National Grid ESO’s Winter Contingency Contracts with coal power stations are set to cost between £340 million and £395 million, subject to the procurement and use of the coal.
This came as part of a raft of updates on the system operators plans to manage the expected tight market conditions over the winter, as the gas crisis continues driven by the Russian invasion of Ukraine and associated geopolitical tensions.
Speaking at the ESO’s Autumn Markets Forum this morning, Hannah Kernthaler, National Grid ESO’s operational insight manager, set out the cost and mechanisms for using its contracted Drax, EDF and Uniper coal units, as well as interconnectors and its new Demand Flexibility Service, to ensure the security of the system.
The cost of using the coal plans will be recovered through the Balancing Services Use of System (BSUoS) between 1 October 2022 and 31 March 2023, and spread equally over the days in this period.
National Grid ESO clarified that the coal units will not be available to the open market, but instead only dispatched at its request, Kernthaler explained as part of the Short-term priorities: Approach to Winter 2022 session.
Dispatch will be managed via the Balancing Mechanism or trade with a price of £0/MWh and system flagged. Following on from the event in which it is used, the ESO will withdraw the Bid Offer Acceptance (BOA) and replace it with a price of £99,999/MWh.
Markets will be made aware that the ESO is anticipating the use of these contingency coal-fired power plants when it sends the signal to begin warming them, and the dispatch instructions through the normal channels.
These additional details follow Uniper last week confirming that it too had signed a contract to make its coal assets available to the ESO over the winter. This brings the potential coal capacity within these contracts to around 2.5GW.
|
Name |
Volume |
Date |
|
West Burton A (EDF) |
2 x 400MW |
1 Oct 2022 – 31 Mar 2023 |
|
Drax |
2 x 570MW |
1 Oct 2022 – 31 Mar 2023 |
|
Ratcliffe (Uniper) |
1 x 480MW |
Nov 2022 – 31 Mar 2023 |
It takes between 12 and 48 hours to warm a coal unit, and warning will be made through SONAR if they are to be used.
There are a number of complexities with running end of life assets the ESO highlighted, for example adequate staffing of the sites, which could mean that certain units are not available for periods during the six month contracts. This will be assessed on a day to day basis.
National Grid ESO is currently working with Elexon to ensure the provision is in place to manage the running of these coal-fired units outside of the normal market structures.
Order of action: National Grid ESO’s everyday and emergency options
Along with these further details on the management of the Winter Contingency Units, the ESO also set out its order of actions as part of its Autumn Markets Forum.
The operator will initially take everyday actions to try and manage tight conditions on the electricity system, including; reconfiguring the transmission network to reduce congestions, reviewing and refining reserve requirement within a day, putting out an all deliverable offer to all BM participants, issue warming instructions to cold BM participants, buying electricity from continental Europe via interconnectors, reconfiguring CCGTs to increase available energy and running SO-SO trade in cost order.
Following on from these are the ESO’s Enhanced options, which will be enacted if everyday actions are insufficient. The order of these actions is as follows; Recall transmission assets from outage, plan the use of emergency assistance from other system operators, instruct its Demand Flexibility Service (DSF) and finally instruct Winter Contingency Units to warm.
All these actions are over and above the standard notices that can be issued at any time as required by the ESO, for example Electricity Margin Notices.
Talk within the Q&A section of the Short-term priorities: Approach to Winter 2022 session quickly turned to the use – and cost – of interconnectors versus coal, and the role of demand.
The ESO confirmed that the interconnectors will be looked to ahead of all emergency actions, including the use of the coal units. There will be assumed boundaries at the day ahead trading stage that will help to inform the decision on whether additional measures beyond the interconnectors will be needed.
Even should the cost of interconnectors grow above the cost of running the coal units, interconnectors will be seen as the default solutions. The Winter Contingency Units will only be used as a last resort, with all market solutions considered first.
There has been concern in the industry as to the availability of interconnectors over the winter, given nuclear outages in France in particular which have lead to Britain being a net electricity exporter over the summer.
Preserving demand: VoLL and the DFS
National Grid ESO is taking an approach of preserving demand within its winter 2022 strategy.
As such, the disconnection of load on the basis of Value of Lost Load (VoLL) will only be considered if all other actions have been exhausted.
The system operator will however look to manage the demand through its new DFS, which sits one action above the use of its Winter Contingency units.
This service has been rapidly designed and developed, and will be contracted to run for an initial period of November 2022 to March 2023. Those taking part will be given 24 hours to react to signals from the operator.
It was announced at the beginning of 2022, and has now been trialled together with Octopus Energy amongst others. Earlier in September, a number of suppliers weighed in on the ESO’s consultation on the DFS.
There is concern that the low level of incentive offered to consumers as part of the DFS may reduce its effectiveness, with too few customers choosing to be part of the scheme.
With energy bills remaining high despite the government’s intervention – the unit price of electricity has been capped at 34p/kWh from October to help protect customers, however this means the average household will see an annual energy bill of £2,500, just shy of twice the Default Tariff Price Cap from a year ago, set at £1,277 from October 2021 – there is also the potential of consumers reducing their own demand.
Ahead of the new price cap, tips and tricks to reduce demand along with stories of households refusing to put on their gas heating have become commonplace. As consumers look to manage their bills by reducing their demand, this could have a knock-on impact on the ESO’s expected tight margins.
However, it is too early to tell, the panellists suggested during today’s session.
There will be “plenty of opportunities to learn very rapidly” suggested David Wildash, acting head of markets at National Grid ESO, with constant review of the system expected over the winter.
National Grid ESO is set to publish its Winter Outlook Report on 7 October.
