The National Grid division responsible for keeping Britain’s lights on has agreed to pay £1.5 million after the energy regulator found it had issued inaccurate forecasts of power demand.
Ofgem said the National Grid Electricity System Operator (ESO) failed in its obligation to provide unbiased and accurate seven-day electricity demand forecasts for five months in 2017.
Energy suppliers rely on the forecasts to determine how much electricity to purchase in advance for customers. “Buying too much can result in selling energy back to the market at a loss, buying too little can result in paying more to cover the shortfall,” Ofgem said.
Cathryn Scott, Ofgem’s director of enforcement, said the inaccurate forecasts “ultimately risked pushing up the cost of electricity for consumers”.
In addition the ESO was able to wrongly benefit from an Ofgem incentive scheme introduced that year designed to encourage it to provide more accurate forecasts. The regulator said it may have benefited from rewards worth £130,000 and avoided penalties of up to £312,000.
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National Grid ESO, which became a legally separate part of its FTSE 100 parent in 2019, is to pay £1.5 million into a voluntary redress fund under a settlement to avoid a larger financial penalty.
Ofgem’s incentive scheme gave maximum rewards if forecasts appeared unbiased because half were overestimates and half underestimates. However, penalties were incurred if the split was more than 60:40 in either direction.
The ESO’s forecasts initially met the criteria for rewards but it later transpired that they were “oscillating within months” — giving the appearance of not being biased, even though the total number of inaccurate forecasts increased significantly.
A spokesman for the operator said: “We acknowledge that our processes at the time ... were not fully developed.”
