National Grid believes over 50% of balancing services came from demand-side providers last month. If that trend continues, the System Operator (SO) will have smashed its target of procuring 30-50% of balancing from DSR two years early, though some aggregators have questioned its definition of DSR.
As well as simplifying its array of contracted DSR products, the SO is now focusing attention on opening up the balancing mechanism (BM) to more sources of flexibility, while simultaneously working to connect with European markets.
Cathy McClay, head of commercial, electricity at National Grid, described the BM as “the ultimate flexibility market”. With the SO’s BM requirements potentially set to double by 2022, that could represent a prize pot for flexibility providers in excess of £500m.
Transmission connected generators and licenced suppliers currently have access to the BM, and National Grid plans to allow access to independents by the end of next year.
In the meantime, some aggregators are acquiring supply licences, believing that the prize is worth the hassle, particularly as contracted ancillary services prices feel the squeeze of greater competition.
Project Terre
Speaking at the Power Responsive conference, Chris Fox, National Grid’s balancing and settlement code manager, outlined challenges and opportunities in creating wider access both the BM, and the European reserve market, via Project Terre.
The aim is to improve access to the domestic balancing mechanism in parallel with Terre, which stands for trans-European replacement reserve exchange. Terre obliges National Grid and other transmission system operators to collaborate to build a European balancing market that will facilitate balancing in different regions.
Terre requires participants to be able to access the market on an equal footing. So National Grid is working on delivering wider BM and Terre access in tandem, with Terre scheduled to go live by 2019, though many are sceptical about the timetable.
Flex trading
When it goes live, the interplay between the BM and Terre trading strategies could prove interesting, Fox told delegates.
He said National Grid is attempting to design rules so that providers can participate in both markets simultaneously.
However, Terre will be ‘pay as cleared’ while the BM is ‘pay as bid’.
As a result, Fox said “war games” conducted with a number of traders found the pay as cleared system, coupled with cross border competition, created downward pressure on Terre prices as opposed to the BM.
Whereas the current set up incentivises participants to pull power out of the wholesale markets and bid it into the BM to take advantage of higher prices, cross-border competition through Terre, which National Grid will use to balance the system at lowest costs, could have a significant dampening effect: If participants bid too high into either market, they run the risk of not being activated.
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