BSC Insight: the impact of Trading Charges in 2020/21

In the 2020/21 financial year, the absolute cashflow for BSC Trading Charges was £2.96bn. This was the most cashflow settled in a financial year. In this BSC Insight our Analysis and Insight Senior Product Analyst, Emma Tribe, explains how BSC Trading Charges are settled by Elexon.

Listen to our Podcast summarising the article


What are the BSC Trading Charges?

Part of Elexon’s role as the Balancing and Settlement Code Company is to manage the financial settlement of Energy Imbalance and Balancing Mechanism volumes through the BSC Trading Charges. Elexon does this by calculating the cashflow for each of the BSC Trading Charges in each half hour Settlement Period. This cashflow could represent a credit to the BSC Party or a debit payable by the BSC Party.

The BSC Trading Charges that Elexon calculate underpin the smooth running of the GB electricity market. They ensure that all electricity that is generated or used in GB is paid for.

How does 2020/21 compare with previous years?

In the 2020/21 financial year, Elexon settled an absolute cashflow of £2.96bn with BSC Parties. This is highest absolute cashflow settled in a year. The previous high absolute cashflow in a year was 2018/19 with £2.81bn.

The graph below shows the absolute cashflow settled per financial year for the last five years.

Five years ago in 2016/17 the absolute cashflow settled was £1.8bn, in 2020/21 it was £1.16bn higher.

How much were the BSC Trading Charges in 2020/21?

Energy Imbalance Cashflow

An Imbalance volume occurs when there is a difference between the volume of electricity a BSC Party bought or sold and the volume of electricity they actually used or generated. This difference can be a deficit of electricity or a surplus of electricity. BSC Parties pay charges to Elexon for a deficit volume, and are paid by Elexon for surplus volume via their Energy Imbalance Cashflow.

This Trading Charge results in the largest absolute cashflow. The absolute Energy Imbalance Cashflow in 2020/21 was £1.39bn. This absolute figure results from £0.63bn Energy Imbalance Cashflow credited to BSC Parties and £0.76bn of Energy Imbalance Cashflow debits.

2020/21 had lower absolute Energy Imbalance Cashflow than in 2018/19. 2018/19 had an absolute Energy Imbalance Cashflow of £1.44bn as a result of credits of £0.73bn and debits of £0.72bn.

Residual Cashflow Reallocation Cashflow

The amount of Energy imbalance cashflow paid out by Elexon generally does not equal the cashflow paid to Elexon. This is because the surplus and deficit Imbalance Volumes do not equal one another, which leads to an overall Net Energy Imbalance Volume for the system. This difference leads to a leftover pot of money called the Total System Residual Cashflow.

The left over pot of money is redistributed to BSC Parties via the Residual Cashflow Reallocation Cashflow BSC Trading Charge. A BSC Party’s share of the Total System Residual Cashflow depends on their share of the total energy generated or consumed in a Settlement Period.

In 2020/21 the absolute Residual Cashflow Reallocation Cashflow was £0.2bn and the net of this was a credit of £0.13bn to BSC Paries.

The net Residual Cashflow Reallocation in 2020/21 was a credit because more Energy Imbalance Cashflow was paid by BSC Parties through debits than was credited to BSC Parties. This isn’t always the case, in both 2016/17 and 2018/19 the net Residual Cashflow Reallocation Cashflow was a debit.

Bid and Offer Cashflow

National Grid ESO can instruct an electricity balancing services provider to deviate from their intended operating level by issuing a Bid Offer Acceptance through the Balancing Mechanism. An electricity balancing services provider can flex their electricity generation or demand to support the transmission system. They submit Bid Offer Pairs in advance of the Settlement Period with the price for energy deviations and how much they are willing to deviate by during any 30 minute Settlement Period.

BSC Systems calculate the volume and cost of the energy deviation and invoice BSC Parties how much they are owed, or owe, for their Bid Offer Acceptances.

The absolute Bid and Offer Cashflow was £1.36bn in 2020/21. BSC Parties that had provided balancing services volume were credited with £1.28bn of Bid and Offer cashflow and debited with £0.07bn.

2020/21 had a much higher Bid and Offer Cashflow than in previous years as a result of an increased cost of managing the electricity transmission system in Great Britain.

2020/21 has had periods where there electricity generation was predicted to be in excess of electricity demand and periods where generation was predicted to be less than electricity demand. This has financially benefited electricity balancing services providers who have been able to flex their generation and demand to help manage the system.

Non-Delivery Charge

If a BSC Party under delivers on a Bid Offer Acceptance then a Non-Delivery Charge is calculated. The Non-Delivery Charge ensures there is no financial gain for under delivering on a Bid Offer Acceptance. The total of Non-Delivery Charges in 2020/21 was £10.7m this Trading Charge always represents a debit to BSC Parties.

The Non-Delivery Cashflow in 2020/21 has been higher than in previous years. However, as a percentage of the Bid and Offer Cashflow it is 0.79%, which is less than in 2019/20 and 2016/17.

Other BSC Trading Charges

System Operator Cashflow

The only BSC Party that receives an invoice with System Operator Cashflow is the electricity System Operator, National Grid ESO. This BSC Trading Charge matches the net Bid Offer Cashflow and Non-Delivery Charge as the System Operator is responsible for settling the net of this cashflow, which in 2020/21 was £1.2bn. We recently published a BSC Insight on how the System Operation costs have been increasing.

Information Imbalance Cashflow

The Information Imbalance Cashflow is a BSC Trading Charge; however, this doesn’t result in cashflows. The Information Imbalance Cashflow is always zero because the Information Imbalance Price is set to £0/MWh in every Settlement Period. 

Replacement Reserve Cashflow

Two new BSC Trading Charges were introduced into the BSC legal text in February 2019 as a result of BSC Modification P344 ‘Project TERRE’.

The two new Trading Charges are Replacement Reserve Cashflow and Replacement Reserve Instruction Deviation Cashflow. These Trading Charges were to be used to settle balancing services volume from the Trans European Replacement Reserve Exchange (TERRE). However, the full implementation of Project TERRE was delayed so these calculations and Trading Charges have not yet resulted in cashflows for BSC Parties.

More information on the calculations behind Trading Charges

Elexon’s systems work out how much is owed to each party (or how much each party owes) according to the calculations in Section T of the BSC. If you want to understand the calculations behind trading charges we have produced a Guidance Note on hierarchy of the trading charges calculations.

Data behind the graphs

The data behind these graphs are available to all BSC Parties as part of the data flows they are entitled to receive for free. Companies that are not BSC Parties can have access to this data under a licencing arrangement or via our Open Settlement Data.


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