Ofgem is seeking dramatically to increase the number of energy market participants offering flexibility services, as a route to balancing power supplies and getting around chokepoints in increasingly contested networks.
It is doing so from November next year, by means of a technical change to Britain’s Balancing and Settlement Code known as Modification P415.
Released late on Friday, the regulator titles its changes ‘Facilitating access to wholesale markets for flexibility dispatched by Virtual Lead Parties’.
Virtual Lead Parties are aggregators that work on behalf of electricity generators and consumers to offer balancing services for the electricity system. Currently VLPs can only offer services only in the Balancing Mechanism.
That will change from November 2024, when VLPs will for the first time be permitted offer services in the wider wholesale electricity market.
Elexon is the arms-length platform which runs the Balancing and Settlement Code. Peter Stanley, its chief executive, responded to the Ofgem move: “We recognise the important and growing role flexibility has in electricity markets. Approval of P415 is an important breakthrough as it will give flexibility providers access to wholesale markets to realise the value of flexible assets.
“In 2019, Elexon opened up the Balancing Mechanism to independent aggregators by creating the Virtual Lead Party role” Stanley went on.
“Since then, we have delivered successive changes to the BSC which create more opportunities for these companies to compete in the provision of balancing services.
“We are excited to be implementing P415 on the Elexon Kinnect platform. In parallel, we will continue to work with industry and Ofgem to progress proposals for the associated compensation mechanism in the Balancing Mechanism for Suppliers and VLPs, in cases where Suppliers’ volumes are adjusted by VLPs.”
Initial industry reaction to Ofgem’s decision was positive. The Association for Decentralised Energy welcomed it as “a watershed moment for long-term energy affordability“ and “a pivotal move in making energy more affordable in the long-term for the public and businesses”.
The trade association noted P415 will be essential in insuring participation in the flexibility market. Once implemented, said the ADE, it will extend trading abilities beyond suppliers, generators and financial traders, allowing independent aggregators of flexibility to access the wholesale market.
Ofgem believes, the ADE noted, that P415 ‘will incentivise increased participation by consumers who can adjust their demand or generation in response to price signals in the wholesale electricity markets’ and also increase the level of flexibility participating in balancing markets, thereby contributing to security of supply and lower balancing costs for consumers’.
Sarah Honan, the ADE’s policy manager on flexibility, added: “Today is a watershed moment for the UK flexibility sector. Thanks to a decision by Ofgem, the wholesale market – where the vast majority of electricity is bought and sold – will open its doors to participants beyond suppliers, generators, and financial traders.
“Independent aggregators of demand flexibility, who will play a crucial role in decarbonising our electricity system, will be able to participate in our largest market. It is likely that we will look back on this decision as heralding a step-change in how we consider electricity market trading both in the wholesale market and beyond.”
For Ofgem’s decision in full, see the regulator’s letter approving the new P415 norm.
