Vertically integrated suppliers shutting out DSR

Independent aggregators say they need access to wholesale and balancing markets

Vertically integrated suppliers are throttling the growth demand-side response by shutting it out of key markets, independent aggregators have told Utility Week.  

Under current arrangements, demand-side response providers can only sell their flexibility to the wholesale and balancing markets through their licensed supplier. Aggregators have said the dominance of vertically integrated suppliers means they effectively act as gatekeepers and, as the owners of generation which demand-side response (DSR) competes with, have little incentive to lower the drawbridge.

“If you have vertical integration, then you have retailers whose motivations are quite odd”, said EnerNOC senior director of regulatory affairs Paul Troughton. “They’re definitely not aligned with their customers, possibly not aligned with general efficiency. It’s about making the best use of those big, expensive generating assets they have.”

Creating an “effective, efficient demand response market with widespread customer participation” is therefore not in their interests. “You’re not going to do stuff to help that happen.

“You’ll come up with devious rule changes to make life harder than necessary and you’ll have a whispering campaign with government saying ‘you don’t want to trust this DSR, who knows if it will be reliable and actually be there when you need it’.”

Flexitricity co-founder and chief strategy officer, Alastair Martin, said although DSR has already found success in both the capacity market and ancillary services market, both are highly competitive and the latter is “approaching saturation”. He said independent aggregators also need access to the wholesale and balancing markets to compete on equal terms with generators and to make a business case for DSR, describing the issue as “pretty critical”.

Troughton said the “commonly deployed argument” that stiff retail competition incentivises suppliers to get the most value from their customers’ flexibility is not borne out by the facts on the ground.

“Where you have a market where the only way you can get any value from flexibility through the supplier, you don’t get very much flexibility… I’ve just never found a place where competition is actually strong enough to overcome suppliers’ self-interest and get them to take demand-side flexibility seriously.”

He said when aggregators are allowed to sell their services without getting “permission from the suppliers… quite vigorous markets” can develop. “You see it all of the big US markets… There you get an awful lot of flexibility.”

Troughton also pointed to the work EnerNOC has done in markets outside the UK to aggregate DSR on the behalf of suppliers. “What’s interesting is that everywhere we do that it’s with a non-vertically integrated supplier. Vertically integrated suppliers just don’t seem that interested in doing that because of the conflict of interest.”