Insights: Imbalance Charging, where does the money go?
In this Elexon Insight one of our Business Intelligence Analysts, Emma Tribe, explains energy imbalance cash flow and how leftover amounts are redistributed among BSC Parties. This article highlights how we calculate payments that come into Elexon and how, as a not-for-profit organisation the way they are calculated means we receive no financial gain.
Published: June 2019
What is Energy Imbalance Cashflow?
Part of Elexon’s role as the Balancing and Settlement Code Company is to manage the financial settlement of Energy Imbalance volumes through the BSC Trading Charge: Energy Imbalance Cashflow.
An Imbalance volume occurs when there is a difference between the volume of energy a BSC Party bought or sold and the volume of energy they actually used or generated. This difference can be a deficit of energy or a surplus of energy. BSC Parties pay charges to Elexon for a deficit volume, and are paid by Elexon for surplus volume via their Energy Imbalance Cashflow.
The amount of imbalance cashflow paid out by Elexon generally does not equal the cashflow paid to Elexon.
This difference leads to a leftover pot of money called the Total System Residual Cashflow. This residual cashflow can be positive or negative:
- Positive residual cashflow indicates Elexon received more Energy Imbalance Cashflow than we paid out,
- Negative residual cashflow indicates Elexon paid out more Energy Imbalance Cashflow than we received.
Why is Residual Cashflow Reallocation Cashflow important?
Residual Cashflow Reallocation Cashflow is an often overlooked and misunderstood BSC charge. This is usually because the charge is generally small for BSC Parties in comparison to their Energy Imbalance Cashflow, Bid and Offer Cashflow and Non-Delivery Cashflow.
The importance of Residual Cashflow Reallocation Cashflow is that it means Elexon have no financial gain from Energy Imbalance Settlement.
Elexon is a not for profit organisation and does not retain the Residual Cashflow, instead the left over pot of money is redistributed to BSC Parties daily via the Residual Cashflow Reallocation Cashflow BSC Trading Charge.
How much money is leftover from Imbalance Cashflow?
The graph below shows the Total System Residual Cashflow that was redistributed in each financial year for the past ten years.
For eight of the past ten years the Total System Residual Cashflow was positive, meaning that overall Elexon returned money to BSC Parties.
In 2016/17 and 2018/19 the Total System Residual Cashflow was negative. In these years Elexon paid out more money through Energy Imbalance Cashflow than it received, when this happens, BSC Parties are charged the shortfall.
The net £8.7m Elexon charged to Parties in 2018/19 through the Residual Cashflow Reallocation Cashflow is 0.6% of the absolute sum of Energy Imbalance Cashflow (£1.4bn).
How the residual cashflow is redistributed
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.
Every BSC Party has two energy accounts a production account and consumption account. Elexon calculates BSC Trading Charges per account, and then adds them together to give a total for each BSC Party.
Residual Cashflow Reallocation Cashflow is calculated by multiplying the Residual Cashflow Reallocation Proportion and the Total System Residual Cashflow, worked out for all energy accounts for each of the 48 Settlement Periods per day where:
- Total System Residual Cashflow is the net Residual Energy Imbalance Cashflow, and
- The Residual Cashflow Reallocation Proportion is the absolute sum of Credited Energy in a Party’s account, divided by the absolute sum of Credited Energy in all Parties accounts.
The graph above shows the net residual cashflow that Elexon redistributed by financial year and by BSC Party (we have not named the BSC Parties.) The BSC Parties are organised by their absolute Credited Energy Volume to show how this impacts the Residual Cashflow Reallocation Cashflow received.
The BSC Party with the highest Residual Cashflow Reallocation Cashflow has between 18% and 21% of the total Credited Energy Volume over the year in their production and consumption accounts. In comparison the party with the next highest Residual Cashflow Reallocation Cashflow has between 10% and 13% of the total Credited Energy Volume.
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.