Skip to main content
Flex Providers must be able to stack multiple revenue streams in order to build the investment cases for their assets.
Blogs Tech Networks

We must improve visibility to unlock contract stacking in flexibility markets

Flex Providers must be able to stack multiple revenue streams in order to build the investment cases for their assets.

Impressive leaps forward have been made across Distribution System Operator (DSO) led local flexibility markets in recent years, and 2021 was no exception. £30 million worth of contracts was awarded by UKPN, with two-thirds of the capacity coming from EV batteries and smart charging.

The initial success of these markets has been the result of a few key ingredients including industry-led standardisation efforts spearheaded by the ENA’s Open Networks project, high levels of engagement with potential flexibility service providers (Flex Providers), and continued digitalisation. This final piece is responsible for introducing greater visibility to local flexibility markets, which has been a clear driver in their development and scale.

Unlike in other flexibility markets, the highly locational nature of DSO markets means that assets must be positioned in sometimes very small geographically constrained areas to provide flexibility services. As a result, the visibility of data, such as where the flexibility service is required in addition to what type of service is needed, the technical requirements, contracts available, and length and value, have all been key to driving participation from Flex Providers.

Across local flexibility markets, different approaches have been used to achieve this visibility. Independent marketplaces have made use of maps, whereby the locational constraints are clearly visible and searchable, and provide a user-friendly interface that highlights the important data behind each opportunity. Visibility is equally important for the other side of the market, DSOs. Marketplaces again have played a key role in doing away with the requirement for DSOs to individually find and connect with potential assets able to provide flexibility services, with maps serving as distributed asset registers of the Flex Provider assets that qualify and bid to provide flexibility services to DSOs.

Network operators around the UK contacted millions of pounds worth of flexibility in 2021. Image: Piclo.
Network operators around the UK contacted millions of pounds worth of flexibility in 2021. Image: Piclo.

Yet to achieve net zero at a national scale, we know the challenge is far from over. By 2050 we will need to be capturing whole-system efficiencies from a forecasted 60GW of flexible capacity. As such, the investment needed to secure the flexibility required in the right locations, from the right type of assets, and for the right kind of services is significant. However, here lies a problem.

Flex Providers must be able to stack multiple revenue streams in order to build the investment cases for these assets. Consequently, there is a rapidly growing need to no longer consider and develop flexibility markets, such as local DSO markets, in isolation from each other.

Contract stacking across flexibility markets is being held back as there is not full visibility across all markets. There is a lack of common data formats, qualification processes and unaligned market access rules, which adds complexity to investments and stifles value flowing to where it is needed. As a result, it is more difficult for Flex Providers to build business cases and invest to solve the issues on the system.

To reward the true value of flexibility and deliver contract stacking, every stage of the journey of the flexible service must be digitised and interoperable. Three key aspects include:

  • Value assessment: all revenue streams must be brought into play and be visible and transparent to Flex Providers. This is a huge challenge considering the very different mandates, stakeholders and participants for each of the markets/revenue streams
  • Qualification: processes for accessing these value streams need to be similarly transparent and accessible. It should be possible for a marketplace to create something akin to a "digital passport", so Flex Providers can manage their access (and qualification status) to multiple services. This in turn requires a standardised approach to identify assets and Flex Providers that translate between all different kinds of services.
  • Operations and Settlement: to provide Flex Providers with choice, standardised approaches to key operational aspects (such as availability declaration, dispatch) and settlement (baselining, performance verification) are essential. Otherwise, the level of bespoke technical systems needed will make it almost impossible to practically align all these markets.

Beyond this, contract alignment, data access - including metering - and decentralised systems are equally central to achieving the visibility needed for revenue stacking. After which, further value can subsequently be derived through enabling DSO/ESO coordination plus the optimisation of service procurement.

In the Smart Systems and Flexibility Plan, BEIS and Ofgem outlined a vision for the mid-2020s whereby flexibility technologies of all types and sizes will have improved access to flexibility markets and be able to stack revenues across multiple sources of value where this enables whole system optimisation. Whilst progress has been made from policies such as the Energy Data Task Force recommendations and the Open Networks project, it is imperative that the industry and companies join together this year to drive the development of common standards across flexibility markets, without which these markets will continue to lack the visibility needed for contract stacking.

Contributer

James Johnston CEO, Piclo

James Johnston is CEO of Piclo.

Loading...

End of content

No more pages to load