Can National Grid hit its 2020 demand-side response target?


shoot_targetIn June last year National Grid committed to procuring 30-50% of balancing services from demand-side sources rather than power stations. Since then the system operator has embarked upon a major engagement push.

For the second phase of its Power Responsive campaign, National Grid has promised to turn engagement into action. The hope from much of the demand-side response sector is that it will make the balancing markets easier to access.

While the energy system is changing more rapidly than ever before, scaling the demand-side response market to that level will be challenging, particularly if Grid’s spend on balancing services doubles to £2bn over that time frame.

Can the system operator and the demand-side response sector achieve that scale over the next four years?

“It will be difficult to achieve,” said Eamonn Boland of Baringa Partners.

He thinks part of the reason is that it is difficult for aggregators to acquire sizeable portfolios. Intense competition for the same large I&C-type multisite customers and the cost of sales for bringing smaller companies into the balancing markets can be prohibitive.

“If [aggregators] are having to go round to 30 or 40 parties each with a half megawatt in order to build a 15-20MW portfolio, that cost is very high,” said Boland. “Because you are doing it on a site-by-site basis, bilateral negotiation, bringing those people up to speed on what are complex products and potentially complex offerings.”

While many in the industry call for simplification of the market by policymakers and delivery bodies, Boland is unsure it would make much difference.

“It is difficult to see how that could change from a regulatory or policy standpoint other than the market just becoming more informed,” he said. “Then if those 30-40 individual sites are more open to the conversation with aggregators then the cost of sales would decrease,” he said.

“But we are not there now.”

Dr Philippa Hardy, senior analyst at consultancy Delta-ee, agrees that there are challenges in bringing more business into balancing. Customer awareness remains an issue, she said. Complexity, trust, time and effort are also barriers from a customer perspective – which she said are compounded by mixed messages from market actors.

However, she thinks that those barriers can be overcome.

I’m optimistic that we can meet the target because the UK market has lots of innovators and we are seeing increasing interest from a wide variety of well-resourced companies that are currently not active in demand-side response. It is quite a lively space,” she said.

“As long as the revenues are there, challenges are addressed and we continue to go about it with the customer at the heart of it, I really don’t see why that target can’t be met.”

Bad experiences will hinder the market, said Hardy. “But so far, that has not been the case.”

Jon Ferris, a director at TPI firm Utilitywise, said the 2020 target could be hit – but questioned the definition of ‘demand-side response’.

“How much comes from behind the meter generation and how much from turn down is probably the pertinent question,” he said. “I think it might be a stretch.”

Perhaps more pertinent, said Ferris, was how much Grid would have to spend on balancing services over a period of significant market change.

Quoting National Grid’s head of electricity network development, The Telegraph recently put that spend at £2bn by 2021, around double today’s cost.

If that is the case, said Ferris, “then 30-50% is going to be a pretty tough target”.

Yoav Zingher, CEO of aggregator Kiwi Power, believes National Grid should set interim targets – and hold itself accountable to delivering them.

“We think it is vital – because if you don’t have a target, we are just going to see the same results. And that is bad for consumers.”

Does the 2020 target itself not count?

“We think that is a terrific target, but we should have annual targets leading up to that which are reasonable so that we can measure progress. It is really important that National Grid does that.”

Cordi O’Hara, director, UK system operator at National Grid, said at this summer’s Power Responsive event that targets for specific technologies “imply technology winners” and ran “contrary to competition and a level playing field”. Instead, Grid would work on simplifying products to improve balancing market access, she said.

Association for Decentralised Energy director Tim Rotheray thinks targets tend to be unenforceable – pointing to the fact that the Renewable Energy Directive has been effective, at least for electricity, because of the threat of external enforcement.

“I’m not a great fan of targets. What is more important is taking forward the commitment that has been made and testing to see how things work,” he said.

“Rather than spend time coming up with numbers and targets, just spend time doing the real work.”

The Energyst is putting together a conference and report on demand-side response. A handful of tickets remain available for the conference, which takes place in London on 8 September. Find out more here.

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