UK power firm Drax Group agreed to pay a £6.1 million ($7.5 million) fine for breaching its license, after charging the grid operator excessive prices to reduce its generation.
The penalty comes as regulator Ofgem reviews the rules for Britain’s balancing market, where the grid fine-tunes electricity supply and demand. Ofgem is looking to reduce record balancing costs — which are spread across consumer bills — by curbing the excessive profits of generators.
At certain times when the grid was tight between 2019 and mid-2022, Drax’s pumped storage subsidiary secured “excessive payments” by entering inflated bids into the system’s balancing mechanism, Ofgem said in a statement Friday.
“This enforcement action sends a strong signal to all generators that they cannot obtain or seek to obtain excessive benefits during transmission constraint periods,” said Cathryn Scott, director of enforcement at Ofgem. “If they do, we have the powers to intervene and we are ready to use them.”
Drax cooperated fully with Ofgem and has put in place measures to prevent this happening again, a spokesperson said in an emailed statement.
Balancing costs soared to £3.2 billion in the first 10 months of last year, as the price of inputs like gas soared. When the grid has too much or not enough electricity compared with demand, generators can increase or reduce power at a higher charge than in the wholesale market, as the grid operator is left with few options.
A Vitol Group subsidiary secured a record payment for a gas plant in the balancing mechanism in December, when it charged as much as £6,000 per megawatt-hour on the tightest day of the year for the grid.
Drax’s penalty related to the submission of bids that didn’t reflect the real costs of reducing its generation. The penalty will go into a redress fund to support vulnerable consumers with energy costs, as well as innovation and carbon emissions reductions.