In December, National Grid published a new roadmap for its frequency control and reserve markets, setting out the principles which are to govern the development of balancing services products with a view to providing greater clarity and investor certainty. Described in more detail below, the changes are designed to simplify the procurement process and allow a wider range of participants, including intermittent generators, to access the market.
In particular, trials will be undertaken to see whether procuring frequency control and reserve services closer to real time will work in practice, since it is believed this is necessary if wind and solar providers are to enter the market. It will be interesting to see the outcome of these trials, since the increasing need for these services is driven by the increasing levels of intermittency on the system.
“Neither wind nor solar currently pays the full costs to the system of its intermittence. They should,” – Dieter Helm
It is somewhat counter-intuitive to suggest that the causes of intermittency could be part of the solution, and care should be taken to ensure that generators are not over-rewarded if they are receiving revenues for services to offset the intermittency they themselves create. Dieter Helm suggested that the costs of intermittency should be borne by those that create it – allowing these generators to profit from providing ancillary services instead would not serve the best interests of consumers.
Updating the frequency response product suite
Frequency response overview
System frequency changes when there is a mismatch in the energy added to the system by generators and the energy withdrawn from the system by consumers – when there is insufficient power on the system to meet demand, the frequency will fall and vice versa. National Grid procures frequency response services to restore grid frequency when it supply/demand imbalances cause it to change, since a deviation of more than 0.1 Hz from the 50 Hz level can start to affect grid performance.
“Dynamic” response services are used to continuously follow and control minor deviations in frequency due to small imbalances in generation and demand, while “static” response is activated when a fixed frequency limit is breached, to contain large frequency events such as generator or demand trips.
Historically, National Grid has procured frequency response through a number of routes:
- Mandatory Services: these are ancillary services which certain transmission-connected parties (typically large generators) are required to provide to help manage short-term frequency variability arising from changes in the generation mix.
- Firm Frequency Response (“FFR”): parties can enter into a Framework Agreement to provide FFR based on an asset or combination of assets. FFR has been used to secure a committed level of frequency response on a longer term basis (1–24 months).
- Specific contracts, such as Frequency Control by Demand Management and Enhanced Frequency Response (“EFR”): used where technical or operational reasons prevented parties from participating in the other frequency markets.
Over the last couple of years National Grid has made a number of modifications to its frequency response products including the introduction of a Firm Frequency Response Bridging contract to remove barriers to entry for smaller parties, a reduction of the minimum participation size in FFR from 10 MW to 1 MW, allowing parties to stack two different FFR contracts so virtual power plants can grow, an increase in transparency through the Market Information Report, and reviewing and clarifying the testing guidance for Distributed Energy Resources (“DER”) providers.
Simplifying a complex market
National Grid expects that the baseline frequency response requirement will remain broadly stable over the longer-term, however closer to real time, the requirement is expected to become more variable as system inertia decreases with the increase in intermittent generation, and demand behaviour becomes increasingly reactive to market signals.
In order to respond to these changes, National Grid is reviewing its balancing and ancillary services procurement. In October it announced its intention to remove FFR Bridging, EFR and Frequency Control by Demand Management, although existing agreements will not be cancelled. After this, the remaining products will be those procured through the monthly FFR tender, and the mandatory within-day services.
The FFR market is to be improved to increase transparency and remove barriers to entry by providing more information in the post-tender report, providing more guidance on the assessment process, and changing the timeframes of the tender. These changes will be delivered by the end of Q1 2018.
Contract tenors and daily procurement windows may also be standardised. Currently, contract terms can be anything from 1 to 24 months which makes comparing tenders challenging. Going forward, contract terms are likely to be front month, front quarter and seasons going out 30 months.
Providers can also decide for which hours of the day they are available, further split by Working Days, Saturdays, and Sundays/Bank Holidays. National Grid will consult on the introduction of daily windows to align with EFA blocks, (every four hours starting from 23:00), although parties will still be able to provide different availabilities on weekdays, Saturday, and Sundays/bank holidays.
National Grid is exploring ways of simplifying its frequency response contracts, clarifying rights and obligations of all parties and making the drafting more accessible to parties without large legal teams.
Frequency response contracts contain exclusivity clauses to ensure resources are available when required. While the exclusivity is reflected in the price of the services, it is unlikely that this fully compensates providers for the inability to stack revenues, so National Grid is reviewing its use of exclusivity clauses. This could be particularly useful for Distribution System Operators who manage increasingly constrained networks, and could be prevented from procuring services from parties already under contract with National Grid.
Another barrier to entry relates to the process for upfront testing which can result in significant delays before a new site can enter the market and start to earn income. National Grid plans to review its testing and compliance policies to include a greater focus on ongoing performance monitoring. A new penalty structure will also be explored.
