Flexibility providers with units as small as 1MW will be able to access the Balancing Mechanism (BM) by April next year under proposals published by National Grid which will also allow aggregators to play in the market.
The BM, worth an estimated £350 million a year to participants, rewards those able to increase or decrease generation or consumption. This flexibility is bid in to half hourly settlements periods with National Grid paying out what is needed in order to keep the system balanced.
Unlike other services which are contracted often well ahead of time, the BM is required to respond on an intraday basis and can offer significant revenues as a result. Writing for Current± in June, Flexitricity – which is preparing for its BM entry in October 2018 - said that on rare occasions, prices can reach £2,500/MWh, compared to around £50/MWh in wholesale markets.
The electricity system operator (ESO) has today set out how it intends to provide wider access to what it calls ‘Great Britain’s core flexibility market’. As well as setting out to improve existing routes to market and enhancing the systems needed to improve data flows between the ESO and market participants, a main goal is to pave the way for new market entrants.
This is intended for those parties wishing to provide near real-time flexibility who are not currently licenced suppliers, such as aggregators and providers of embedded flexibility.
In a series of reforms to the existing regulatory framework, National Grid will modify the Balancing and Settlement Code (BSC) to allow providers without a supplier licence to create aggregated Balancing Mechanism Units (BMUs).
A new type of participant, to be known as a ‘Virtual Lead Party’, will be able to create a “Secondary BMU” of at least 1MW which can be utilised individually or aggregated together to be used in the BM. A decision is expected to be made on this modification, known as P344, this month and subject to approval will be implemented in February 2019.
Further modifications to the Connection and Use of System Code (CUCS) will seek to create a contract for VLPs as well as define them as a participating class.
Like P344, these are subject to approval but if signed off by Ofgem will potentially be implemented in April 2019.
TEERE-ing up the rulebook
The principal motivation for the move is to fall in line with European balancing initiatives, principally the Trans-European Replacement Reserve Exchange (TERRE). This is a cross-border platform allowing providers over 1 MW (individual or aggregated) in capacity to participate in a pan-European reserve market. It is scheduled to go live in December 2019 and National Grid is seeking to ensure the UK’s regulatory framework is in line with the European market.
While it remains unclear what access the UK will have to TERRE when it leaves the European Union, National Grid has said that it remains important to implement wider access to the Balancing Mechanism regardless of future arrangements with Europe.
“Although Project TERRE and wider access to GB’s Balancing Mechanism are connected, the ESO’s ability and desire to widen access in GB is not dependant on wider European changes,” the ESO said.
On top of this, National Grid claims there are significant benefits to consumers from enabling more parties to access the BM, with a range of studies suggesting an economic benefit of between £110-500 million by 2020.
It also claims the massive and continuing growth of distribution connected capacity has meant only a small proportion of system flexibility can now be accessed through the BM. Combined with increasing variable reserve requirements means that, from an operability perspective, the current BM arrangements are not deemed to be sustainable.
Finally, National Grid is aiming to move non-BM contracts into BM contracts to simplify the market of balancing service providers. Regulatory changes have seen fewer revenue opportunities for smaller distribution connected generators, with BM access thought to offer a solution beneficial to the market and the energy system.
Make or break metering
However, there are concerns over how the new framework is to be implemented, particularly around metering. Whilst operational metering systems are currently in place for transmission connected generation, National Grid expects there to be difficulties in transferring these arrangements to aggregated units, a process that would also be costly to replicate.
Under current proposals for wider access, only units where BMU delivery can be measured at a settlement meter level can be accurately settled financially.
While welcoming of the new changes, which will “increase liquidity in the imbalance market which can only be a positive step for consumers”, aggregator Kiwi Power’s head of public affairs & UK programme manager Jonathan Ainley, said that getting the permitted metering arrangements correct would be essential.
“It is somewhat pointless opening up the BM to VLPs, secondary BMUs etc and then not allowing those new VLPs to use sub-site metering to record the output of distributed generation/turn down assets. There's a risk that this will happen,” he told Current±.