Flexible Connections: Blocker or Enabler?

The upcoming COP26 summit is a timely reminder of the urgency with which climate targets must be met.

But the challenges of the past year underscore the infrastructural weaknesses that remain as an obstacle to achieving net zero. Between March and July 2020 it cost National Grid ESO £718 million to balance supply and demand due to the unforeseen changes in energy use caused by the Covid-19 pandemic.

Playing that forward to a net-zero energy system that powers a large proportion of heat and transport sectors by electricity requires smart ways to connect and integrate renewables without over-building expensive infrastructure. “Building back better” also means “building back smarter”.

Flexible Connections first emerged as a Distribution Network Operator (DNO) solution to connecting renewable generation to areas of weak network over a decade ago. They have been a key enabler of the steps made in decarbonising our electricity system to date. In the years of Feed in Tariffs and Renewable Obligation Certificates they were extremely popular as renewable developers raced to beat tariff degradation dates.

However, the Flexible Connection product has not adapted over the last ten years to address concerns around market access, unlimited liabilities, and long-term optionality. As a result, they are now seen by some as a blocker, rather than an enabler.  Yet, the core proposition of Flexible Connections is even more relevant and necessary than before: the efficient use of infrastructure. Here we explore how they are required to adapt to the emerging needs of renewable generation connection customers and how they can enable the next phase of our net zero transition.

What are Flexible Connections?

New energy projects that need to connect to the grid must apply to the DNO for access. As the DNO is obligated to connect the new resource, it will run an extensive study to determine if, in a worst-case scenario, this new ‘firm’ connection could cause any challenges to the existing network, such as exceeding equipment ratings or over-voltage. If evidence emerges that the connection could pose a risk to the grid, even for one hour a year, this triggers an upgrade to the network that will allow the resource to be connected safely.

Flexible Connections offer new energy projects a way to sidestep the time and cost involved in a grid upgrade. By agreeing to some curtailment of their output to manage specific technical and operational constraints necessary to avoid stressing the grid, customers can connect faster and without the expense of grid reinforcement. Called ‘Flexible Connections’, these arrangements allow more energy projects or Distributed Energy Resources (DERs) to be connected, but rely on curtailment to ensure they efficiently share network hosting capacity and take advantage of generation and demand diversity.

Flexible Connections have therefore been a key enabler for the cost effective and timely addition of renewable generation to the grid.

The problems with Flexible Connections

The first concern with Flexible Connections is that while curtailment can be estimated and modelled in advance, operational curtailment risk lies entirely with the connecting customer. With no control over actual curtailment levels, this represents an open-ended liability which many investors are reluctant to accept.  Moreover, the only option a project has to remove or reduce curtailment is simply to re-apply for a firm connection and accept their share of grid reinforcement costs; the unviable cost of which was the driver for accepting a Flexible Connection in the first place.

Secondly, as incentives for renewables ended, the speed to connect driver for Flexible Connection reduced.  However, at the same time the cost of connection driver became ever more critical to allow projects to develop in a subsidy-free environment. In addition, developing subsidy-free renewable projects requires a more progressive approach to market integration; operating renewable generators in markets as opposed to simple off-take agreements is now more important to the investment case. However, National Grid currently excludes generators on Flexible Connections from the balancing market and certain ancillary services. This undermines the revenue streams that renewable generators require to access in order to secure investment for the site.

Furthermore, it is difficult for project developers to model the potential loss of future market revenue from curtailment and thus make an appropriate assessment of whether to accept the cheaper Flexible Connection or to fund the grid reinforcements to obtain firm access. Without a way to trade out curtailment obligations (and thus enable market access for Flexible Connection customers), the growing system-wide markets for flexibility are less competitive and efficient than they could be with wider participation.

Now, despite the enduring front-loaded benefits of Flexible Connections, their limitations are having an increasingly detrimental effect on the development of a flexible, clean and efficient grid.

Solutions to reimagine Flexible Connections

The good news is that solutions already exist that could tackle these concerns of Flexible Connections:

Secondary curtailment markets

Flexible Connection customers could mitigate curtailment volumes if well-managed secondary markets were established. Models that could facilitate a more competitive climate for these customers include trading of priority stack position, trading access rights with firm connection customers or the procurement of demand turn-up services in areas of high curtailment.

These models would give customers options for curtailment risk mitigation, which in turn could encourage investment. But they could also offer substantial benefits for the wider transition to a clean, smart grid. Thanks to secondary markets, the DNO could factor in network efficiency to operational curtailment decisions. This would promote the most efficient use of the network possible and account for the curtailment tolerance of different technologies. A waste plant can tolerate less curtailment than a wind farm, for instance.

Likewise, the provision of demand turn-up markets is key to the acceleration of the green transition. These markets can use generation curtailment as a market signal to indicate where electricity supply outstrips demand thus creating locational price signals that encourage investment in flexible demand and storage to soak up excess renewable generation, supporting local balancing and improved network efficiency nationwide.

ESO-DSO integration

Coordination between the ESO and DSOs is necessary to tackle the problem of exclusion from valuable markets. At present, the Energy Networks Association (ENA)’s Open Networks project is considering various models that would address the needs and concerns of all parties. For example, the DNO systems that operate Flexible Connections could calculate an export limit when a Balancing Mechanism (BM) instruction is issued in an area to prevent backfill and ensure the BM procured action is felt in the system. These scenarios and solutions have been discussed for many years and it is important that they are now implemented at speed.

Curtailment caps or compensation

Curtailment estimates for Flexible Connection customers are not always accurate. Changes in demand and generation can alter the constraints in certain locations, resulting in unexpected increases in curtailment volume. With curtailment caps, the DNO could be obligated to monitor for changes and, if the cap is exceeded without the possibility of mitigation through secondary markets, this could automatically trigger general network reinforcement or a form of compensation.  This would instantly remove the unlimited liability issue and trigger further investment in the sector.

Information provision

Improved information on curtailment volumes and their impact must be made available so that customers and investors can make well-informed decisions about Flexible Connections and when to participate in emerging secondary markets. Without allowing a thorough evaluation of the risks of these arrangements, the industry discourages further uptake of a solution which is necessary to transform the grid as quickly and economically as possible.

Looking to the future

These solutions have the potential to transform the outlook of Flexible Connections, but developments must take place across the energy industry to realise them. Important questions must be answered: who will pay for and operate secondary markets? What unintended consequences could secondary markets or additional curtailment information sharing create? Would the regulator allow cost recovery of DNO market enablement costs and for ESO coordination investments? What incentives or obligations should DNOs have in RIIO ED2 to drive these changes?

We are delighted that the DNOs and the ENA, through the Open Networks project, are now discussing these issues and starting to look for answers. Having Flexible Connections as a key focus for the project in 2021 is long overdue and an important step.  Making quick progress on these issues requires an open dialogue and practical solutions to be agreed between National Grid ESO, DNOs and Flexible Connection customers.

If the agreed solutions are implemented, then Flexible Connections can be a true enabler of net zero over the coming decades. The fundamental need to use critical national infrastructure as efficiently as possible will be more important than ever as we look to electricity to achieve many of our transition goals. Flexible Connections can provoke insightful market signals that will establish new markets and support local balancing, whilst encouraging efficient investment. They will underpin the wider use of flexibility services and the move towards more widespread transactive energy in the future.  Building on the automated control credentials of Flexible Connections can ensure that the use of commercial markets does not risk any reduction in network security.

Flexible Connections progress has slowed and, with that, one of the essential paths to flexibility in a renewable-powered grid. But solutions exist. With visionary thinking and practical collaboration, we can build Flexible Connections fit for the flexible clean energy system of the future.