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Flexibility and the
Balancing Markets

Flexibility and the Balancing Markets

Published: 6th March 2019
Area: Corporate & Commercial
Author: Andrew Whitehead

A highly technical, but nonetheless ground breaking, development took place in the GB power sector at the end of February, with the opening up of the central balancing market to small scale power generators and commercial and industrial end users with flexible demand capabilities.

The Balancing Market (BM) is the “pay as bid” half-hourly market where National Grid, the GB system operator, procures additional power or demand reduction close to real time to help balance the system. To date, BM participation has generally only been possible for traditional generating plant, with smaller plant including battery storage and flexible demand response from commercial end users only able to participate indirectly through a licensed energy supplier.

The new changes, known as “Wider Access”, will open up the BM to these non-traditional players, via participation as so-called Virtual Lead Parties (VLPs). VLPs will be able to register an individual site as small as 1MW, or multiple sites within the same grid supply group, as so-called secondary Balancing Mechanism Units, against which bids and offers can be made to National Grid in the BM to adjust power output or demand to help National Grid with its real-time balancing.

Whilst VLPs will need to accede to the two principal GB Codes, the Connection and Use of System Code (CUSC) and the Balancing and Settlement Code (BSC), in order to access the BM, regulation is intended to be “light touch”. For example, since VLPs will not be licensed energy suppliers, they will not pay National Grid’s TNUoS or BSUoS charges.

A key point here is that, because the BM is used to access near real-time flexibility, prices can occasionally be very high. This offers a potentially very valuable new revenue stream to larger businesses able to manage their on-site demand flexibly. And it will provide a route to market for smaller end users via aggregators who will also be able to set themselves up as VLPs.

Wider Access is also important for National Grid. In recent years, the massive and continuing growth of distribution connected generation capacity, helped by subsidised renewables and more recently battery storage technologies, coupled with large coal plant closures, has resulted in a declining proportion of flexibility on the system available to National Grid in the BM. And this comes at a time when the intermittent nature of renewable generation capacity is driving a growing need for National Grid to maintain reserve options for balancing.

It was therefore a logical step for National Grid to announce last month the launch of its new “Distributed Resource Desk” in its national control room, to make it easier and quicker for the system operator to interact in real time with smaller generators, battery storage operators and demand side providers.

But these developments are also a part of the wider EU internal energy market (IEM) project. VLPs will be able to access the new European balancing platform, known as Project Terre (Trans-European Replacement Reserves Exchange). This will be a “pay as cleared” market, which is expected to go live in December this year. Born from one of the new EU Network Codes/Guidelines, TERRE aims to establish a pan-European market for balancing energy, by enabling National Grid, and its fellow participating European system operators, to access balancing services from facilities across their respective regions.

This in turn will offer yet another revenue opportunity for GB service providers, although quite how Brexit will play out for GB, and whether its participation in the IEM will continue, remains to be seen.

Further guidance on TERRE and Wider Access can be found on:
https://www.nationalgrideso.com/balancing-services/reserve-services/replacement-reserve-rr
and
https://www.elexon.co.uk/about/trading-electricty-market/terre-wider-access/

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