ESO urged to ‘speed up’ Balancing Mechanism reforms

The Electricity System Operator (ESO) has been urged to “speed up” its reforms to the Balancing Mechanism to ensure low-carbon assets are able to compete on a level playing field with fossil fuel generators.

The Electricity Storage Network (ESN) said legacy systems and manual processes in the ESO’s control room mean cheaper, cleaner and more flexible assets such as batteries are often overlooked in favour of larger and less flexible gas generators.

The trade body said research among its members, which account for the majority of Britain’s 2.9GW of operational battery storage, suggest they are being “skipped” in the price-merit order around 80% of the time, costing consumers as much as £150 million per year.

In an open letter to National Grid ESO’s executive director Fintan Slye, the ESN welcomed its publication of the reasons for these decisions but said they are “not always clear and confirm that ultimately skips relate to manual process, legacy systems and an uneven playing field for low-carbon flexibility”.

The group said its members’ investment decisions depend on the efficient dispatch of electricity storage assets in the Balancing Mechanism as a “crucial segment” of their revenue stack, adding: “Current dispatch issues are putting billions of pounds of investment at risk.”

The ESN additionally welcomed the work already being undertaken by the ESO to improve things including through the creation of a new battery zone in the Balancing Mechanism in May and the development of the Open Balancing Platform, which is expected to launch in December.

However, the organisation also called for action in three areas:

• Greater urgency on ensuring efficient dispatch, including: confirmation that the new battery zone will be part of the first release of the Open Balancing Platform; prioritisation of a planned Grid Code change concerning the declaration the maximum import and export limits of battery units based on their state of charge; the use of interim measures for the effective dispatch of batteries until skip rates can be lowered with enduring system improvements; the introduction of effective dispatch as a key performance metric for the ESO and the Future System Operator.
• The publication of clear and accurate data by the ESO on the dispatch of batteries versus other technologies, including the percentage of dispatch volume per technology, to give a better indication of how the market is functioning.
• A meeting between ESN members, the ESO’s balancing transformation team, control representatives and the market development teams to discuss the current dispatch issues.

The letter signed by ESN director Rachel Hayes has also been sent to senior figures at both Ofgem and the Department for Energy Security and Net Zero.

The figures for the skip rate for batteries and the annual cost to consumers from inefficient dispatch decisions both come from analysis by Arenko, which has been operating batteries in the Balancing Mechanism for several years.

The skip rate was calculated by looking at 10 representative batteries operated by different parties and identifying instances where their offer price was lower than the maximum offer price accepted, or their bid price was higher than the minimum bid price accepted. Arenko excluded system tagged instructions and long instructions (covering three or more settlement periods).

The annual cost to consumers was determined by looking at a single representative battery that was active in the Balancing Mechanism between November 2022 and May 2023. The cost of skipping the battery in each instance was calculated as the difference between its price and the price of the most expensive unit dispatched. These costs were then extrapolated to the whole of the UK’s operational battery fleet, which is expected to reach by the end of 2023, over a full year.

The ESN noted that the £150 million does not cover start-up payments to combined-cycle gas turbines (CCGTs), curtailment payments to wind farms to create room on the system for CCGTs and the cost of over-procurement in the Capacity Market.

An ESO spokesperson said: “We are committed to running the power system with zero carbon emissions by 2025 and recognise the importance of low carbon technologies in achieving this goal.

“Achieving this level of ambition at pace inevitably presents a number of operational challenges which we are solving through our Markets Roadmap and as part of a suite of reforms across the ESO. These changes have already seen the use of battery storage change dramatically in the Balancing Mechanism, with the volumes being dispatched significantly increasing over the past year.”

They continued: “We agree that we need to continue to do more to ensure both that we receive accurate and timely information about these assets and that we are able to use the assets to their full potential. We greatly value the engagement with the ESN and its members and will continue to work collaboratively with them and the wider power sector to deliver this critical ambition.”

The ESO also noted that it has developed a suite of new frequency response services that are currently only provided by battery storage and has made incremental changes to its legacy dispatch systems to deliver improvements ahead of the release of its Open Balancing Platform later this year.