The residual balancing scheme incentivises us to balance supply and demand on the gas day and to minimise the impact it has on the market when it deems it necessary to trade gas to balance the network.
The commercial framework requires users of the system (gas shippers) to balance supply into and demand from the network. If this balance is not expected to be achieved on any given day, then the SO, as Residual Balancer, will enter the market and undertake trades (buys or sells) to seek to resolve any imbalance on the system.
The gross value of these trades is typically in excess of £100m a year. The revenues or costs incurred by actioning these trades are met by the system users and apportioned based on the users throughput (allocated inputs plus outputs divided by two). The incentive comprises of two elements, based on Linepack Performance Measure and a Price Performance Measure.
In aggregate, these incentives are subject to a maximum allowance of £2m per annum and a maximum loss of -£3.5m per annum. This scheme is in place from 01 April 2013 until 31 March 2021. You can find out more on the Balancing pages.
Linepack performance measure
Linepack represents the physical quantity of gas in the system and is measured at specific times of the gas day. The linepack performance measure (LPM) incentivises National Grid to minimise differences in the linepack volumes between the start and end of the gas day. This is to ensure that any imbalances within the day are resolved and the cost of resolving these system imbalances are levied to those system users responsible for the imbalance.
The incentive target for this incentive currently sits at a change level of 2.8mcm, and the maximum National Grid can earn on a single day is £4,000 achievable for a 1.5mcm change or less. The maximum amount National Grid can lose is £30,000 for a single day which is the penalty for linepack movement of more than 15mcm. You can view our performance on this incentive by downloading our Supporting Information document.
Price performance measure
The price performance measure (PPM) evaluates the impact National Grid has on the market in its residual balancing role by measuring the price range of its trading actions compared to the System Average Price (SAP). This incentivises the SO to minimise the impact it has on market prices.
The incentive target price range for this incentive currently sits at 1.5% of the SAP, and the maximum National Grid can earn on a single day is £1,500 which is achievable with zero differential. The maximum amount National Grid can lose is £30,000 for a single day which is the penalty for a trading range equal to 76% or more of SAP. You can view our performance on this incentive by downloading our Supporting Information document.