Forecast surge in Demand Flexibility Service capacity fails to materialise

The amount of demand reduction available through the Demand Flexibility Service (DFS) over winter failed to reach the levels predicted by the Electricity System Operator (ESO) ahead of its relaunch.  

In its annual Winter Outlook issued in September, the ESO predicted that 1GW of capacity would be made available through the DFS with a “fairly moderate” uptake. It said this figure could hit 2GW in a more optimistic scenario.  

At the time, the ESO told Utility Week this compared to a peak demand reduction of 350MW in its inaugural outing, meaning the 1GW forecast would represent a three-fold increase.  

However, the ESO has now revealed the second iteration of the DFS, which concluded at the end of March, delivered a peak demand reduction of more than 400MW.  

This was despite the number of households and businesses participating in the service rising from 1.6 million in 2022/23 to 2.4 million in 2023/24. The ESO said the total volume of demand reduction delivered rose from 3.3GWh to 3.6GWh.  

The ESO made multiple changes to the service for the second version. The body held a total of 22 test events over the winter of 2022/23 – 20 test and two live events. All of the events had a minimum price, referred to as the Guaranteed Acceptance Price, of £3,000/MWh.  

Over the winter of 2023/24, the ESO held 16 events, two of them live. It removed the Guaranteed Acceptance Price for seven of the most recent test events, all of which took place since the beginning of January.  

During these competitively priced tests, the accepted prices ranged from £150/MWh to £2,500/MWh.

Speaking during a recent webinar, ESO future design and development manager Michael Coldwell said the body varied the amount of capacity it sought to procure in these tests to establish how this affected prices.

After Utility Week reported last year that some customers had been gaming the service by deliberately increasing their consumption in the lead up to events, the ESO also removed within-day adjustments to their baseline consumption levels.  

Coldwell said the removal of within-day adjustments meant “when we started this service again that forecasting volumes was going to be difficult and essentially back to square one for providers”. 

He said the ESO also held its first within-day procurement events. There was “slightly more” capacity available when the service was procured at the day-ahead stage “but we’re pleased to see that the majority of that volume is still available within day – up to around 350MW,” he added.  

The ESO additionally held its first weekend test. Coldwell said there “were some processes that were more difficult over that that weekend” and volumes were lower, with 242MW of capacity bidding to meet a 100MW requirement.  

Sharing some of the findings from across the winter, ESO senior strategy analyst Francisco Sanchez said the reductions from domestic customers were “typically quite small, in the range between zero and 1kW”.  

“However, in some events some meters almost reach around 20kW. We also consistently see reductions of 5kW through most of the events,” Sanchez added. 

He said demand reductions from industrial and commercial customers were centred around the 1-10kW range, although there was much greater variation and some delivered much more, reducing their demand by multiple megawatts.  

Sanchez said: “You might expect that larger units will be more accurate because they have more winters, but we tended to see the opposite; that is delivery from larger units is not as consistent as smaller units, regardless of the dispatch time.” 

Further improvements 

Coldwell said the service will return again next winter and the ESO is looking to make several further improvements, in particular, enabling providers to stack the DFS will other markets. He said the baselining methodology may require further amendments, “especially if stacking is enabled to ensure we don’t get baselines polluted by other services”. 

He said the ESO wants to improve the participation of asset meters, for which the body required the boundary meter at the site to be half-hourly settled: “This was an approach to reduce the likelihood of gaming so that consumers weren’t increasing baselines on days when the service wasn’t run, of if they did, they would be exposed to the half-hourly settlement of high prices on the peak.”

Coldwell said this requirement could be removed although the ESO is also looking at other options to manage gaming risk such as performance monitoring and “a slight change to the baselining methodology to rely less on historical baselines for asset meters”. 

Furthermore, Coldwell said the ESO is considering removing the Guaranteed Acceptance Price for all events: “It’s critical that anything we do ensures value for the consumer.” He said the DFS needs to “compete in merit” against other services.  

Long-term goals 

Over the long-term, Coldwell said the ESO is keen to ensure that the DFS does not cannibalise other markets that meet more specific needs or offer better value for money: “We want to ensure that a route to market exists for the volume that been participating in the DFS this year… What we don’t want to do though is incentivise a delay to moving into our enduring markets.”  

He gave as examples the Capacity Market, the Balancing Mechanism, DSO flexibility tenders, the wholesale market, ancillary services and supplier time-of-use tariffs. 

Coldwell noted that the ESO is taking steps to improve the accessibility of alternative markets, for example, by granting Virtual Lead Parties access to the wholesale market and relaxing Balancing Mechanism metering requirements for a 300MW cohort of small aggregated assets.  

He added: “There’s a lot already happening and the more volume we can get into those existing markets the better for the consumer, because those markets get more competition and they achieve the aims that they are wanting to achieve at a more representative cost.

“Where there’s not yet a practical route to market – and potentially domestic manual flex is an example of this – then we’ll continue to run a service, but we expect this to be transient.” 

The ESO is currently seeking feedback on the DFS from participants. The deadline for responses is 19 April.