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UK power plants barred from charging extreme prices this winter

John Kerry said there is no reason for new coal-fired power plants to be built (PA) (PA Archive)
John Kerry said there is no reason for new coal-fired power plants to be built (PA) (PA Archive)

Britain’s energy regulator approved new rules designed to ban generators from charging sky-high prices for power using a tactic that’s piled millions onto consumer bills.

Ofgem will prevent plants from “artificially inflating” prices by threatening to turn off before then demanding more money to keep operating — in a side market known as the balancing mechanism. Traders could be fined up to 10% of regulated turnover for breaching the new rule, which comes into force on Oct. 26, it said Thursday.

The move comes after reviews by the regulator and an investigation published by Bloomberg News in March, which revealed that the tactic added more than £525 million to consumers’ bills in the five years through 2022.

Plants controlled by VPI, a unit of Vitol Group, and by German state-owned Uniper SE together accounted for £321 million of the total.

“Ofgem will not tolerate electricity generators attempting to take advantage of the balancing mechanism system to make excessive profits,” Eleanor Warburton, Ofgem’s acting directorfor energy systems management and security, said in a statement.

Traders ‘Manipulating’ Power Market Means Higher Bills in the UK Ofgem’s new Inflexible Offers Licencing Condition will stop generators — particularly gas-fired power plants — from using their mechanics to their advantage.

Such plants take about six hours to cool down before being able to generate again, meaning that if they threaten to switch off before the highest demand periods in the early evening, it risks leaving the system short on power. That pushes the grid operator to accept the plants’ extreme charges to stay operational, using money that’s ultimately added to consumer bills.

The new rule will ban generators with long cool-down times from offering to generate at excessive prices during times they’d earlier said they wouldn’t be generating.

Vitol, whose power stations drew in more revenue from the tactic than any other company, saw its UK power profits jump 27-fold last year. Its VPI unit made profits of $566 million last year, up from $21 million in 2021.