Ready to step in on the demand side

Janet Wood asked Flexitricity founder Alastair Martin what he thought about the Department of Energy and Climate Change's proposals for capacity payments and demand-side response.

Flexitricity’s biggest service is ­providing short-term operating reserve (Stor) for transmission system operator National Grid, sourced from 25 different ­companies.
This type of service is among the innovations sought by the Department of Energy and Climate Change (Decc). It wants to develop a capacity market on the Stor model that works at both large and small scale.
Founder Alastair Martin explains: “We use the 25 companies’ assets to provide a service to National Grid. They [National Grid] are paying us to have capacity available, and to provide it quickly and reliably.”
Companies on Flexitricity’s list have a large variety of capacity to make available to the transmission system operator, including:
l high-spec uninterruptible power systems;
l standby diesel;
l combined heat and power (CHP);
l small hydro; and
l consumption that has inertia, which could be, for example, lighting in commercial greenhouses. Martin says: “You can turn it off for short periods – in winter it’s just like a cloud crossing”.
The company is also looking at schemes with batteries, but Martin says, “that’s to demonstrate the batteries. The schemes are too small to be commercially significant at the moment”.
He explains that the companies are paid according to both the availability of capacity, and the energy supplied when they are called on.
Some are used much more than others: “We provide groups of capacity to the utilities at particular price points. We put different assets at different prices. For example, the standby generator would be at a higher price than CHP. The generator might run for 50-100 hours in a year while the CHP would run for 300-500 hours.”

Capacity market
Martin says the success of a capa­city market depends on two things. First, it is important that all capa­city can participate in auctions and a secondary market.
He says: “The secondary market is a big plus. That will make it work and it’s the difference between ­success and failure.
“A power station developer could participate in a capacity auction, start to build – then commission late. [With a secondary market] it can buy capacity or demand response to cover,” he explains.
It will also help manage the issue of unplanned outages ­Martin says: “Without a secondary market you are going to state your capacity conservatively and that’s less efficient. Or you make the system weak, by not catering for unplanned outages.”
The second important issue is how the market will verify that the promised capacity is real, and ­Martin says that is where there is no clear information.
He explains: “Decc is considering whether to let people make declarations and ‘fall over’ if they can’t supply. Will that be enough of a disincentive to misreport?
“You can make the consequences of failing severe, but that’s not enough. You have to verify. Any capacity that is seldom used must be tested and Decc needs to put on its wellies and visit.”
He acknowledges that “there is a nervousness about the administrative burden. There’s a clear cost to verification”. He says the ongoing cost of companies going bust, because they failed to deliver and were hit with penalties, is harder to quantify than the cost of administration, but still material.
Decc also wants to see companies offering demand-side response – shifting usage out of peak times, either regularly, or on demand. But Martin says the framework is not there yet. He says Decc clearly wants to see it happen and has a “commendable agnosticism” about how. He says potential providers “can’t complain about the proposals so far. But they are short on detail”.

This article first appeared in Utility Week’s print edition of 16 March 2012.
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