Snap to it: the energy system needs to get flexible
As I sat down earlier this week to write my next blog, I was distracted by an incoming email alert: National Grid publishing their SNAPS consultation (System Needs and Product Strategy).
Now, this isn’t a new piece of policy to worry about, nor is it a change to any Building Regulation Code, Technical Memorandum or other document that governs energy management best practise. But, if you are using the GB electricity system, it is important.
If you’re operating entirely from Ireland or Northern Ireland, hang fire — this one doesn’t affect you. Although for alternate reading, the Single Electricity Market committee also recently published their Capacity Market Code setting out details on the NI&I Capacity Remuneration Mechanism.
What is the SNAPS review?
The SNAPS document essentially sets out what National Grid think we need to do to support and maintain the transmission network, but let’s start at the beginning….
As the System Operator, National Grid is responsible for two key things:
1. Operating and maintaining the high voltage transmission network (we pay for this through our Transmission Network Use of System, or TUoS charges)
2. Balancing the supply and demand of power across the network (we pay for this through other non-commodity costs like the Balancing Mechanism and the Capacity Mechanism)
This is a tough job. And bless their little cottony-socks, we do not make it any easier for them. Demand is becoming less predictable and the rise of solar and wind increases the volatility of supply. So, the system needs must be reviewed.
The reason for this consultation is to garner industry feedback on whether their proposals will work in practise.
It must attract grid and distribution (Tx and Dx) scale capacity and flexibility such as gas peaking plant or grid-scale storage. However, it must also work for end-users that want to provide flexibility, for example using behind-the-meter (BTM) storage or existing generation and UPS assets to control demand.
If you are managing energy contracts for a hospital, business, manufacturer, retailer, in fact any large end-user this could — if structured right — work to your benefit. If we don’t get it right, it’ll end up costing us a whole lot more in non-commodity costs and we all lose out.
Instead of making snap decisions that may later backfire, National Grid are asking for input on SNAPS to help them devise a considered and coherent strategy that works for you and me.
In preparing this analysis, National Grid have based demand forecasts on the market-driven ‘Consumer Power’ scenario from the 2016 Future Energy Systems model (blue line) which most closely tracks what is currently happening — demand is expected to increase by about 6% as the desire for the latest gadgets outstrips efficiency, but they are not assuming the mass move to electrification of transport and heat seen in the Gone Green scenario (green line) — Consumer Power is the middle road.
Tell me more…
The system operator currently has several tools for the task of system balancing, including:
- working with generators to refine output against forecasted demand,
- accessing flexible generation almost instantaneously when needed through the Balancing Mechanism; and
- purchasing other flexibility services
National Grid need to encourage more of us to provide flexibility but have received criticism about the complexity of how this is presented to the market.
The various flexibility schemes we can access include Cap Mech, EFR, FFR, MFR, STOR, BM, DTU, DEL, or Oh-FFS.
Actually, I made the last one up… but you get the drift.
There are currently 21 different ‘products’ for offering flexibility, not including the Capacity Market.
These are all procured differently and depending on what assets you have and what products you are accessing, it is not always possible to ‘stack’, or offer flexibility to more than one stream.
We know from previous workshops and conversations that this deters some “asset owners” (i.e. businesses that own back-up generation or storage) from offering flexibility, chiefly because it’s too darned confusing to figure out what is best for your business and how to manage it.
Therefore, National Grid wants to simplify this to a more manageable number of easily accessed products.
Give me the headline proposals
At this stage, National Grid are not advocating any single approach but are setting out ideas and options for us to feedback. The main proposals include:
- Replacing Enhanced Frequency Response (EFR) and Fast Frequency Response (FFR) with a new, simplified product. This product is earmarked for launch in March 2018.
- Introducing a new frequency response scheme which values technology that resolves inertia in the system.
- Introducing a new scheme for procuring reserve power — indicative release in 2018/19.
- Introducing a new scheme for reactive power — also to be made available by the end of 2018/19,
The document also asks for opinions on which procurement options work best when appointing flexibility contracts.
What is my personal view?
In my opinion, the review of flexibility services should be welcomed by end-users as it presents an opportunity to make participating in demand management much simpler.
All large energy consumers have on-site generators, storage, Uninterruptible Power Supplies or other forms of system resilience that could be employed much more effectively.
Grid needs people to assist them in system balancing. Energy Buyers and Managers need to reduce utilities costs and where possible, attract revenue… let’s talk!
However, we must avoid a situation where assets that are currently contracted under one of the schemes become ineligible for funding under the new regime.
Creating stranded assets will impact negatively on developers and asset owners, possibly the district network operators and definitely the investors. If that happens, lenders will be deterred from future investment in the grid and that will cause a whole load of problems. Never annoy the man with the money!
Specifically in terms of procurement for flexibility services, it looks as though auctions are preferred over bilateral agreements.
That’s not surprising: in the last EFR auction, bids became incredibly competitive — the winning tenders all came in under £12 per MW per hour of service (the median bid price was approximately £20 per MW) — pushing the price almost through the floor.
This was great for the storage providers that scooped up the auction round and great for National Grid for procuring so cheaply. The risk in amongst all the back-slapping is whether the developers can actually now afford to deliver. As a keen advocate of electricity storage, I do not want errors in contract management to unfairly erode faith in the technology. As an energy consumer, I do not want a stressed and under-funded grid infrastructure.
I also, and this is my personal opinion and not that of any organisation I work with, wish the regulator, government departments and other key agencies collaborated more effectively regarding upcoming proposals.
The EFR proposal in SNAPS is a classic example.
Ofgem recently consulted on the Capacity Market Rules. In this consultation, which only closed last month, section OF14 proposed adding Enhanced Frequency Response to the list of “relevant balancing services” in the Capacity Market, a move which seems to be widely supported. Now, National Grid are proposing to replace EFR meaning Ofgem may need to rethink their Capacity Market codes and regulations.
I think most people would agree when I say that a lack of clear, coherent, combined thinking across policy, regulation and network charging creates uncertainty in the industry and stifles progress.
I would also like to see a shift of responsibilities where balancing is managed at distribution level — i.e. the District Network Operators, not the System Operator, manage the ebb and flow of demand on a more localised level. I believe — and feel free to challenge me on this — that once the transition has happened, local balancing would be easier and therefore cheaper to deliver and so reduce costs for the consumer.
This may be happening — the Energy Networks Association have an Open Networks project looking at the transition to Distribution System Operators. I’m sure we will hear much more about that in due course.
In the meantime, I will be watching the SNAPS review with interest. I expect it will form the basis of some discussions at the Power Responsive event on 27th June and if you are interested in accessing flexibility schemes through Demand Side Response, keep the 7th September free for the Energyst’s DSR event.
Things could be about to get a whole lot more interesting.
Yours flexibly,
George
If you want to participate in the consultation, responses must be received by the 18th July 2017. Further details are on the SNAPs consultation webpage and I am happy to answer any questions as best I can.
For more detailed information, National Grid are running webinars on 3rd and 7th July, registration via Eventbrite
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