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UK to close loophole that allows utilities to exploit grid congestion

27th July 2012

British authorities are planning to close down a legal loophole which enables utility firms to cash in millions on grid congestion, at a cost to consumers.

Energy regulator, Ofgem estimates that the unwarranted exploitation may have caused consumer bills in 2008/09 to have collectively increased by £125 million; the energy industry however disputes the figures.

“Situations can arise where a generator has the opportunity to act in such a way as to make it very likely that National Grid will be compelled to accept its offers, bids or inter-trip contracts at an unduly high price in order to balance the network” said the Department of Energy and Climate Change (DECC).

National Grid pays the costs in the first instance, but they are then passed on to consumers.

Documents published last week by DECC said, Generators can cause congestion in parts of the electricity network and then benefit from deals to adjust their supply. When there are only a few generators in one region with more capacity than can be transmitted through the grid, they can charge high rates to reduce supply and prevent congestion.

The government has taken action to ban this behaviour by bringing in a new temporary condition in generators’ licences (TCLC), which will be enforced by energy regulator, Ofgem and is due to come into effect from October 29 2012. The Government has faced criticism from the electricity industry whose members took part in a three-month consultation about the new measures.

Gaynor Hartnell, chief executive of the Renewable Energy Association said in an open letter to DECC, Government references to exploitative behaviour are “based entirely on Ofgem estimates that have not been tested”.

The Association of Electricity Producers wrote in a public email to DECC that, generators do not have enough promptly available information to tell when there are worsening congestion in the network.