Flexibility is the buzzword of our times, but it may ring hollow to the "flex provider" that just misses out on a DNO contract. Elexon chief executive Mark Bygraves explains its proposal for new online marketplaces that will allow buyers and sellers to trade with full flexibility.
In the first quarter of 2019, more than 35 per cent of Great Britain’s electricity came from renewables. It dwarfs the five percent overall contribution that renewables made to the generation mix a little over 10 years ago, and shows how far things have progressed towards a greener energy system.
If we store more renewable electricity at times when demand is lower, and release it back onto the networks at times of peak demand, we could have a more efficient system overall. As well as battery storage providing greater flexibility (see p20-22), opportunities for consumers to receive payments for providing more demand side response (DSR) will also increase in future.
Providing DSR could become as simple as making a few taps on our smart phones, with some help in the background from DSR aggregators that will help consumers to find these opportunities.
As more consumers buy electric vehicles (EVs), aggregators could play a role in making sure that EV owners are paid for connecting to the networks to provide additional electricity, or for charging when network companies need them to use up excess generation.
So there are many opportunities for providing flexibility, but there is a problem. There are no market places where aggregators, storage operators and other flexibility providers can easily trade their services with network companies and other potential buyers.
Market makers
Usually, flexibility is only purchased by National Grid ESO from large market participants. And while distribution network operators (DNOs) are increasingly tendering for flexibility services, they decide what they need and set a price without any reference to a wider market. The regional DNOs may end up overpaying as a result. Meanwhile, those smaller flexibility providers that do not win contracts from DNOs may also find that they have no other route to market.
Elexon, the organisation that manages the Balancing and Settlement Code (BSC), ensuring that payments for imbalances in wholesale electricity supply and demand are settled accurately, has now proposed a solution to that in its latest policy document, “Setting up electricity flexibility platforms”.
We believe one (or more) electricity “flexibility platforms” should be set up to provide this missing marketplace. Once established, they could operate like the wholesale electricity market, where a range of products are traded, from promptly delivered electricity to more longer-dated products.
The platforms will offer a greater range of options for network companies to help them manage the grids. Networks could purchase output from storage, DSR services, or other forms of flexibility such as additional renewable generation. They could also turn to the platforms to buy solutions for managing local constraints, and fault level maintenance.
National Grid ESO would also have a wider range of providers to choose from when procuring frequency response, operating reserve or replacement reserve.
For a long time, the sector (and more recently Ofgem) have been looking for solutions to reduce the often lengthy process to connect new generators to the networks. These proposed trading platforms could also help to provide a solution to this.
Connection capacity
Traditionally, network companies build new connections with a presumption that once the generator is linked to the grid it will use its connection continually. However that isn’t always the case, particularly for renewables. For example, a solar generator is unlikely to need the connection after sunset each day, and may be prepared to trade some of its capacity with a storage operator that can provide electricity during peak demand hours. In cases like this, capacity that is not being fully used could be traded through the exchanges at market-based prices.
Trials of how flexibility platforms will work in practice are expected to get underway once government announces the winners of its £4m flexibility exchange competition. The FleX competition, launched by the BEIS in January, will support the development and demonstration of innovation solutions to value and trade flexibility. Elexon has a key role to play here by providing our expertise in managing electricity settlement, and providing knowledge of the central market arrangements to the winning platforms.
As an industry we need to start preparing for the full roll out of the platforms, applying best practice from the trials. Elexon is ready to work with network operators, the companies that provide the technology on which the platforms operate, the DNOs, and aggregators to roll out the platforms nationally.
We believe that Ofgem could support this by establishing a regulatory framework to determine responsibilities of parties that want to use the exchanges, and how they should be operated and funded.
The platforms will bring providers and buyers of flexibility together in a way that isn’t currently possible. They also offer ways to ensure that we capture the benefits that flexibility offers in making the electricity system more efficient. The development of national platforms is the sort of ground-breaking change we must encourage in the sector, to help meet the government’s target for “net zero” carbon emissions by 2050. As an industry it is crucial that we all work together to make the exchanges a reality.
This article first appeared in Network magazine, which has now been incorporated into Utility Week