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Current± Predicts: The energy transition in 2022, part eight

 Dynamic Regulation is set to come in in 2022, shaking up the ancillary market. Image: Andy Beecroft.

Dynamic Regulation is set to come in in 2022, shaking up the ancillary market. Image: Andy Beecroft.

Ed Porter, commercial director, Invinity

C&I customers face a bill shock

We’re already starting to see daytime tariffs in the 20-30p/kWh range and winter peaks into 35-50p/kWh. This will accelerate a distributed solar/wind roll out and underline the need for storage and solar to offset those peak charges.

Longer term, the conversation about a £/MWh (unit rate charge) not being fit for purpose will continue to grow and calls for demand or capacity based (£/kW) charges will also grow in a scaled-up distributed energy world.

End of FFR

As has been communicated over the last few years, FFR is being replaced. The next ancillary market to test storage’s capabilities will be Dynamic Regulation, a pre-fault service. DR will require a lot more work or throughput from storage assets and will suit longer duration and higher-throughput batteries. We forecast seeing this service commanding a premium over Dynamic Containment and be the first ancillary service to challenge the warranties in the market for the current storage fleet.

Storage boom

What a year for energy storage, third-party expectations have been smashed in 2021 (between dynamic containment (DC) and wholesale trading returns) and I’d expect this to continue at least into H1 2022 (with DC falling off as expected). The question is, what do asset owners do with those returns, consolidate, build, reward shareholders? I think we’ll see people double down on storage build, especially in longer duration categories, and hit 4GW of battery storage by 2023.

Locational/Nodal pricing conversations to increases

It’s becoming more clear that a single wholesale price and BSuoS charge (alongside static network charges) aren’t incentivising the right locations from developers as we watch BSuoS costs hit record highs (where BSuoS reflects a range of services but also the locational Bid/Offers actions undertaken in the Balancing Mechanism).

Wouldn’t this all be easier in a world where wholesale price could vary by location to encourage the right flexibility in the right location?

Supplier restrictions

It has been a very difficult year for the smaller suppliers competing with the longer term hedges of the more established suppliers. However, the market can swing quickly and with an oversupply in the market, it would be a very good time to start an energy supply business and run a shorter duration hedge, undercutting the longer duration hedges in place.

The question remains, how much trust is left in smaller suppliers and will Ofgem allow smaller suppliers to enter the market again running smaller hedges? I would expect to see some sort of minimum hedging requirement or stress testing to be enforced.

Jon Slade, chief executive officer, ENSEK

Net zero a priority

After the winter months, we will see energy transition-focused organisations either enter the market, or re-enter in some cases. These new entrants will prioritise the journey to net zero, with a bias towards Electric Vehicles (EVs), some of which will provide vehicle-to-grid offerings.

Learning from disruption

Throughout 2022, leaders will focus on building learnings from recent disruptions. As such, transformation initiatives will accelerate with emphasis on adaptability and cost reduction. In turn, we could see a progression towards the introduction of fixed monthly subscriptions for consumers, to promote consumption reduction and the use of smart devices in the home.

Decentralisation is key

Regions are beginning to struggle with a centralised approach that relies mainly on fossil fuels. As such, decentralisation is key.

Tomorrow’s market must reposition energy suppliers to become service providers, where energy suppliers will sell Energy-as-a-Service (EaaS) rather than Energy-as-a-Commodity. These EaaS providers will put customers at the heart of consumption, to sell sustainability and comfort, not just kWh.


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