Flexibility providers have welcomed the firm frequency response (FFR) auction prices for January announced this week, which were again high.
For example, Flexitricity announced that its linked tenders for EFA blocks 5 and 6 were £55.92/MW/hr in November, £36.40/MW/hr in December and £37.95/MW/hr in January, showing continued strength through winter.
Companies like KiWi Power, however ,are predicting that the trend will not continue through 2020. In a post on social media platform LinkedIn,the company’s head energy merchant Aaron Lally said: “With strong FFR pricing again for January the market now sees this as the most valuable revenue stream for battery storage.
“Into 2020, where are the highest revenues achieved for batteries? Our forecasts tell us after a summer of strong FFR pricing due to increased grid requirements we will see value move to the Wholesale trading markets and BM going forward.
“This is quite a switch given FFR now produces 3x the revenue of Wholesale or BM for the most commercial participants.”
The market for frequency response is changing, due to a “delicate balance of factors” according to Flexitricity’s founder and CSO Alastair Martin.
“The amount and type needed to keep the national electricity system stable changes with electricity demand and renewable generation. In a low-demand period with lots of green energy around, more response is needed, and there’s a strong preference for the fastest varieties. Batteries are good at this.
"We expect this advantage to become progressively more important. This also means that flexible demand with rapid response capability could benefit from these opportunities.”
Changes in the National Grid’s auction mechanisms that allow it to buy more frequency response ahead of time to manage increases in renewable generation have likely helped increase the FFR pricing. With more intermittent generation from wind and solar in the system, frequency response has a vital role to play.
“The new auctions are good for batteries, but they’re extremely good for flexible load,” continued Martin. “The closer to the day that response is procured, the more certainty that industrial and commercial customers have of their consumption patterns.
"Moving from weekly to daily auctions is the logical next step. Naturally, this only works for customers who can stay close to the market – that’s what aggregators should be doing for them.”
The prices were strongly affected by Triad values over the winter months. These are the three periods of highest demand throughout the winter, usually occurring during weekday peaks, when Triad charges are applied. If possible, these are avoided, which can affect FFR pricing.
Sebastian Blake, the head of markets and policy at Open Energi, expanded: “High FFR prices - up to ten times the normal day time rates - across the evening peak can be explained by the fact that distributed providers face strong economic signals to perform arbitrage instead during Winter months e.g. from Triads & Capacity Market charges.
“Providers are bidding in at the value of lost revenue from arbitrage services, including any risk adjustments e.g. against predicting Triads, and National Grid are accepting as it is uneconomic to use large thermal plant for only a short time to fill the gap (given their slow ramp rates).”
Triad avoidance is a common occurrence, with batteries in particular sidestepping them. National Grid ESO said that 2018/2019 was the first year that the system witnessed high frequency deviations around all three Triad periods, as batteries switched from charging to discharging to avoid Triad charges.
Last winter, this helped to enable the UK to record its greenest ever winter, as mild conditions, high renewable output and system flexibility combined to send carbon intensity tumbling.
Martin concluded that: “It’s true that FFR prices over winter evenings are strongly affected by triad value. For most battery sites, this winter is the last that they will receive attractive TNUoS Embedded Export Tariffs aka triads, and the costs of delivering FFR need to represent that if the sites are being optimised correctly.
"As the value of triad management reduces, batteries and other flexible demand will concentrate on all revenue sources to maximise their profit. This shows how important it is for a flexibility provider to have a presence in all of the balancing markets.
“FFR is a good earner just now, but it’s not the only fruit on the tree.”