The cost of balancing the UK’s electricity transmission grid has been steadily increasing – and is set to continue to do so as we transition to more decentralised and diverse low-carbon generation.
In addition to costing more, this Balancing Service Use of System charge (BSUoS) - the charge given to consumers to recover the costs of running the electricity network –for short – is also volatile.
We successfully lobbied to introduce more certainty for large business consumers, whose BSUoS costs can run to six figures. And in April 2023, a fixed six-monthly charging methodology was introduced, replacing the previous retrospective half-hourly charging model.
Now Ofgem is introducing additional changes to help create further certainty, albeit with less upfront notice of what future BSUoS costs will be.
New seasonal tariffs with costs fixed for 12 months
From April 2026, the BSUoS fixed period will be extended from six to 12 months. And this 12-month fixed period will be split into two seasonal tariffs for Summer and Winter. However, the BSUoS charge notice period has been shortened from nine months to three months.
This means that the April 2026 BSUoS rate will not be published until the end of December 2025. But it will be fixed until the end of March 2027.
Then every December thereafter, the following April’s 12-month tariff will be published. This will be split into the two seasonal tariffs running April to September (Summer) and October to March (Winter).
The aim is to be more reflective of seasonal demand variations, allowing the National Energy System Operator (NESO) – which manages the UK electricity grid – to manage cashflow risks more effectively though the fixed period. (For more on why this charge is so volatile, see our previous blog.)
In terms of rates for 2025, there is no change. The BSUoS tariff announced in August for April to September 2025 remains as is. And the October 25 to March 26 tariff will still be finalised in December 2024.
Are these BSUoS changes good news for businesses?
While this is a good development for business consumers, there are still some risks.
Fixing BSUoS for 12-month periods at a time does reduce uncertainty for consumers.
This includes those on fixed contracts, as one-year deals from April 26 will not be exposed to the same levels of BSUoS risk, so therefore will carry less risk premia – in theory at least.
But while the shorter three-month notice period should mean more accurate BSUoS rates, there is still a risk of this ‘fixed’ tariff rate changing midway.
Provision exists to ‘unfix’ tariff midway through
This is because within the rates NESO sets to meet the cost of balancing the transmission system, it includes £300 million of headroom in case of unexpected situations. But if this gets used up within the tariff period, Ofgem will allow NESO to increase the charge mid-period.
And while having a shorter notice period should allow NESO to set the tariff more accurately for the earlier part of the period, the longer 12-month timescale increases the likelihood of accumulating cost beyond the headroom allowance.
This creates a risk that will still need to be factored into the cost premia consumers on fixed contracts pay.
For consumers who pay BSUoS on a pass-through basis, this risk will be reflected in reduced budgetary certainty. Without doubt, 2024 has been a year of change. From a new government to the end of an era for coal, as we look towards 2025, it feels like we are at an important crossroads when it comes to the low-carbon transition.
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