The UK’s electricity regulator Ofgem has agreed to grant the National Energy System Operator (NESO) a derogation and exemption from two articles governing NESO’s Mandatory Frequency Response (MFR) product.
MFR is one of NESO’s grid balancing services, which allows NESO to keep grid frequencies within operational limits when power imbalances threaten frequency levels. Power generators signed up to provide MFR are required to be able to alter their output within as little as ten seconds, and depending on their capabilities, will need to sustain this change for anywhere between 20 seconds and a theoretically indefinite period.
Currently, MFR contracts run for a month at a time, with upward and downward balancing capacity bundled together under the same contract – all of which goes against requirements laid out in electricity balancing guidelines established in 2020 following the UK’s departure from the European Union.
NESO – at the time known as NGESO – had previously been granted a derogation and exemption from the two relevant articles of the ruling in 2022, which expires on 31 March 2025. In autumn 2024, NGESO asked for a further derogation and exemption to last until 31 December 2029. The primary reason cited for the 2029 extension date is the length of time it will take the newly formed NESO to implement reforms to its balancing service. Initial technical reviews into the possibility of real-time flexibility procurement are set to conclude early this year, with design work based on these reviews continuing into next year. Following this, NESO predicts that implementing digital service modifications from the new designs will continue into 2029.
Ofgem has approved NESO’s requests for exemptions and derogations, agreeing with NESO’s cost benefit analysis that showed changing the procurement of MFR to split into upward and downward contracts would be economically inefficient, while also noting that stopping the immediate use of MFR poses unacceptable system security risks, as NESO cannot guarantee that it can meet full system requirements through voluntary frequency markets alone. The decision will take effect from 1 April 2025 and will run until 31 December 2029.
In the letter explaining the regulator’s decision to grant the exemptions, James Hill, principal policy expert in electricity system operation at Ofgem, stated: “We agree with NESO’s ongoing approach in trying to achieve compliant procurement across its frequency response services in general by minimising non-compliant procurement and maximising market access and efficiency across its service suite.”
Hill added: “According to NGESO’s submission, development of IT to modify MFR could take around 5 years. Given this timeframe is similar to that of NESO’s other planned reforms, there is no loss or deferral of benefits through our decision to grant an exemption and derogation for MFR.”
Big changes in capacity and frequency balancing ahead
The tail end of 2024 saw some major moves in the capacity market and frequency balancing sectors, which could significantly change the way these services function.
On 3 December, NESO launched the first phase of its new frequency balancing service, Quick Reserve, which replaces the existing Fast Reserve service. According to NESO, the first phase of the system will make system balancing much more efficient, which could deliver consumer savings of as much as £29 – £32 million each year. The second phase of the service will be delivered in the summer of 2025.
Later that month, the Department for Energy Security and Net Zero (DESNZ) opened a call for evidence into modernisation of the capacity market. DESNZ is seeking views on how consumer-led flexibility operates within the capacity market to ensure that this properly reflects market conditions, while also aiming to change the system to better enable participation in the scheme.
