The residual balancing scheme incentivises National Gas – as the System Operator (SO) and in its role as residual balancer – to balance supply and demand each gas day and to minimise impacts on the market when it is necessary to trade gas to balance the network. 

About the residual balancing incentive  

The commercial framework for the National Transmission System (NTS) requires users (gas shippers) to balance supply and demand on the network. If we expect this balance will not be achieved on any given day, we – as the System Operator and residual balancer – can enter the market to undertake trades (buying or selling). These trades aim to resolve any residual imbalance on the system. 
 
The gross value of these trades is typically more than £50m a year. The revenues or costs incurred by actioning these trades are apportioned to system users based on their throughput for the gas day on which the trades were actioned (allocated inputs plus outputs divided by two).  
 
The residual balancing incentive comprises two elements, based on a Linepack Performance Measure and a Price Performance Measure. In aggregate, these incentives are subject to a maximum allowance of £1.6m per annum and a maximum loss of £2.8m per annum. This scheme is in place from 1 April 2021 until 31 March 2026.  

Linepack Performance Measure 

Linepack is a term to describe the physical quantity of gas in the NTS at a point in time and is measured at specific times of day. The Linepack Performance Measure (LPM) incentivises National Gas to minimise differences in the linepack measured at the start and the end of the gas day. This is to help ensure that any imbalances are resolved on the same day and the costs of resolving such system imbalances are levied to those users responsible. 
 
The target for this element of the incentive currently sits at a linepack change of 2.8mcm. The maximum National Gas can earn on a single day is £3,200, for a linepack change of 1.5mcm or less. The maximum amount National Gas can lose is £24,000 for a single day, which is the penalty for a linepack change of 15mcm or more. 
 
The incentive recognises the requirement for linepack stock to be higher in the winter than summer, to operate the network efficiently. As a result, during the shoulder months the incentive target includes a dead band for a daily linepack change of between 2.8mcm and 5.6mcm, where no incentive revenue or penalty will be incurred. 

Price Performance Measure 

The Price Performance Measure (PPM) evaluates the impact National Gas has on the market in our residual balancing role. This is achieved by measuring the difference between the highest and lowest price of our trading actions for a gas day, as a percentage of the System Average Price (SAP). This incentivises us, as Gas System Operator, to minimise the impact we have on market prices. 
 
The target price spread for this incentive sits at 1.5% of the SAP. The maximum National Gas can earn on a single day is £1,200, which is achievable with zero differential. The maximum amount National Gas can lose is £24,000 for a single day, which is the penalty for a trading range equal to 76% or more of SAP.