On 29 June 2023, Ofgem announced plans to introduce new licence conditions for electricity generators. Through this, the UK’s energy regulator seeks to limit the ability of generators to obtain excessive financial benefit from the Balancing Mechanism - the system that helps ensure that power demand on the country’s electricity network does not exceed supply and vice versa.
Ofgem’s plans follow its 2022 investigation which found that under the current regulatory framework, some generators have submitted physical notifications and offers in the Balancing Mechanism to the electricity system operator, National Grid ESO, in a way that has resulted in National Grid ESO incurring significantly higher balancing market costs when compared to the market index price.
By holding energy generators to account, the regulator is keen to avoid the ultimate trickle-down effect of increased prices on electricity customers. Ofgem has opened an industry-wide consultation on its licence condition proposal, which closes on 27 July 2023. It will publish its final decision by the end of 2024.