Market view: Triads and distributed generation

“The complaint that triad management is difficult has recently been swept aside by a new objection: triad management is too lucrative.”

Here’s how triads work. First, find the half-hour in which electricity demand peaked during the winter just past. That’s triad number one.

Next, rub out ten days on either side of it, and find the next highest demand peak. That’s number two.

Rub out another ten days either side of that, and find the next. That’s triad number three.

Once you’ve got them all, you bill all electricity suppliers a charge based on their customers’ consumption during those ninety minutes. It’s a simple calculation which is done each year by National Grid, and it covers most of the cost of the transmission network.

Energy users have a big incentive to switch from consumption to generation during the triads – and for that, they need to predict them. Conventional wisdom claims there is a pattern, with Tuesdays at 5pm being a favourite. But conventional wisdom is bunk. If you apply the rules to winter 1972/73, you get a triad on a Sunday. Distribution-connected wind, asymmetry around interconnectors, falling demand and triad feedback have all changed the picture. It might be a while before we see another Sunday triad, but anomalies aren’t anomalous; they’re the norm.

The complaint that triad management is difficult has recently been swept aside by a new objection: triad management is too lucrative. Major investments have gone into the transmission network in recent years, and these have to be paid for. Meanwhile, peak demand has fallen – partly through successful triad management, and partly through energy efficiency. The numerator of the transmission charge has grown while its denominator has fallen. This makes triad management a must-do activity for most industrial and commercial energy users and small generators.

Triads are the biggest component of so-called “embedded benefits”, a catch-all term for the basket of industry costs which distributed generators and active customers can either avoid or profit from by carefully timing what they do. Lately, the “benefits” part of this term has begun to carry negative connotations. It’s an accusation that someone is getting something for nothing.

Electricity customers don’t feel they are getting something for nothing, but even that misses the point. They deliver benefits to all consumers when they actively manage what they do. They de-load the transmission network at peak, making it cheaper in the long run by deferring or avoiding upgrades. They keep the lights on by dropping load when the system is most under stress. They reduce losses by reducing the distance electricity has to travel. In many cases, they also bring electricity generation and consumption together. Community energy schemes may be the only way of delivering that intangible treasure: consumer engagement in energy. Embedded benefits are benefits delivered by the embedded.

Embedded benefits form part of the business case of the new breed of low-cost merchant peaking stations: the diesel farms and car-park generators which have elbowed CCGT out of the capacity market. Removing embedded benefits is seen as a way to check their growth. But diesel farm developers also use shoes in their work. Should we ban shoes?

The truth is complex and intertwined. The lower the peak demand, the less copper is needed. But on a sunny Sunday, a solar farm in Cornwall probably is using the transmission network. The part of National Grid that deals with energy balancing is extremely pleased that the part that deals with wires uses the triad system to keep peaks down. But the CMA recently determined that National Grid should be split. And so on.

Cornwall Energy recently marched into this thorny thicket, producing a report for the Association for Decentralised Energy. After 84 pages of hard analysis, Cornwall concluded that industry charges do require reworking in some areas, but overall the benefits of embedded generators are well worth the money.

For Flexitricity, embedded benefits are a mixed blessing. Although triads work well for us, their absence would probably work better. A system that’s on the edge will generate a lot more revenue for a demand-response portfolio like ours. But we can’t argue for something that reduces security, pushes up costs and dumps more load onto the least efficient power stations.