The residual balancing scheme incentivises us to balance supply and demand on the gas day and to minimise the impact we have on the market when we deem it necessary to trade gas for residual balancing. 

About the residual balancing incentive

Under the commercial framework, users (gas shippers) are responsible for balancing their individual supply and demand positions. If we anticipate any residual imbalance will remain on a given day then as residual balancer National Gas can enter the On the Day Commodity Market (OCM) to buy or sell gas with an aim of improving the imbalance position. The gross value of these trades typically exceeds £150m per year and the resultant revenues and/or costs are apportioned to system users based on their throughput for the relevant gas day through a process known as balancing neutrality. 

The residual balancing incentive comprises two elements:  

• Linepack Performance Measure,  
• Price Performance Measure.  

In aggregate under the incentive, these elements are subject to a maximum allowance of £2.4m per annum and a maximum loss of £4.2m per annum.  

Linepack Performance Measure (LPM) 

Linepack refers to the physical quantity of gas within the National Transmission System (NTS) at a given point in time, measured at specific intervals throughout the day. 

The LPM is the difference between linepack levels at the start (Opening Linepack) and end of the gas day (Closing Linepack) and this element incentivises National Gas to minimise the LPM. 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 is a linepack change of 2.8mcm. The maximum we can earn on a single day is £4,700, for a linepack change of 1.5 mcm or less. The maximum amount National Gas can lose is £24,000 for a single day 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 (PPM) 

The PPM evaluates the impact National Gas has on the market in our residual balancing role. It does this by measuring the difference between the highest and lowest prices of our trades during a gas day, expressed as a percentage of the System Average Price (SAP). This incentivises us, as the 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 we can earn on a single day is £1,750, which is achievable with zero differential. The maximum amount National Gas can lose is £24,000 for a single day, for a trading range of 76% or more of SAP.