Last week, National Grid announced a rationalisation of its frequency response balancing services as part of its wider review of the needs of the electricity system. As the electricity system becomes more decentralised with an increasing contribution from intermittent sources of generation, the traditional methods of balancing the system and controlling system frequency are increasingly inadequate. There is a greater risk of rapid changes to frequency that could lead to faults so a greater volume and speed of frequency response is needed.
Over the past few years, National Grid has introduced various new products and services to enhance its toolkit, however many of these have overlapping features and the overall picture has become complex and inefficient. National Grid is running a number of projects aimed at rationalising and re-designing its approach to the procurement of balancing services.
Rationalising frequency response services
According to National Grid, the Firm Frequency Response (“FFR”) service is the primary entry product for new providers of balancing services.
“Since January 2017 we have seen a 23-fold increase in the number of tenders received, with 206 tenders received in August alone. This makes interpreting the market very difficult, both for the SO and industry, due to the volume and variability of tenders.”
National Grid has assessed its product suite and decided to remove certain products it deems obsolete or that provider functionality that is being or will be provided through other means. This includes removal of the Enhanced Frequency Response service which was only introduced last year, as well as two Short-Term Operating Reserve (“STOR”) services which are being replaced in the re-design of the STOR market more broadly.
The EFR market, defined as being a service that achieves 100% active power output at 1 second (or less) of registering a frequency deviation, has been particularly short-lived, with just one tender in 2016. The tender was significantly over-subscribed, with just over 200 MW being secured by National Grid under 4-year contracts, at unexpectedly low prices.
All of the winning sites were un-built battery storage projects, and there were a significant number of similar projects which failed to secure contracts, indicating the degree of interest in development of the battery storage industry. However observers expressed concern over the low pricing and short contract tenors – battery projects would need to stack a number of such revenue streams in order to be financially viable.
Enhanced Frequency Control
The Enhanced Frequency Control Capability (“EFCC”) project is a 3-year project led by National Grid to address the growing challenges of maintaining frequency stability at 50 Hz. A wide-area monitoring and control system is being trialled to provide frequency data at a regional level, providing the control room with accurate, real time information that will inform balancing decisions.
The scheme will be used to evaluate the potential contributions from renewable technologies including wind and solar, in the development of new fast response balancing services.
Demonstration of the GE Grid Solutions monitoring and control system (MCS) and handing it over to project partners for validation and field trials;
Sucessful site acceptance tests were completed at the University of Manchester, the University of Strathclyde and at the solar PV plant owned and operated by Belectric;
Working with DONG Energy and Siemens to agree an approach to potential wind turbine trials. The aim will be to demonstrate a windfarm’s ability to provide fast frequency response;
Finalisation of the necessary contracts for Flexitricity to progress with the trial phase of the DSR project across the three DSR categories: static Rate of Change of Frequency (“RoCoF”), real inertia and simulated inertia/dynamic RoCoF.
Route to market for providers of balancing services
By tender or bilateral contract with the Transmission System Operator (non BM, Ancillary Services);
Using a third party such as Aggregator / Supplier, who can use either route, acting as an umbrella for smaller service providers.
The various services are procured under arrangements governed by the Balancing and Settlement Code (“BSC”), and various modifications are under consideration in relation to the provision of balancing services:
Implementation of TERRE (P344): this modification will facilitate participation in the pan-European Replacement Reserve market, and will include a mechanism for those currently outside the BM to participate in the BM systems;
BM Lite (P355): this initiative seeks to widen access to the BM by enabling smaller parties to group together to form larger BMUs, with potentially reduced obligations. There may be some overlap with the TERRE implementation, and National Grid is working to ensure the solutions are consistent and compatible;
Non-BM spill (P354): this modification would introduce an imbalance adjustment for all providers of balancing services, to remove spill payments to ancillary service providers outside the BM, and is required under EU rules.
There is a common theme in many of the code changes being explored by both National Grid and Ofgem, in terms of broadening market access for new, non-traditional providers of flexibility. Existing arrangements present a number of barriers to entry: industry codes are extremely complex and the requirements are not always transparent, and installation of the necessary communications and scheduling systems is expensive.
The governance arrangements themselves can also inhibit the entry of new providers, since code modification working groups are generally comprised of existing parties to the code, and potential new entrants must secure the support of an existing party to influence the process. Where conflicts of interest exist between existing parties and potential new entrants, there are concerns that the interests of new entrants (and therefore potentially of consumers) are not being properly met.
Interested parties do however have the opportunity to participate in consultations relating to proposed code modifications and other initiatives, however the most active respondents are often established market participants. A recent Power Responsive working group observed that few industrial and commercial customers responded to the SNAPS consultation – possibly due to resourcing issues – and that very few industry groups involve customers.
Clarity needed to support business cases
New technologies participating in the balancing services markets are likely to need to stack revenues from multiple sources in order to be viable. At an event last week, Claire Spedding, head of business development at National Grid warned that the market for frequency response, particularly fast frequency response (“FFR”) might be limited:
“I would make one appeal, which is: don’t put all of your eggs in one basket and build your entire business case around FFR. It’s a small part of the opportunity that’s available. FFR is a finite market. It’s getting increasingly competitive and as you get more participation in the market the prices are going to cool down and we need to be looking at other revenue streams and stacking revenue streams together.”
FFR rewards the ability to respond to low and high deviations in grid frequency, from responding within 10 seconds of receiving a signal and sustaining output for 20 seconds at low frequency, to responding within 10 seconds and sustaining output indefinitely at high frequency.
Project developers will be waiting keenly for more information on the wider balancing services reform and the new product suites which they hope will provide the necessary revenues to support their investments.
Market participants will also be hoping that the new arrangements will have a greater degree of transparency and will provide a level playing field for all types of providers.