Closer to real-time procurement
The existing monthly procurement for FFR works well for providers who can forecast and control their availability over weeks and months, but acts as a barrier to others such as wind, solar and DER. National Grid plans to trial a closer to real-time procurement process using a pay as clear mechanism. The trial therefore procure frequency response at the week ahead, with the intention of reviewing the potential to move to day ahead later. A move from the current pay-as-bid tender to a cleared price auction approach is also under consideration.
The trial will include a full cost–benefit assessment of the hypotheses as well as understanding impacts on other markets (e.g. mandatory frequency response). A decision on implementation will be taken in Q4 2019.
Improved fast-acting FR
National Grid also sees scope for improving its fast-acting frequency response product. EFR was introduced in July 2016 but has already been flagged for retirement as new approaches are considered. EFR was designed to respond to both ongoing frequency variations as well as containing frequency excursions caused by sudden plant loss, but National Grid believes it may be more efficient to use fast-acting assets to deal with the problem of frequency containment alone.
Two types of containment product have been identified: static and dynamic, both with the characteristics of fast delivery of active power and short duration of delivery, as shown below
Similar changes are proposed to Reserve
Reserve market overview
Reserve is needed to ensure that imbalances arising from forecasting errors or unexpected losses on the system can be managed. It is manually instructed after automatic frequency response services have delivered and can be either upward (an increase in generation/decrease in demand) or downward (a decrease in generation/increase in demand).
Reserve is currently delivered through the following routes:
- Short Term Operating Reserve (“STOR”): used to manage short-term supply losses, local constraints or other variability due to changes in the generation and demand mix, delivering from instruction in five minutes or beyond. The market is accessed three times a year and the products have varying degrees of required firmness of availability.
- Fast Reserve (“FR”): accessed monthly to lock in a committed level of positive reserve long term (1–23 months), to manage short-term supply losses. It typically delivers in timescales of less than two minutes from instruction.
- Demand Turn-Up (“DTU”): typically an aggregation of true demand and behind the meter generation, provided through two products: Fixed and Flexible that deliver negative reserve either for the following summer (Fixed product) or the following half-week (Flexible product). It typically delivers in timescales of a few hours from instruction.
- Specific contracts, such as Optional Reserve: used where there are technical or operational reasons why parties cannot participate in the existing markets, or where there is currently no route to market for a specific additional service.
Simplifying a complex market
The amount of reserve procured by National Grid varies considerably depending on the conditions on the day and what has been tendered. As with frequency response, the baseline reserve requirement is expected to remain broadly similar, while the variability of the requirement closer to real time is rising.
In October last year, National Grid announced its intention to stop procurement of STOR Runway and Enhanced Optional STOR, although existing contracts will not be cancelled. In its new roadmap, National Grid has outlined its intention to review the remaining STOR and Fast Reserve products, and as with Frequency Response, efforts will be made to simplify contractual terms, re-evaluate exclusivity clauses, and increase standardisation.
National Grid has identified the initiation speed of STOR and the contract term for Fast Reserve as potential areas for standardisation. The STOR market currently allows providers to deliver energy with an initiation speed of up to 240 minutes. In practice, they are used for different reasons depending on whether the response time is faster or slower than 20 minutes: faster STOR tends to be used for frequency recovery, while slower STOR is used for margin recovery (also known as replacement reserve).
Although these services are considered differently, they are not differentiated contractually or in the published volume requirements. To increase transparency, National Grid intends to separate the STOR products into two groups based on the initiation speed. In addition, the definitions of within-day STOR windows will be reviewed to ensure that they align with the proposed new FFR windows, based on four-hour EFA blocks.
In the Fast Reserve market, providers can tender in for a contract term from 1 month to 10 years, which results in a high degree of variability in the offer. To improve comparability, National Grid expects to continue with a month-ahead tender every month, with longer time periods available every quarter. It is also proposing to remove the Long-Term contract term tender until the implementation of TERRE and MARI (see box) which will shape the future of balancing and reserve markets.
Auctions in Reserve markets
As with frequency response, existing procurement times for STOR and Fast Reserve work well for providers with the ability to forecast and control availability over longer periods, but hinder providers with more variable availability, therefore closer to real-time procurement could open the market to a greater number of providers. Industry feedback showed a strong preference for day-ahead procurement of reserve products.
The proposed FR trials described above will be used to evaluate the applicability of an auction approach with closer to real-time procurement and a pay as clear mechanism to the reserve market. One of the key considerations will be how the procurement of reserve services interacts with the procurement of new pan-European Standard Products for reserve and replacement reserve, as well as day-ahead energy markets.