REG - OFGEM - Ofgem action delivers £33.14 million to consumers

National GridAnnouncement

28/05/2024 10:45

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RNS Number : 9136P  OFGEM  28 May 2024

AUTHORITY PRESS NOTICE

Ofgem action delivers £33.14 million back to energy consumers

 

·    Electricity generator Beatrice Offshore Windfarm Limited
(http://www.beatricewind.com) ("BOWL") has accepted that it breached one of
its licence conditions and will make a redress payment of £33.14m as a result

 

·    In BOWL's view, this was an unintentional breach and it has committed
to making changes to its bid pricing policy to avoid any future breaches

 

·    BOWL has co-operated fully with Ofgem in its enquiries to resolve the
issue quickly and fairly

Energy regulator Ofgem has today announced that electricity generator Beatrice
Offshore Windfarm Limited (BOWL) has agreed to make a payment of £33.14
million after admitting it breached energy market rules.

Following an Ofgem review, BOWL, the operator of an 84-turbine wind farm off
the North  East coast of Scotland, has accepted it breached one of its
licence conditions* by charging excessive prices to reduce its generation
output when this was required to keep the electricity grid balanced, thereby
pushing up costs for consumers.

After engaging with Ofgem, BOWL agreed to make the payment into Ofgem's
Redress Fund, which funds projects and schemes to support energy consumers,
particularly those in vulnerable situations. The scale of the payment has been
determined with reference to both the significant consumer detriment and the
financial gain to the licensee that Ofgem considers the breach is likely to
have resulted in.

In summary Ofgem's review identified the following concerns:

·      BOWL's prices did not properly reflect the financial benefits of
reducing its output related to avoided payments that the company would
otherwise have been required to make under the Government's Contracts for
Difference scheme.

·      BOWL's approach to setting the part of its prices that was not
related to subsidy payments carried a risk of the company recovering more
revenue than was necessary to cover the costs incurred as a result of
curtailing its output.

·      BOWL failed to give meaningful consideration to its compliance
with the requirements of the relevant licence condition, or to document the
limited consideration that it did give its compliance with these requirements.

This action follows the announcement at the end of last year
(https://www.ofgem.gov.uk/publications/charities-community-projects-and-customers-benefit-ps72-million-payments-thanks-ofgem-enforcement-action)
that Ofgem secured £77.2m in payments from companies into the Redress Fund in
2023 alone.

Whilst BOWL now accepts Ofgem's position that its approach was not compliant
with the relevant licence condition, BOWL has told Ofgem that in its view the
breach was inadvertent and at the time of submitting the bid prices, it had
considered that it was compliant.

BOWL has co-operated fully with Ofgem in its enquiries to resolve the issue
quickly and fairly.  Since Ofgem's review, BOWL has in addition to agreeing
to make the redress payment also committed to making changes to its bid
pricing policy to ensure a breach does not happen again.

This is the fifth action that Ofgem has taken against electricity generation
companies since the start of 2023 in relation to breaches of this licence
condition. Other cases were:

·      Drax Pumped Storage Limited (£6.12 million paid into the Redress
Fund)

·      SSE Generation Limited (£9.78 million paid into the Redress
Fund)

·      EP SHB Limited (£23.63 million paid into the Redress Fund), and

·      Dorenell Windfarm Limited (£5.53 million paid into the Redress
Fund)

Taking into account BOWL's admission, the steps it has taken to avoid future
reoccurrence of a breach and the redress it has agreed to pay, Ofgem has now
closed its compliance review into the matter without the need for formal
enforcement action under the Electricity Act 1989.

Ofgem has been clear that electricity generators must put in place controls to
ensure that their prices are set in a way that ensures that they do not obtain
excessive benefits during the periods where they are required to reduce output
due to the limitations of the transmission network. If they fail to do so,
they should expect to face large penalties.

 

 

 

ENDS

 

Notes to Editors:

 

 

* Condition 20A of the Electricity Generation Standard Licence Conditions
(known as the Transmission Constraint Licence Condition, or "TCLC")

 

·      The Energy Redress Fund
(https://www.ofgem.gov.uk/publications/ofgem-appoints-energy-saving-trust-distribute-payments-rule-breaking-energy-companies-charities#:~:text=The%20Energy%20Saving%20Trust%20will,develop%20innovation%20in%20the%20sector.)
provides money to charities to deliver energy related projects that support
energy consumers in vulnerable situations. It also helps to deliver benefits
to consumers, who were negatively impacted by the specific issue that
triggered the redress payment.

·      A transmission constraint is defined in the TCLC as any limit on
the ability of the National Electricity Transmission System, or any part of
it, to transmit the power supplied onto the National Electricity Transmission
System to the location where the demand for that power is situated.

·      In order to manage transmission constraints, the ESO routinely
uses the balancing mechanism (BM) to increase and decrease the amount of
electricity produced by different generators.

·      In the BM, generators submit offer prices to turn up generation,
or bid prices to turn down generation. Bid prices are the amount a generator
is willing to pay (if positive) or be paid (if negative) by the ESO in the BM
to turn down its generation when needed to help balance the transmission
system. When turned down, the station can still sell power as if it were
generating.

·      BOWL is the owner of the 588MW Beatrice offshore windfarm in
northern Scotland. Our review relates to bid prices submitted by BOWL in the
BM during transmission constraint periods. The unit is located behind several
key thermal transmission constraint boundaries, and as a result BOWL has
regularly had bids accepted in the BM to reduce its output and to ensure that
the relevant limits are not exceeded.

·      Typically, when managing a transmission constraint, the ESO will
only have a limited number of alternatives available to it. This creates a
risk that generators could exploit their position by charging excessive bid
prices to reduce their output. The TCLC prohibits them from doing so, by
requiring that generators must not submit bid prices which would result in
them obtaining an excessive benefit in transmission constraint periods.

·      In December 2023 Ofgem launched a consultation
(https://www.ofgem.gov.uk/consultation/transmission-constraint-licence-condition-guidance-consultation-december-2023)
on an update to the guidance which sets out our approach to interpreting and
enforcing the TCLC. The proposed amendments were intended to bring the
guidance up to date, and to provide generators with a greater level of detail
in relation to Ofgem's expectations regarding compliance with the TCLC. We
expect to provide an update in relation to this consultation shortly.

·      Alongside the guidance consultation, in December 2023 Ofgem also
published a call for input
(https://www.ofgem.gov.uk/call-for-input/transmission-constraint-licence-condition-call-input-december-2023)
inviting views from industry participants on whether any changes are required
to the TCLC, in order to ensure that it is as effective as possible in keeping
bills down.

·      Work is also ongoing to consider a possible modification to the
Balancing and Settlement Code (https://www.elexon.co.uk/mod-proposal/p462/)
which is related to potential distortions in the merit order arising from the
interaction between the design of the BM and the CfD scheme.

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