Four months into operation, Dynamic Containment is still undersubscribed according to new analysis from EnAppSys.
In January 2021, the average daily volume was 333MW in National Grid ESO’s newest ancillary service. This is less than half the 600-800MW target set for the month.
While this is an increase from the initial 197MW average seen in October when Dynamic Containment was launched, that was also less than half the month's target of 500MW.
EnAppSys said that 92% of tendered volume is accepted, with 1% rejected for being above the price cap while 7% is withdrawn, potentially so it can participate in other markets.
When launched on 1 October 2020, Arenko and Flexitricity became the first companies to participate in the day-ahead frequency service. The service was particularly hard to participate in when first launched, with incredibly fast and controlled responses required from those tendering in.
Speaking to Current± today, Arenko’s chief technology officer Roger Hollies pointed to the control system capability challenges, highlighting that the technical requirements of the service are “pretty brutal”, with some system operators struggling to deliver as “the speed of response is very fast but not too fast, requiring tunable onsite control".
“The data reporting requirements require two separate data management dances working on two timelines: second by second operational reporting and hourly upload of high resolution performance data. These both require rich data collection and flexible communication interfaces at the same time. Many assets have been built with controllers that serve the current market at the time of the business case: that was FFR. DC is out of their reach for the moment.”
A commitment to other response services such as Fast Frequency Response or Enhanced Frequency Response may also have a minor impact, he added. Today, there is 405MW contracted into Dynamic Containment, 207MW non-Balancing Mechanism Unit and 205MW Balancing Mechanism Unit.
Katie Fenn, senior analyst at EnAppSys, also pointed to technical challenges as the biggest reason for the undersubscription, with “more active market monitoring and tender submissions are needed to participate in a daily auction service such as this compared to monthly or even weekly tendered services".
With the low level of uptake, prices in Dynamic Containment have remained high. They have continued to be at or near the cap of £17/MW/h, which is about a £10/MW/h premium when compared with other auctions for similar services.
The cap relates to what it would cost National Grid to reduce the Rate-of-Change-of-Frequency (RoCoF) risk through alternative actions, should an event create imbalance.
“Examples of this include bidding off/down large generation units or reducing high levels of interconnector flows if there is insufficient inertia in the system,” continued Fenn.
“There were occasions – notably around the middle of January – when procured DC volumes fell as some units switched to the wholesale market instead to access super-high prices in the day-ahead market and earn higher revenues. This highlights the usefulness of DC as a flexible revenue stream; by operating as a day-ahead auction, it allows participants to take a view of alternative markets and opt in or out of them to maximise revenue.”
January saw tumultuous power prices, as low winds and low temperatures led to market volatility. For example, the imbalance price hit a high of £4,000/MWh on 8 January as National Grid ESO worked to manage the low renewable generation and high demand.
National Grid ESO brought in the ability for participants to stack Dynamic Containment and the Balancing Mechanism on 27 January 2021, expanding revenue streams for assets as it “allows them to place bids in the BM for the volumes they need to recharge, to replace power they’ve exported in delivering DC, and receive payment for it rather than having to do it at their own expense,” as Fenn explained.
“In turn, this also gives National Grid greater control over these potential volumes; the Grid can decide when the recharging takes place, allowing it to better manage power flows on Britain’s electricity system.
“This change to the service may feed into more variability of tendered prices as the ‘price risk’ of re-filling at the bidder’s own cost may be judged to be lower.”
A number of operators have already begun stacking their battery assets, helping them increase their revenue streams said Hollie.
“Maximising revenue and efficacy of battery assets is about future proofing against exciting but uncertain future market structures. Luckily this is an Arenko specialty!”
National Grid ESO is still looking to further expand Dynamic Containment through 2021, increasing its capacity to up to between 1200-1400MW in August 2021.
Speaking to Current± recently, Gore Street Capital CEO Alex O’Cinneide said: “National Grid is actually giving guidance that it's going to advertise for more Dynamic Containment. So there's going to be an increase in the amount it needs to contract with.”
The first wave of Dynamic Containment is coming to an end, with more assets needed to play into it. There is currently around 1GW of storage in the UK, however without tackling the technical requirements many will struggle to play in to Dynamic Containment.
“The second wave is expected to enable more participation resulting from National Grid’s continuing engagement with market parties, so we will be following the service closely to see how it evolves as more units come online,” finished Fenn.
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