Between November 2021 and February 2022, the costs ballooned to over £1.5 billion, a sharp contrast to the average annual winter balancing costs of just under £500 million between 2017 and 2020.

On one day, the daily costs even skyrocketed beyond £60 million, driving the ESO's overall balancing costs for the financial year to an unprecedented £3.1 billion, ultimately footed by consumers.

The newly introduced Inflexible Offers Licencing Condition (IOLC) serves as a solution against a previously identified practice.

This manoeuvre saw electricity generators deliberately scheduling shutdowns early in the afternoon, causing them to be offline during the crucial evening peak in demand.

Subsequently, these generators would then resume operation later the same day, but at a significantly inflated price.

The IOLC now applies to all electricity generators with shutdown times exceeding an hour.

Scheduled to take effect on 26th October, the new condition carries hefty penalties for violators.

Generators found breaching this regulation could face penalties, including provisional and final orders, as well as fines amounting to 10% of their regulated turnover.

Eleanor Warburton, Ofgem Acting Director for Energy Systems Management and Security said: "These new licence conditions show Ofgem will not tolerate electricity generators attempting to take advantage of the balancing mechanism system to make excessive profits through inflexible generation."

Written by

Bruna Pinhoni

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