United Kingdom

United Kingdom

Consultation on trading changes -- Not much headway on NETA

The UK government is seeking views on its proposed improvements to the new electricity trading arrangements (NETA) that at present are disadvantaging small power generators -- particularly renewables and combined heat and power. Introduced in March, NETA requires generators to exactly meet their delivery forecasts. Any shortfalls must be bought at a premium, while excess power has to be dumped at rock bottom rates. Unpredictable generation like wind is hit disproportionately by these imbalance charges -- and shutting down a plant has, in theory, been the best option at times.

Energy minister Brian Wilson proposes modifications that he says should ensure imbalance prices are genuinely cost reflective, reducing the risk for everyone, and for smaller, unpredictable generators in particular. "NETA has been a big success," insists Wilson. The new "more transparent, inclusive and efficient" pricing system has meant that electricity prices are up to 25% lower than under the old power pool arrangements, he says. "But we must act to address the issues faced by smaller generators under NETA." The government is committed to renewables and combined heat and power, says Wilson. But he is not proposing any new regulations or legislation that would jeopardise the structure of NETA.

Some earlier modifications have already reduced the volatility of imbalance prices, the consultation document states. Changes now being considered could include reducing the deadline for advance notification of capacity from the current four hours ahead. The document also lists some other proposed changes which the government considers to be more problematic. These include trading after real time, and a "deadband" within the balancing system so that generators who are only trivially out of balance do not face charges.

Aggregating output

Wilson also aims to encourage more consolidation of output from small generating plant into a balanced portfolio of electricity generation. This will reduce unpredictability and manage risk, so limiting exposure to imbalance prices. Consolidation services had been expected by the government to allow small renewable generators to escape the worst excesses of NETA, but so far they have been slow to emerge.

Wilson proposes a working group -- to include small generators -- to look urgently at obstacles to consolidation. It will also look at the specific consolidation needs of wind generators, both onshore and offshore, which are expected to contribute substantially towards meeting the government's renewable energy targets. The government consultation document suggests that effective nationwide consolidation should give wind a "manageable" imbalance cost penalty of around £3/MWh. "On this basis there should be scope for wind generators to compete effectively with large generators," the document states.

Energy consultant David Milborrow, however, points out that this level of cost penalty has halted development of conventional large scale generation. "Eight thousand megawatts of gas plant is now on hold or abandoned, precisely because the price gap between gas-fired electricity and existing coal-fired electricity is now about £3/MWh," he says. "So why should wind be content with an artificial penalty which could jeopardise its competitiveness in a similar way, now and in the future?"

The month-long consultation draws to a close on December 1.

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