First experience of imbalance charges -- NETA goes live

Renewable energy generators are soon to experience the full effects of the UK's new electricity trading arrangements (NETA), which went live on March 27. Several have already expressed fears that NETA, which requires real-time balancing of supply and demand, will unfairly penalise intermittent generation such as that from wind plant. In launching NETA last month, however, energy minister Peter Hain said he has already asked the gas and electricity regulatory office, Ofgem, to review the initial impact of the system on smaller generators after two months of trading.

NETA, which replaces the electricity pool, is designed to bring more competition into the wholesale electricity market in England and Wales. The government hopes it will bring prices down by 10%, although growing numbers of commentators are increasingly sceptical about this claim.

Similar to Nordpool

NETA will operate along similar lines to the Nordic Pool. Electricity suppliers and generators are encouraged to trade ahead of real time in forward and futures markets. Most power -- around 70% to 80% -- is expected to be traded under bilateral contracts, well in advance. But for the first time, power exchanges will also form a significant part of the UK electricity market, operating from a few days ahead of time up to three and a half hours ahead -- "gate closure" -- when all trading has to cease. This is when the balancing mechanism kicks in as the system operator balances the system. Later, all "imbalances" -- the surpluses and deficits arising from the differences between the contracted and actual power flows -- are measured, priced and settled.

The new system favours predictable generation since imbalance settlement prices are volatile and penalise uncontracted power flows. This puts small distributed and renewable generators -- particularly wind -- at a disadvantage compared to large generators with a flexible portfolio. "Imbalance charges could seriously damage renewables' wealth," comments Andrew MacDonald of Concert Energy. His company is the first to provide a means for small generators to lessen their exposure to balancing and imbalance charges by "aggregating" output from a portfolio of generators.

Strength in numbers

Concert Energy -- a subsidiary of large integrated energy company Innogy -- was launched to coincide with the start of NETA. It has been participating under Innogy's wing in testing the system. Concert buys output from small generators, including renewables and CHP, and aggregates the power within Innogy's portfolio. At present, the output is sold by Innogy to its industrial and commercial customers. But after NETA goes live, Concert hopes to offer other services to embedded generators, such as allowing them to use its systems to find suppliers and providing them with a route to the market, MacDonald explains.

The renewables component within Concert's portfolio is likely to consist mainly of wind, hydro and landfill gas schemes previously supported under the UK's Non-Fossil Fuel Obligation.