In 2017, energy regulator Ofgem introduced a financial incentive to drive National Grid Electricity System Operator (National Grid ESO) to produce more accurate forecasts.
The scheme incentivised the company for producing forecasts that were not systematically over or under GB demand.
The Ofgem investigation found that for five months between April and October 2017, National Grid ESO’s forecasts were periodically either over or under GB demand.
National Grid ESO received £130,000 from this incentive during 2017.
According to Ofgem, the investigation found that National Grid ESO ‘did not have sufficient compliance processes in place and there was a lack of oversight by the management at the time.’
The regulator stated that National Grid ESO co-operated during the investigation and expressed a willingness to settle the case, and will pay £1.5 million into Ofgem’s voluntary redress fund.
By settling this investigation early, the company has qualified for a 30% discount for early settlement from the proposed £2.1 million penalty.
Ofgem’s Director of Enforcement, Cathryn Scott, commented on the announcement: “In 2017, National Grid ESO did not meet its obligation to provide accurate and unbiased seven-day ahead electricity demand forecasts which ultimately may have risked pushing up the cost of electricity for consumers.
“National Grid ESO plays a vital role in coordinating and managing the supply and demand of Britain’s electricity. Many suppliers rely on accurate electricity demand forecasts to buy electricity for their customers.
“Ofgem’s rules on publishing accurate information are clear and must be followed. The £1.5 million payment sends a strong message to the system operator that it must follow the rules.”
Publishing accurate and unbiased electricity demand forecasts is ‘a critical responsibility of National Grid ESO’ under Ofgem’s rules.
Participants across the energy industry, including suppliers, may rely on these forecasts to calculate how much electricity to generate and buy.
Buying too much energy can result in selling energy back to the market at a loss, while buying too little can result in paying more to cover the shortfall.
This has the potential to increase the costs incurred by market participants. These costs can, in part or in full, be passed on to consumers in the form of higher electricity prices.
National Grid ESO responded with a statement: “We acknowledge Ofgem’s decision and have cooperated fully throughout their investigation.
“Ofgem’s findings relate to a five-month period in 2017 immediately following the introduction of a new seven-day ahead demand forecasting process and an associated new incentive scheme.
“The investigation has not raised any concerns with our current electricity demand forecasts.
“The actions taken four years ago were seeking to achieve more accurate forecasting.
“However, we acknowledge that, despite this intention, our processes at the time related to the new demand forecast process were not fully developed.
“The issues raised in 2017 were fully resolved by December that year.
“Since then we have made significant investment in our demand forecasting capability, improving the tools and processes involved and trialling innovative new approaches.
“This has further improved the accuracy of our forecasts and addresses the issues raised in Ofgem’s investigation. We have therefore agreed to settle the case.”
More information about Ofgem’s investigation is available on the regulator’s website.