Alex Howard, Head of Strategy, Origami
As Britain’s Electricity System Operator (ESO), National Grid’s primary purpose is to balance supply and demand in real time, so that our homes and businesses have the power we need, whenever we need it. To do this, the ESO procures services from electricity generators and users through various markets and mechanisms. Its approach has helped to maintain the quality and security of electrical supply across Britain’s transmission system for many years.
The Balancing Mechanism (BM) is one of the ways that National Grid balances electricity across Great Britain close-to-real-time. The BM also enables National Grid to maintain an even flow of power across the network throughout the length and breadth of Great Britain. In other words, the BM has a locational dimension too.
During 2018, National Grid published a roadmap to widen access to the BM so that it is “open to all technologies and providers, with no significant barriers to entry”. National Grid is rolling out the Wider Access (WA) programme over the coming months so that it becomes available to participants operating smaller, distributed assets.
Historically, the BM has been a means of National Grid calling on major power generators, such as large thermal power stations and pumped hydro facilities, to change their generation schedules to produce more – or less – energy. The BM’s current contractual and operational mechanisms were designed for these legacy energy systems.
With a commitment to eliminate coal from its energy mix by 2025, Great Britain has embarked on a programme to decommission many of its thermal generators. National Grid recognises the need to compensate for the anticipated fall in flexible, dispatchable generation on the system alongside the growth in renewables, which will require more flexibility.
As today’s energy grid increasingly moves towards smaller, distributed generators and suppliers, National Grid believes opening up the BM so that smaller distributed assets can more easily participate, will enable it to continue to meet its obligations, reliably and efficiently.
A further motive for enabling Wider Access to the BM are the ESO’s ambitions to decarbonise the electricity system. National Grid has a vision to balance the system in a zero-carbon way by 2030, which it is delivering through its System Operator Innovation Strategy. Implementing the strategy requires moving towards the use of smaller, low-carbon assets, including energy storage technologies.
Ultimately, National Grid wants to see Wider Access deliver more flexibility, lower carbon, increased competition and reduced transmission costs for consumers.
Opportunities for smaller assets
Before Wider Access, participating in the BM required a supply or generation licence, or a partner with such a license. The overheads involved in obtaining a supply licence mean that gaining direct access to the BM has not been cost-effective for owners and operators of smaller assets. Wider Access offers streamlined access to the BM for owners and operators of smaller assets, with no supply licence required.
While there is a qualification process for those applying for direct access to the BM, National Grid’s aim is to make access as straightforward as possible. In the past, participants used to have to physically install dedicated hardware to access the BM. For Wider Access, National Grid is investing in its IT systems so that access is through software interfaces.
The practical barriers to accessing the BM are lower with Wider Access, however there is still an awareness and education issue to be addressed. Established players in the market will have an advantage over new entrants in understanding what National Grid is looking for, what’s useful at different times and therefore what bids are more likely to be accepted.
National Grid recognises that it must change its systems and practices so that they don’t favour an approach that instructs a small number of large assets rather than a large number of small assets. National Grid now operates a desk within its control room that recognises smaller distributed assets and ensures that they consider them fairly against legacy assets and established market participants.
National Grid uses a participant’s trading in wholesale markets as a starting point to instruct them up or down in the BM, which means that being active in the BM is a complementary way to stack revenue and earn incremental revenue from an asset. A participant receives revenue from trading in the wholesale market and even if National Grid then issues an instruction to turn off the plant – because that’s what they need for balancing purposes – the participant is still paid for the wholesale trade.
Wider Access helps enable access to a new market called TERRE – the Trans European Replacement Reserves Exchange. TERRE brings together nine European countries, including Great Britain, to trade flexibility within a cross border balancing market. Qualifying for BM Wider Access will also give participants access to TERRE, helping to support electricity network operation across Europe. Latest indications are that TERRE will go live during the summer of 2020, after BM Wider Access has been introduced.
The advent of Wider Access – even before it has launched – has stimulated an influx of flexibility into the BM through licensed suppliers. It looks like it may be the catalyst that disrupts the balancing markets as prices are becoming more competitive and licensed suppliers are rethinking their value propositions to customers.
As new capacity gains direct access to the BM, we expect to see strategy changes for those operating in the BM. Some may have very different ideas about how to maximise value, for example what capacity to offer, in which location and at what price. These changes may force other players to adapt – including the established participants.
Wider Access is a significant change for the BM, and we expect some disruption to the established rules of thumb. It may take a couple of years to establish the ‘new normal’.
With Wider Access, National Grid is launching an initiative that aligns with the drivers of a decentralised and decarbonised energy system, while optimised trading of a large number of smaller assets will undoubtedly require access to the third important energy driver – digital technology. Managing the complexity associated with trading a portfolio of assets across multiple markets – and optimising value from those markets – will require the use of automated decision support and optimisation tools.