NESO is weighing restrictions on how storage behaves behind transmission constraints. Its leading option (as of July 16th 2026), known as 3A, would stop storage from being bid down in the Balancing Mechanism during a constraint.

If this option is pursued, while constraints are active, storage would sit idle: unable to charge up from clean wind energy via the Balancing Mechanism.

Between December 2024 and June 2026, 78% of the cost-inducing behaviour NESO is targeting comes from pumped hydro, with the rest from batteries. When these units are reversed out of an exporting position because of a constraint, NESO pays other units on the other side of the constraint to replace that energy.

Between December 2024 and April 2026, replacement energy cost £180 million. But that is only part of the picture: Considering balancing actions and wholesale markets, Scottish batteries have actually saved consumers around £30 million. Banning them from the Balancing Mechanism would strip out most of that benefit, leaving only about £11 million.

Further reading on retrading behind constraints:

• Modo Energy, Reformed National Pricing: five key themes
• Modo Energy, how batteries have saved GB consumers £188 million
• NESO, Constraints Collaboration Project
• NESO, Reformed National Pricing Call for Input

What is NESO trying to fix?

Storage behind constraints can "retrade" its position. It sells into the wholesale market, and is bid back down in the Balancing Mechanism. This repeats in subsequent half hours, for as long as constraints are active, creating a rolling trade. Each reversal forces NESO to buy replacement energy through accepted offers, and this is primarily from gas on the southern side of the constraint boundary. This is also known as “repetitive retrading”.

That replacement offer cost is what NESO's targeting, particularly as it grows with more GW of Scottish storage coming online in future years. Between Dec 2024 and April 2026, replacement energy cost about £180 million, with pumped hydro behind £140 million (78%) of it.

The options NESO is weighing to address constraints costs:

• 3A (its current lead): stop storage being bid down at all in the Balancing Mechanism during constraints.
• 3AA: the same, but still let storage charge up when it doesn't have a wholesale export scheduled, which keeps its constraints solving value. NESO sees this as harder to implement.
• 3C (a longer-term idea): cap storage at one retrading "cycle" a day. A 50 MW two-hour battery would only be allowed to retrade 100 MWh during constraints.

But, the full financial impact of retrading to consumers splits into five elements. The figures NESO quotes in its recent Reformed National Pricing Call for Input appear to count only the first two.

The five elements of a battery bid behind a constraint:

1. The replacement offer cost: the cost to replace the energy that is bid down during a constraint from turn-up (or offering) in the South.
2. The returned bid payment: the money the battery returns to NESO as payment for the energy it buys back during its bid.
3. Wholesale price suppression during peak periods
4. Wholesale price suppression during off-peak periods
5. Genuine constraint-solving bids: when storage bids and charges while a constraint is active - ie it pays to store excess wind energy for later use. This is especially helpful during short-lived constraints, as the battery can immediately deliver a wholesale saving after the wind dies down.

Because these batteries charge through the Balancing Mechanism rather than the wholesale market, they avoid pulling off-peak prices up through charging actions.

By exporting at peak, the battery pushes peak prices down for everyone. Batteries also sell into the wholesale market during off-peak periods when they retrade. This is less valuable per MWh, but there are more off-peak trades than peak trades.

Why a full ban does not work

Once all five elements are considered, the net effect of these battery actions is not a cost but a saving. Our analysis shows Scottish batteries saved consumers £30 million between December 2024 and April 2026.

Banning storage from the Balancing Mechanism during constraints, and forcing it to trade in the national wholesale market would remove the replacement-energy cost. But it would also remove most of the benefits batteries provide, leaving consumers with just the £11 million wholesale peak benefit as batteries trade the wholesale market.

The gap between NESO's option 3A and its allow-charging variant, 3AA, is exactly that constraint-solving benefit: about £68 million across batteries and pumped hydro for the previous 18 months. NESO considers 3AA harder to implement, so £68 million of consumer value hangs on how the rule is implemented.

Why "storage will absorb constraints in wholesale" fails

NESO's case for a ban assumes that storage, shut out of the Balancing Mechanism, will simply import on the wholesale market and soak up the wind anyway. It will not.

The argument goes that when a constraint is active, it means it's windy - and so wholesale prices will be low. If we had locational marginal pricing that might be the case, but with national prices, and excessive levels of Scottish constraints, this is not the case.