United Kingdom

United Kingdom

Working group identifies solution

A working group established by the UK government has suggested a change to the rules governing trade in electricity that could help small and renewable generators sell their power more competitively. The change, however, must be proposed and agreed to by larger electricity traders.

The Consolidation Working Group (CWG) was set up in December by energy minister Brian Wilson to look into how small and renewable generators could "consolidate" their offerings to suppliers, instead of each trading small amounts of power. By co-operating, small generators were looking to improve their ability to compete with the big boys under Britain's new electricity trading arrangements (NETA).

NETA aims to provide market signals to encourage individual power retailers to balance generation and demand -- a requirement that has cropped up with the fragmentation of electricity supply under liberalisation. It does this by requiring generators to state their electricity output in advance of a given time: a generator falling short of its predicted output must buy power to make up the difference, usually paying a premium price, while a generator with excess power must sell it, usually at a low price. Thus NETA imposes a hefty cost penalty on unpredictable output -- such as from wind-generated electricity -- which cannot forecast with certainty its output four hours ahead.

With the start of NETA in March 2001, both the government and electricity regulator, Ofgem, had expected the emergence of companies offering consolidation services. Renewable generators using a service would aggregate their electricity output, so avoiding some of the imbalance penalties. Yet a review of the effects of NETA on small generators published in August found that consolidation services had not developed as far as was feasible.

The main obstacle to consolidation now identified by the CWG in an interim report is that generators are unable to sell fixed volumes of energy without being a full central trading member in NETA. Before NETA was introduced it was recognised that smaller generators should be allowed to sell their fixed and unpredictable output separately. This would enable them to compete for better prices by selling their fixed output at a higher price to a supplier, while managing their unpredictable output by selling it via consolidators.

Renewables forgotten

In the pressured lead up to go-live of NETA, however, the needs of small generators were mostly ignored. The CWG is now looking at some of the measures that should have been in place at the start of NETA -- including changes to software, to documentation and to the Balancing and Settlement Code. To effect any change as a result of the CWG's work, NETA participants must bring them into effect by proposing and agreeing to changes to the NETA rules. Ofgem says that if this is done soon, the changes could be in place in time for the next contracting round in April. Ofgem expected a final report from the CWG by the end of January.

Both the government and Ofgem appear to see consolidation, which mitigates the effects of NETA, as their preferred means of helping renewable generators weather its penalties, rather than by tackling the fundamental unfairness of the new arrangements. "There is a lot of focus on consolidation because they seem to think this is the solution to all our problems," says the BWEA's David Still, who chairs a sub-group of the CWG. "The reality is that consolidation is a minor part of the answer and is not going to single-handedly solve anything." The real problem is the high imbalance settlement costs, he says.

His sub-group is advising that the charges that generators incur under NETA should reflect actual costs to the system instead of the current arrangements which tend to have high imbalance spreads which are clearly not cost reflective. This is also the advice of the Renewable Power Association. It is calling for a single imbalance price for buy and sell, rather than the dual imbalance price arrangement which has been the "fundamental cause of the problems created by NETA for small generators." A single cash-out price for all imbalance volumes could, if wished, apply either to small generators only or to the whole market, it says.

Still says a single imbalance price offers solutions which can be accommodated within the existing system. But whether the government and Ofgem accept this advice is a political issue, he says. "We have to ask the government: Do you want maximum output from clean, green energy to reduce our greenhouse gas emissions or not?"

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