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Posted 8 months ago | 6 minute read
Flexibility market developments 2023 and beyond
Developments in the UK over the past year have demonstrated the growing significance of flexibility in the energy transition. In this article we look at the most significant developments in UK flexibility markets.
Mainstream integration of flexibility
Flexibility has now become mainstream in the UK, exemplified by initiatives like the Demand Flexibility Service (DFS).
The DFS program is set to operate until March 2024, encompassing 12 testing events, including the potential for real-time utilisation. The first half of these tests is scheduled to occur before the end of 2023, with the remaining six taking place from January to March 2024.
This year’s DFS service introduces a Guaranteed Acceptance Price (GAP) of £3,000 per MWh or £3 per KWh for at least six of the 12 tests, starting from January 2024, contingent on registered volumes. For live usage of the service, there will be no fixed GAP. Instead, National Grid ESO will consider the lowest available bids to manage network requirements, aligning with its approach for other market services. Unlike the previous winter, all tests will be accessible to all registered DFS participants, eliminating the concept of onboarding tests.
DFS, which was introduced last winter to help the UK cope with tight energy supplies, saved over 3,300MWh during peak demand periods, providing valuable support to the grid during periods of heightened strain, National Grid ESO confirmed. In total, 1.6M households and businesses signed up to participate in 22 events across the winter, covering both live events to balance the electricity network and monthly test events to deliver savings for consumers and demonstrate how effective the system could be. GridBeyond was one of the approved providers of DFS service and by working with our clients over the winter we helped contribute a total delivered MWh across the five months of 190.01 MWh.
Triads replaced by Targeted Charging Review
28 February 2023 marked the final day of Triad charges. Until February 2023, the Triads were the mechanism used to calculate the contribution that large energy users should pay towards maintaining and upgrading the electricity network. This was applied through the Transmission Network Use of System (TNUoS) charge. The Triads often had the effect of reducing peak demand at certain points in the winter months as electricity users turned down their use when they estimated demand would be highest (and therefore likely to become one of that year’s Triads) in order to avoid paying extra TNUoS. As a result, less generation was often needed overall at these times than might otherwise have been expected.
From April 2023, Triads were replaced by a system determined by Ofgem’s Targeted Charging Review (TCR). The largest component of TNUoS charges is called the Transmission Demand Residual (TDR). Instead of being recovered via the traditional Triad methodology, this is now charged as a fixed £/Site/Day amount, varying by meter type and band. All businesses are assigned a band based on their Authorised Supply Capacity (ASC) (their maximum demand for any period of half an hour), which determines how much they pay. The move to fixed charges means that Triad avoidance will no longer be an option. Businesses that have worked hard to avoid the winter Triads through demand shifting and shedding will have this price impact back.
The forward-looking locational element of TNUoS continues to be recovered via the Triad methodology. The locational element is also being floored at zero from April 2023 onwards. This means that not all Grid Supply Point (GSP) areas will have a locational rate.
Access to wholesale markets
Ofgem’s announcement of the BSC code modification P415 in October opens a new avenue for flexibility providers but also incentivises flexibility, contributing to increased system flexibility levels.
Under the rule change, from November 2024, independent aggregators and Virtual Lead Parties (VLPs), are to be able to trade in the wholesale market for the first time. Currently, VLPs are only able to take actions in the Balancing Mechanism, and only suppliers or generators can take physical actions in the wholesale market. This is because the BSC assigns all flexibility delivered by a customer to their Supplier, with the exception of flexibility instructed by National Grid in the Balancing Mechanism or Replacement Reserve market (TERRE), which can be assigned to a third party (a VLP). But the approval of Balancing and Settlement Code (BSC) modification P415 will open up the market for flexibility.
The P415 change will effectively delink the wholesale trading role from a supply license, and give small scale and demand side response capacity more options to offer their flexibility into the market. Participation of these flexible assets is crucial for operating a zero carbon energy system. Approval of P415 will give flexibility providers access to wholesale markets to realise the value of flexible assets and will make energy more affordable in the long-term for the public and businesses.
Looking ahead to 2024, there are promising developments such as the creation of tools to simplify access to marketplaces and the launch of the Future System Operator in the UK.
Delayed Market-wide Half Hourly Settlement (MHHS)
The implementation of Market-wide Half Hourly Settlement (MHHS) has been postponed following concerns about the timeline being “unrealistic” and lacking industry support.
The MHHS programme is considered a “crucial enabler” for the cost-effective decarbonisation of the energy sector. MHHS will provide more accurate and transparent billing based on half-hourly consumption. The primary transitional deadline, originally set for October 2025, has now been pushed back to December 2026.This delay presents an opportunity for consumers to gain more value from flexibility, with increased data availability on demand.
Open Balancing Platform launches
The initial phase of National Grid Electricity System Operator’s (ESO) Open Balancing Platform (OBP) is now operational, introducing a suite of tools to enhance balancing and alleviate system constraints. Aimed at facilitating the bulk dispatch of battery storage and small Balancing Mechanism Units, the platform, introduced as part of the ESO’s broader Balancing Programme, is anticipated to lead to enhanced network balancing optimisation, quicker processes, and cost reductions.
Future stages of the platform, scheduled for delivery in 2024 and 2025, will expand the range of technologies integrated into the Bulk Dispatch process. Additionally, it will involve the transfer of existing response and reserve services from the Ancillary Services Dispatch Platform to the new Open Balancing Platform. By 2027, the Open Balancing Platform aims to replace both the existing Balancing Mechanism and the Ancillary Services Dispatch Platform.
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