DFS expected to provide at least three times as much capacity

The Electricity System Operator (ESO) is confident that take-up of this winter’s Demand Flexibility Service (DFS) will be at least three times the size of last winter’s scheme.

The ESO has recently submitted plans to expand the DFS to Ofgem and is awaiting regulatory approval.

With the scheme due to begin in November, the ESO has set out its projections for the scheme’s uptake within its Winter Outlook published today (28 September).

Under a “fairly moderate” scenario, the ESO expects around 1GW of capacity to be made available through the DFS. In a more optimistic outlook, the ESO thinks up to 2GW could be made available.

The moderate estimate of 1GW is triple the 350MW made available through the DFS last winter, while the ambitious 2GW target is six times as much.

The Winter Outlook states that by deploying the expanded DFS, during peak demand levels, the ESO will maintain “adequate margins” even in a worst-case supply scenario.

It adds that 1GW of capacity will be enough to ensure there is a big enough margin, even if electricity supplies are reduced by 4GW due to “unexpected reduced output from GB generation and/or reduced imports available from Europe”.

It adds: “Higher take-up of DFS (around 2GW) would provide even greater resilience.”

Speaking to Utility Week, ESO head of national control Craig Dyke said he was confident that this year’s DFS will result in take-up of at least 1GW.

“From speaking to suppliers we are confident we will get over 1GW capacity through that market this year,” Dyke said.

“That’s a result of suppliers learning from last year, them understanding their customers, and there being a keener interest from industrial and commercial load as well.”

He added: “Our experience from last year, and seeing that the market did respond, also gives us more confidence going into this winter.

“So we’re looking at least at a three-fold increase on last year. That’s because we’ve got larger suppliers involved, a lot of the teething problems last year around getting people and systems set up have now been ironed out and the suppliers have a much better understanding of what their customers want from the DFS.”

Jake Rigg, ESO director of corporate affairs, added: “We are already seeing some retailers are putting out adverts. I hear adverts on the radio on the way to work.

“They are all acting slightly differently and it’s really exiting to see them pre-empting that regulatory approval and getting customers ready now.”

As part of the DFS, the ESO is also planning to run 12 incentivised test events that consumers and businesses can participate in.

Electricity suppliers, aggregators and businesses who directly contract with the ESO will receive a guaranteed acceptance price of £3/kWh for at least six of the test events, the Outlook adds.

De-rated margin increase

Overall, an increase in generation, more battery storage and greater demand-side response means Britain’s electricity supply is more secure this winter than it has been in recent years.

The ESO has forecast an increase in the de-rated margin for the coming winter.

It is the first time that the ESO has reported an increase in the winter de-rated margin in four years, rising from 3.7GW (6.3%) last year to 4.4GW (7.4%).

Despite the increase, the margin is still some way short of the 7.8GW de-rated margin recorded during the 2019/20 winter.

As such, the ESO has stated that it expects to utilise back-up measures at points of high constraint during the months ahead.

Writing in the Winter Outlook, ESO director Fintan Slye adds: “We do […] expect that there will be some days where we will need to utilise many of the tools in our operational toolkit, including the use of system notices.

“However, we have seen that the energy markets performed as expected over the last year and there is currently no reason to doubt this won’t be the case for this winter.

“As a prudent system operator, we cannot completely discount risks of credible events occurring. It is therefore important that we prepare and plan for a wide range of eventualities.”

Tools at the ESO’s disposal include issuing Electricity Margin Notices and Capacity Market notices.

It will not, however, be able to call on the five back-up coal units which were placed on standby as part of last winter’s contingency contracts.

Despite the government instructing the ESO to renegotiate the terms of the winter contingency contracts, all three operators decided against renewing their contracts this winter.

While Drax and EDF have begun decommissioning their units, Uniper’s unit at the Ratcliffe coal power station will be returning to the market and therefore can be called on via the Balancing Mechanism if needed.

The coal reserve was only used once last winter on 7 March when the ESO instructed the two 400MW units at West Burton A to supply power to the grid to help meet the evening peak in demand.

Rigg stressed that the absence of coal contingency contracts was not an issue for the ESO.

He added: “The coal contracts were developed because of the enhanced risk from Russia’s illegal invasion of Ukraine that meant there was much more uncertainty about gas availability in Europe and Britain coupled with interconnector flows from mainland Europe.

“Those risks are very, very different now. Clearly there is still uncertainty out there, there is still a madman running around eastern Europe and who knows what he will do next.

“But now you are fundamentally covering different risks, that are not so correlated.

“For us to need equivalent of contingency coal contracts, you would need a lot of independent things to go wrong all at the same time. So the statistical chance of that happening starts to plummet.”

Dyke added: “Today’s report illustrates the different position we find ourselves in, compared to 12 months ago. The energy markets across Europe have responded, bolstering gas and electricity storage and supplies ahead of this winter.”

The Winter Outlook adds that the ESO expects interconnectors to provide 5.1GW net imports at times when needed to meet demand.

It adds that the availability of French nuclear, which was offline last year, strengthens Britain’s energy resilience.

The Outlook estimates peak transmission system demand (TSD) to be 44.1 GW and that is expected to occur in the first two weeks of January. The outlook also expects this period to see the minimum operational surplus.

The Outlook concludes: “We continue to plan for a wide range of eventualities and should there be insufficient supplies due to unexpected exceptional events, even after we deploy all mitigating measures including DFS, then there are available further emergency measures which could be enacted, including planned, controlled and temporary rota loadshedding.”