Electricity pylon

UK to close loophole that lets utilities exploit grid congestion

UK authorities plan to close a legal loophole that allows utilities to cash in on grid congestion at a cost to customers.

Independent regulator Ofgem estimated that undue exploitation could potentially have added up to £125 million to consumer bills in 2008/09, although these figures have been disputed by the energy industry.

"Situations can arise where a generator has the opportunity to act in such a way as to make it very likely that National Grid will be compelled to accept its offers (or) bids at an unduly high price in order to balance the network," the Department of Energy and Climate Change (DECC) said last week.

"Ofgem has estimated that the costs of this exploitative behaviour were approximately £125 million in 2008/09," it added.

These costs are initially paid by National Grid but then passed on to consumers.

Generators can cause congestion in parts of the electricity network and then benefit from deals to adjust their supply, said documents published last week by the DECC.

When there are only a few generators in one region with more capacity than can be transmitted through the grid, they can charge high rates to reduce supply and prevent congestion, DECC said.

The government has moved to ban this behaviour with a new temporary condition in generators' licences (TCLC), due to be enforced by Ofgem from October 29.

But the government move met with some criticism from the electricity industry, whose members took part in a three-month consultation about the new measures.

Government references to exploitative behaviour are "based entirely on Ofgem estimates that have not been tested," said Gaynor Hartnell, chief executive of the Renewable Energy Association, in an open letter to DECC.

The Association of Electricity Producers said in a public email to DECC that generators do not have enough promptly available information to tell when there are worsening congestion in the network.

Major utilities also object.

"We operate in a fully competitive electricity market and RWE npower has a rigorous compliance process in place to ensure we comply with all our obligations," a spokeswoman for RWE npower said.

Scottish Power said: "We believe that we are already compliant with TCLC [the new licence condition]."

Of the remaining "big six" leading power and gas supply companies in Britain, EDF and Centrica declined to comment on the DECC report, and E.ON could not be reached despite numerous attempts.

SSE referred to the system operator, National Grid for comment without responding themselves.

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