The UK’s energy regulator, Ofgem, has launched a formal consultation on proposals to introduce new licence conditions for energy producers in an attempt to prevent electricity generators from making “excessive profits”.
According to a statement from Ofgem, power companies have been profiteering through the country’s supply and demand balancing system, known as the Balancing Mechanism. The system, operated by the National Grid Energy System Operator (ESO), ensures that the ESO buys the correct amount of electricity from generators to supply the grid.
The move follows a probe that found some generators have been hoarding electricity supply so they can later fetch higher prices for it in the market, selling it as backup power when times are more desperate.
Ofgem said earlier this year that it would be cracking down on various behaviours it had identified among some generators, who have been “attempting to gain excessive financial benefit at a cost to consumers”, the statement read.
Such behaviour includes some thermal generators scheduling the end to output early in the afternoon, rendering them unavailable for the evening peak period due to hours-long cool down periods. Companies in question have used the Balancing Mechanism to offer high prices to the ESO in exchange for continued operation throughout the afternoon and availability during the evening peak.
Eleanor Warburton, acting director for energy systems management and security at Ofgem, said: “Ofgem is committed to protecting consumers and ensuring they pay a fair price for their energy. The proposed new licence condition will ensure electricity generators don’t take advantage of existing rules to make excessive profits in the Balancing Mechanism.
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“Following on from our previous consultation we are now inviting final feedback from across the industry on the proposed changes, which we hope to have in place to protect consumers this winter.”
The regulator did not specify which companies had been taking advantage of the current system. The consultation on the new licence condition is due to close on 27 July, after having been already revised following industry feedback from an earlier consultation in February, with results from the investigation expected to be published later this year.