Fears energy companies profit when renewable power slumps – adding to burden on bill payers

Business

The power industry is concerned some companies could be making massive profits on the occasional days when renewable electricity generation slumps.

Generators which step up to fill those gaps are charging record prices to “balance” the supply of electricity as our power grid rapidly shifts towards net-zero.

The costs are paid by the industry, but are ultimately passed on to bill payers.

They make up only a few percent of the total cost of an electricity bill – but the extra burden is coming at a time when energy prices are already soaring.

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The latest data, analysed for Sky News, shows consumers will end up paying a record £2.6bn on their bills due to the costs of balancing the electricity grid in 2021.

And it looks set to continue this year, with just one day last week costing more than £40m. Compare that to typical daily “grid balancing” costs of around £2m.

The high prices are in part due to the record high wholesale cost of gas, but there’s evidence that some electricity generators are charging much higher prices to increase generation on days when flows of electricity from wind and solar plants fall.

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“The pricing seems very high compared to normal,” Darren Jones MP, chair of the business, energy and industrial strategy committee, told Sky News.

“What we need to understand is how much of that is related to the price of gas given the international gas crisis, and how much of that is due to potential bad behaviour of generators who are quite frankly taking the mick in order to make excessive profits.”

Ensuring a steady supply of electricity means engineers at National Grid ESO, which manages the grid, have to constantly work with generators to manage supply.

On days, or hours, when there is low wind, National Grid takes bids from suppliers to fill the gap through something called the “balancing market”.

But in recent months, balancing market costs have been rising exponentially.

A chart showing the monthly costs of trying to balance energy supply Pic: LCP Enact for Sky News
Image:
A chart showing the monthly costs of trying to balance energy supply. Pic: LCP Enact for Sky News

Data shared with Sky News by energy industry analysts LCP found that the 10 most expensive days on record have all occurred since last September.

Overall balancing costs in 2021 were £863m more than in 2020.

In November 2021, the most expensive month on record, balancing costs were £541m – that’s nearly four times the monthly average.

On 24 January, a cold day, with virtually no wind, the bill for balancing the grid was £40.9m.

“We have never seen days like that before,” said Rajiv Gonga, an energy analyst at LCP.

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