Ofgem confirms move towards marginal cost settlement

Ofgem decision (20 pages, PDF) approving P194, the modification to the GB Balancing and Settlement Code to use only the marginal 100MWh of balancing services as the basis for imbalance settlement prices. The modification was proposed by National Grid and opposed by the majority of the relevant industry panel. Ofgem confirms the view expressed in its January 2006 consultation that this move towards a marginal cost approach would facilitate the economic and efficient operation of the system by encouraging self-balancing. But the decision also recognises some possible anti-competitive effects, and announces a specific review after six months of operation of P194, and a report on a broader review of the cash-out arrangements later in 2006. Issues associated with tagging to remove transmission/system constraints from the calculation of imbalance charges are left for the industry to consider. Implementation is due on 2 November 2006.

For further information or advice please contact Franck Latrémolière.

Filed under BETTA, Electricity, Ofgem.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

About Reckon