OPINION: Use trading platforms to share capacity and flexibility and drive decarbonisation

 Mark Bygraves, chief executive of Elexon, says that flexibility platforms can help decarbonise the electricity system

Earlier this year the government signed a historic piece of legislation committing Britain to a  binding target for ‘net zero’ carbon emissions by 2050.

To help achieve this, we must encourage greater flexibility in the electricity system. That means encouraging more demand side response (DSR) and unlocking the potential of battery storage to assist flexibility. We must also think again about how we manage grid capacity allocation, to avoid long queues of renewables, storage and other users waiting for connections.

We want one or more national platforms to be set up so that electricity flexibility offers can be traded with distribution network operators (DNOs) and with consumers, such as businesses, that might need more electricity at certain times.

DSR aggregators, storage operators and other flexibility providers are currently limited if they want to sell their services. Usually, flexibility is only purchased by National Grid ESO from large market participants. DNOs are increasingly tendering for flexibility services, but they decide what they need and set the price.

This system works if you have few options to choose from, and a limited number of providers. However if local flexibility providers or aggregators don’t win contracts from DNOs, they may have no other route to market. And for the DNOs, the limited choice could result in them overpaying.

There is likely to be more flexibility available in the future. For example, as more consumers buy electric vehicles, ‘vehicle to grid’ schemes could provide additional electricity to the networks when the cars are not in use. Both DNOs and flexibility providers will benefit from trading on flexibility platforms, as competition will reveal the true value that these services provide to the system.

Network capacity is expensive to deliver and takes time to build. In some areas of Britain there have been long queues of generators (particularly renewables) wanting connections.  The traditional approach to capacity allocation results in capacity being tied to a generator that does not use it 24/7.

Ofgem has been looking at reforming network access arrangements, and we believe that unused capacity can also be traded on the platforms with market–based prices. For example, a solar generator connected to the grid is unlikely to need the connection after sunset each day, and may be prepared to trade some of its capacity with a storage operator that can provide electricity during peak demand hours.

Unused capacity can also be traded on the platforms with market–based prices

The technology to support the platforms exists already. In many cases it has been developed by third party providers. Blockchain can support co-ordination of the actions of various DSR providers. Databases can also be created providing a clear view of the capability of DSR assets. As the needs of the system and the capabilities of service providers evolve, the platforms could introduce new markets.

Trials of how the platforms will work in practice are expected to get underway once government announces the winners of its £4m flexibility exchange competition. Elexon has a role to play in thisby providing our expertise in managing electricity settlement and knowledge of the central market arrangements to the winning platforms.

Imperial College London and the Carbon Trust predicted that flexibility services could provide up to £40 billion of benefits to consumers. Platforms to trade these services are a key component for unlocking those benefits.

For the platforms to be integrated smoothly into the electricity system, a regulatory framework must be introduced. Third party providers will have to work closely with DSR aggregators and DNOs. There are precedents for this. For example, in retail, price comparison websites help consumers compare offers, and many work closely with suppliers to market tariffs.

Ofgem can provide a framework defining the roles and responsibilities of DNOs and all other parties that want to use the exchanges

We believe Ofgem can provide a framework defining the roles and responsibilities of DNOs and all other parties that want to use the exchanges. The framework should set out how the exchanges should be operated and funded. Ofgem could agree incentives for DNOs to collaborate with the platforms via their price controls. As an industry it is important that we start working to deliver these platforms now, as Ofgem has already started to consult on its approach for their next price control review.

2050 seems a long time away. However, the scale of the decarbonisation challenge requires industry, government and Ofgem to work quickly to make the energy system more flexible. It is our firm belief that flexibility platforms will create market places that support greater flexibility. The task is for us now to all work together to make them a reality.

 First published in the November 2019 issue of New Power Report. Subscribers login to download the issue

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