Ofgem is today said to be pushing for a cap on how much power stations can charge the National Grid for back-up electricity as prices hit fresh records this winter.

The energy regulator wants rules to stop generators from raking in "excessive" profits and is preparing to publish more detailed proposals early next year.

They would affect the balancing mechanism - a complex auction system used by National Grid to fine-tune electricity demand and supply, ensuring they broadly match at all times.

The Telegraph says that, if the two are not sufficiently in sync, it can lead to blackouts.

Ofgem said new licensing conditions that would limit how much generators can charge would be "the best option", with businesses invited to give their views in a consultation that ended last week.

A spokesman added: "Following National Grid ESO's own review into the much higher than usual balancing costs experienced last winter, and our own open letter in July, we have considered a range of potential intervention options to address this issue.

New licence condition

"We believe that a new licence condition, preventing generators from making excessive profit, would be the best option to reduce the high balancing costs we experienced last winter, without disrupting trading arrangements or price signals during periods of energy scarcity.

"If we do proceed with the proposals, any subsequent consultation on the proposed new licence conditions would likely be published in early 2023."

The watchdog's proposals come after power station owners cashed in this week as a cold snap gripped Britain.

In just one example, the National Grid paid Swiss commodities giant Vitol £6,000 per megawatt hour to generate electricity at its Rye House plant in London at short notice from 5pm on Monday.

This was done through the balancing mechanism, which sees generators offer the Grid prices for their services on a half-hourly basis throughout each day.

The Telegraph says there are no rules capping how much generators can charge and there is no suggestion of wrongdoing by the companies.

'Excessive' prices

But Ofgem has repeatedly raised concerns about what it says are "excessive" prices, after the amount spent on balancing the Grid leapt to £1.5billion last winter - triple what had been spent in previous years.

These costs are ultimately passed on to millions of consumers through their household energy bills.

In its open letter to the industry, Ofgem claimed that rising costs alone could not account for the "extremely high prices" charged by power station owners for balancing last winter.

It also accused some generators of deliberately scheduling shutdowns of their plants to happen just before the busiest periods of the day, to "exacerbate" tight market conditions and put more pressure on the Grid.

FTSE 100

The UK's top share index, the FTSE 100, was down 22 points at 7,480 shortly after opening this morning, following yesterday's 56-point gain.

Brent crude futures dipped 0.06% to $80.66 a barrel.

Companies reporting today

  • Full-year results: TUI

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