Drax Pumped Storage Limited has admitted to an inadvertent breach of its Electricity Generation Licence for Cruachan Power station in Scotland, UK, and has agreed to pay £6.12 million into a Voluntary Energy Redress Fund, energy regulator Ofgem has said.

Drax secured excessive Balancing Mechanism (BM) payments from National Grid Electricity System Operator (NGESO), during periods of what is known as ‘transmission constraint’, said Ofgem. The company has assured the regulator that it has revised the way it calculates its pricing, to prevent this from happening again.  

Ofgem said Drax  secured excessive payments between 1 January 2019 and 31 July 2022 by submitting excessively expensive bids to turn down its generation in the BM, and  

as a result of Ofgem’s compliance work, admitted to having inadvertently breached its Generation Licence, specifically the Transmission Constraint Licence Condition (TCLC). The TCLC prohibits generators from being paid, or seeking to be paid, an excessive amount by NGESO during times of transmission system constraint.  

Cathryn Scott, Director of Enforcement and Emerging Issues at Ofgem said: “Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users. 

“This enforcement action sends a strong signal to all generators that they cannot obtain or seek to obtain excessive benefits during transmission constraint periods. If they do, we have the powers to intervene and we are ready to use them.” 

In the period since Ofgem raised the matter, Drax has fully cooperated with Ofgem.  Drax has proactively sought to rectify the matter, including agreeing to make a payment to the redress fund and assuring Ofgem that it has implemented a new cost-based pricing methodology designed to reflect the costs and benefits to Drax of curtailing its generation

Ofgem has now closed this issue, and the £6.12 million will be paid into the Voluntary Energy Redress Fund, which will be driven directly into supporting vulnerable consumers with their energy, as well as invest in innovation projects and carbon emission reductions.