National Grid has indicated that changes to demand side response mechanisms may come as early as next year.
Speaking at a breakfast briefing hosted by Energyst Media in London on Thursday, contract services manager Mike Edgar said that the system operator had “no immediate” plans to make changes schemes such as Short Term Operating Reserve (STOR).
“I don’t see STOR changing significantly over the next 6-12 months,” said Edgar, but he said changes to demand side response mechanisms would be part of “a one to two year process”.
Edgar accepted that the multitude of DSR schemes currently in market are confusing for businesses and represent barriers to market scale.
A delegate from SSE pointed out the raft of current schemes – which include Firm Frequency Response, Bridging Frequency Response, Short Term Operating Reserve (STOR), STOR Runway, Demand Side Balancing Reserve and other products – made it difficult for businesses to pick a programme.
Edgar admitted it was “an absolute nightmare” for businesses. “That is precisely the type of thing we want to capture with Power Responsive and say, actually, some [schemes] do conflict and we do need to change some of the services we deploy.”
The system operator launched Power Responsive in June in a bid to engage more businesses in demand side response and develop more user-friendly products. National Grid is attempting to deliver up to 50% of system balancing from end users rather than generators by 2020.
Why so little I&C engagement?
National Grid is focusing initial efforts on industrial and commercial customers, which represent two thirds of national power demand. Those customers “are paying for the vast majority” of system balancing costs, said Edgar, “so the question is, why are they not doing more [DSR]?”
He said that National Grid recognised the need for simplicity, certainty and clarity to be made central to new DSR products – and that these should be built around users.
Speaking at the briefing, James Summerbell, former head of energy at Tesco turned consultant at JES Advisory, said National Grid must simplify its language as well as its products.
“For years National Grid has dealt with the same handful of suppliers and that language just doesn’t resonate with end consumers,” said Summerbell. “It is hard, but National Grid must learn a new language.”
Tesco has some 300MW baseload consumption, rising to roughly 360MW at peak. 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.”
However, while Tesco actively managed peak prices via Triad, it was less involved in the active demand side response programmes National Grid wants to scale.
“We looked at frequency response, 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 with the prognosis that National Grid must make future programmes “simple, accessible and provide certainty” if it is to reach its stated goal.
Jon Ferris, head of energy markets at Utilitywise, pointed out that further conflicts were likely to arise as policy levers such as the capacity market has “the potential to dampen price volatility” as do demand response programmes while Ofgem’s Balancing and Settlement Significant Code Review was trying to increase volatility. “It is hard for everyone to keep up,” he said.
Ferris also pointed out that reducing peaks would reduce load factors of existing plant further, thereby making plant economics less viable and potentially adding to a looming capacity crunch.
Part of the difficulty in scaling demand response like in the fact that there is no real market to emulate, other than “pockets of value around the world,” said National Grid’s Edgar.
Chris Kimmett, commercial manager at Open Energi, which co-sponsored the briefing, admitted that industry was “not even close to a perfect model” to emulate. “But [DSR] is relatively new, hence the need to engage with industry.”
The commercial and industrial sector was “such an untapped resource” Kimmett added. He applauded National Grid’s goal to rapidly scale DSR via I&C markets but said “there is no clear path there as yet.”
National Grid must play the role of “honesty broker”, said Kimmett, and in the rush to scale, industry must remain “as honest and open as we can… Trust takes years to build and seconds to lose.”
Over to suppliers and TPIs
Edgar said that while National Grid was working on creating customer-centric products, it was also incumbent on energy suppliers and third party intermediaries to act as facilitators.
“There are a number of areas we need to look at,” said Edgar. “As a collective we need to ask, what is the proposition? I firmly believe time of use tariffs will grow significantly. [As more businesses and ultimately households] have the opportunity to settle on a half hourly basis, it is therefore up to suppliers and TPIs to provide those tariffs.”
One thing is for sure, said Edgar. “Energy is not going to get any cheaper.”
The breakfast briefing was part of the recent report Demand Side Response: Bringing businesses into balancing produced by Energyst Media and supported by National Grid and Open Energi. It is based on a survey of 118 businesses as well as interviews with industry stakeholders around the barriers to market scale. Download your free copy here.