Value judgement: Npower talks up transitional capacity market, Flexitricity talks it down

December 9, 2015

Npower is trying to drum up more interest from retailers in demand response provision ahead of the transitional capacity auction next month. The problem is, most retailers aren’t interested enough to take action.

Meanwhile, one of the largest commercial aggregators of demand response has warned that the transitional arrangements will return poor value to those that take part in them.

Flexible demeanour

Demand response involves companies changing their energy consumption patterns in return for payment from National Grid to help balance the UK’s power system. It will play an increasingly important role in balancing the grid in the years ahead.

Limiting factor

A survey commissioned by the supplier found less than half (46%) of retailers that could take part in the auction planned to do so. Three quarters of retailers surveyed said they did not know enough about demand response to make an informed decision about it.

The findings echo more extensive research by Energyst Media in June, which found that around 80% of firms had not been contacted or informed about demand side response opportunities by their energy supplier or by aggregators.

Yet the same percentage said they would provide balancing services if it did not affect their ability to do business.

Most of those surveyed by Energyst Media said they could shift up to 10% of their loads upon request. Almost a third (29%) believe up to 25% of their power usage could be made flexible. That statistic suggests National Grid can meet its ambitious target of delivering between 30% and 50% of system balancing from demand side response by 2020.

Nervous energy

While some retailers do participate in demand response schemes, Npower and other suppliers and aggregators have their work cut out in signing them up.

James Summerbell, formerly head of energy at Tesco turned consultant at JES Advisory, said retailers were reluctant to look beyond their core business priorities.

Tesco has some 300MW baseload consumption, rising to roughly 360MW at peak, according to Summerbell. Around 100MW is HVAC with a further 100MW of refrigeration, “so there is a lot of kit that can be turned up or down, which represents significant potential”, he delegates at the launch of the 2015 Demand Side Response report.

However, while Tesco actively managed peak prices via Triad, Summerbell said it was less involved in the active demand side response programmes National Grid wants to scale.

“We looked at frequency response [a fast form of grid balancing], and every source of revenue for short term demand management,” said Summerbell. “What we found was that it was very difficult to unlock.”

Tesco, he said, “is in the business of running shops, it is not an energy company, so alarm bells ring when you start to talk about turning fridges and freezers on and off. They have frozen turkeys to think about. Therefore the risks and perceived risks are quite big barriers.”

Those risks can be overcome with set point controls, he said, but there is a cost involved and “certainty of income is an issue”.

Summerbell agreed that National Grid must make future programmes “simple, accessible and provide certainty” if it is to reach its stated goal.

Bad for business

Speaking about its own survey, Npower’s Wayne Mitchell said it was down to industry and government to push the benefits of demand side response to businesses. He said the lack of knowledge about the January capacity auction was “very disappointing”.

However, the transitional auction is by no means flavour of the month.

Dr Alastair Martin, founder of aggregator Flexitricity, which has a portfolio north of 300MW, recently told The Energyst the firm was reluctant to take part in the transitional auction.

“The transitional arrangement superficially looks attractive, but I firmly hold the view that the transitional arrangements are not good for demand side response,” he said. “They are essentially a poor choice.”

Flexitricity instead plumped for the main capacity auction and Martin said it will not put customers into the transitional auction “unless there is a very good reason related to their [specific] site to do so”.

Heavy messing

Involved in the development of the capacity market with the Department of Energy and Climate Change, Martin described the process as “heavy going”.

“It is by no means a perfect mechanism but we found ways to make it work,” he said, “which is why we took such a strong position in the first capacity auction.”

However, Martin warned that there was “very poor certainty in the transitional arrangements… and there is good reason for expecting the long-term value to be significantly poorer [than the main capacity auction]”.

Want to know more about demand side response? Download our free report, co-sponsored by aggregator Open Energi and National Grid. It contains full survey results alongside views from market participants, National Grid, aggregators and energy experts on how the market must evolve in order to achieve scale. It also details the main market mechanisms and their requirements. Click here to download the report. Your email address is required, but we will never share your data.

Free download: Demand side response report 2015

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