The energy regulator Ofgem is preparing to crack down on UK power firms to prevent them “manipulating” the market with a manoeuvre that has bolstered their profits by millions of pounds.
The practice, which does not break existing market rules, involves generators warning the electricity system operator that they are turning their power plants off at times of peak demand and subsequently offering to keep them running in exchange for a “balancing” payment.
In some cases the electricity system operator, which is owned by National Grid, has been left with little option than to make payments of significantly above the market price to keep power plants from turning off and avoid the risk of winter blackouts.
The balancing payments, which are passed on to consumers in the form of higher bills, add up to millions of pounds. An analysis by Bloomberg claims some power plants have received £525m in extra revenue from using the “off-on manoeuvre” between 2018 and 2022.
It reported that almost 90% of that was paid out over the past two years as market energy prices rocketed due to the war in Ukraine and households struggled to keep up with the soaring cost of electricity.
Ofgem, which has opened a public consultation on the issue in recent weeks, said it would introduce a new rule into electricity generation licences, potentially this summer, to prohibit generators from “manipulating the balancing mechanism in this way for excessive financial gain”.
A spokesperson added that all attempts by energy companies to “exacerbate tight market conditions, whether intentional or not, are not in consumers’ interests”.
According to the Bloomberg investigation, power plant owners were most likely to use the off-on manoeuvre on days when market prices
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