Ofgem confirms £1.5 million fine for National Grid ESO for its failure to provide accurate and unbiased electricity demand forecasts

Back in 2017, the energy regulator launched a new financial incentive to drive National Grid ESO to produce more accurate forecasts. Under the scheme, the company was incentivised to produce forecasts that were not systematically over or under electricity demand across Great Britain.

Between April and October that year, Ofgem discovered that National Grid ESO’s forecasts were regularly either over or under GB demand. As a result, the company made £130,000 from the incentive.

The inaccurate and biased electricity demand forecasts meant that National Grid ESO had breached its licencing conditions and negatively impacted the wider industry as energy suppliers and other participants in the industry rely on the forecasts to calculate how much electricity is needed to generate and buy.

If an energy supplier buys too much energy it will then have to sell that energy back to the market at a loss, buying too little meanwhile can result in a shortfall that could cause problems for supplies and lead to increased costs.

The main cause of Ofgem’s ire is that this scenario can lead to these costs being passed on either in part or in full to the consumer leading to higher electricity prices and energy bills.

Ofgem’s Director of Enforcement Cathryn Scott said in April, “In 2017, National Grid ESO did not meet its obligation to provide accurate and unbiased 7-day ahead electricity demand forecasts which ultimately may have risked pushing up the cost of electricity for consumers.

“National Grid ESO plays a vital role in coordinating and managing the supply and demand of Britain’s electricity. Many suppliers rely on accurate electricity demand forecasts to buy electricity for their customers.

“Ofgem’s rules on publishing accurate information are clear and must be followed. The £1.5 million payment sends a strong message to the system operator that it must follow the rules.”

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