Ofgem approves new settlement arrangements for aggregators

Ofgem has approved a modification to the Balancing and Settlement Code (BSC) to bring in new settlement arrangements for virtual lead parties to ensure they are correctly compensated for delivering balancing services.

P376 will introduce a new optional process for establishing the baseline level of generation or demand at a site which can then be used to calculate the amount of deviation delivered by a virtual lead party when instructed to change its output by National Grid Electricity System Operator (ESO).

The role of virtual lead party was created to allow BSC signatories to operate aggregated balancing mechanism units – sometimes referred to as virtual power plants – without the becoming the registered supplier for the component assets.

Under the current arrangements, participants in the balancing mechanism, including virtual lead parties, are required to submit physical notifications to the ESO conveying the amount of electricity they expect to be generated or consumed at a site in any given half-hour settlement period. The final physical notification to be submitted before gate closure is used as the baseline volume when establishing whether a party has successfully delivered a bid or offer to alter the amount of electricity they generate or consume.

However, some virtual lead parties cannot submit accurate physical notifications for assets they are managing if they share a network connection with other assets outside of their control. This can mean they are subjected to non-delivery charges, even if they successfully delivered a contracted balancing service.

P376 will introduce a new methodology for establishing a baseline volume separately from the final physical notification.

Historical metering data will be used to establish a volume profile that can then be adjusted based on the last three hours of metering data before gate closure to reflect conditions on the day. This baseline will then be used for settlement to establish whether a party has delivered the contracted service.

All parties that opt to use this process will still be required to submit physical notifications, which will continue to be used by the ESO to dispatch balancing services.

The modification will be implemented in February 2023.

Elexon said P376 will not be able to resolve a situation where a change in output from an asset managed by a virtual lead party coincides with a change in output from another asset that they do not control on the same time.

In this instance, the change in output from the other asset would not be reflected in the adjustment to the baseline profile, meaning they might still face non-delivery charges, even if they have successfully provided a service.

The code manager for the BSC said the only way to resolve this problem is through sub-metering for individual assets, which will be enabled through the modification P375. The modification was approved by Ofgem in February and is due to be implemented in June 2022.

Elexon chief executive Mark Bygraves said: “Providing more opportunities for new entrants and existing companies to offer balancing services is an important part of progress to net zero. It also supports innovation and the smarter use of the electricity system, which benefits all customers.

“The approval of both P376 and P375 this year follows on from the work Elexon and National Grid ESO completed to open up the Balancing Mechanism to independent aggregators in December 2019, through the modification P344 ‘Wider Access’ reforms.”

P376 was proposed Enel X UK, which is registered as a virtual lead party. The company’s senior director Paul Troughton said: “Cost-effective decarbonisation of the power system cannot be achieved without the large-scale participation of customers. We must allow them to provide valuable flexibility without expecting them to behave exactly like traditional power stations.

“This common-sense reform is informed by best practices in other markets and we commend Elexon on its development. We look forward to it unlocking innovative choices for customers, increasing competition in the provision of balancing services, and reducing costs for all energy users.”

Enel X has also proposed the modification P415, which would allow virtual lead parties to trade in wholesale electricity markets. They are currently only able to offer services in the Balancing Mechanism.