GB Balancing Market Development
The Electricity Storage Network (ESN) published an open letter on July 26th to National Grid ESO, calling for urgent Balancing Mechanism (BM) reform. The ESN represents 80+ members (Open Energi included) across the GB electricity storage network, where many of whom overwhelmingly support speeding up such reforms.
It’s great to see ESN challenging the ESO, highlighting the necessity to increase the speed of BM reform, which in turn will support the ESO’s own net zero ambitions by minimising unnecessary barriers of investment in energy storage projects.
Balancing markets are crucial to enabling the deployment of low carbon flexibility, such as electricity storage, which are key to achieving the UK's aims of a resilient, affordable, and low carbon energy system.
However, several recent industry analyses (such as Modo Energy’s, referenced below) of BM dispatch efficiency show that batteries have been systematically "skipped" by the control room, despite pricing competitively in the merit order. In an efficient market, the cheapest available bid should be accepted first; a BM Bid/Offer is considered skipped when that is not the case.
Despite recent and positive improvements, which were set out as part of ESO's ‘Markets Roadmap’, the industry feels, by and large, that the current approach is not delivering on its own ambitions, and that the slow pace of digitalisation in the control room is making GB grid balancing more expensive for consumers, whilst contributing to higher than necessary carbon emissions.
This is risking billions of pounds of private investment in energy storage projects, all of which are crucial to delivering on the UK’s decarbonisation targets.
Investment decisions in the GB battery fleet pipeline are influenced by efficient dispatch of electricity storage assets in the BM, which could and should be an important part of the revenue stack for grid-connected batteries.
The ESO responded to ESN’S letter the following day, reiterating their commitment to “running the power system with zero carbon emissions by 2025 and recognise the importance of low carbon technologies in achieving this goal.”
The ESO believe they are on track to solving such operational challenges through their suite of reforms such as their Markets Roadmap and have already achieved better use of battery storage technology within the BM. ESO state volumes dispatched have significantly increased, resulting in the use of battery storage changing dramatically in the BM, showing an average month on month increase of 174% over the past year.
But according to analysis by Modo, batteries have been pricing competitively in the BM, and therefore “in merit”, but regularly “skipped” in favour of larger assets. Modo’s graphic below illustrates the GB battery market on average experienced a 91% skip rate within the BM.
Source Modo Energy
Notably, smaller assets such as Hill Farm, which is optimised by Open Energi, has an even higher “skip rate” than average. Even though its in-merit availability in the BM was shown to be the highest between January and July by Modo’s analysis (see below), it was skipped by the control room more than larger assets with similar availability.
As highlighted by Modo Energy’s Robyn Lucas “in an efficient market, high price should indicate lower demand (or dispatch) and low price should mean higher demand (or dispatch). Evidence of this relationship would indicate an efficient market (and all that that means).”
This demonstrates one of the difficulties facing the control room. Without better automation, the control room is seemingly unable to dispatch a higher number of in-merit smaller flexible assets versus a few large assets further down the merit order. Furthermore, ESO’s dispatch transparency codes don’t go far enough in explaining this consistent out-of-merit dispatching.
Source Modo Energy
Without transparent improvements in BM dispatch fairness, optimisers like Open Energi cannot fully utilise the BM as a predictable source of revenue generation or rebalancing because pricing into the BM creates a significant opportunity cost with alternative energy actions being lost out on elsewhere.
Our proprietary BM pricing tool examines a multitude of real time market factors to calculate economically optimum Bid/Offer prices. This pricing tool is well placed to capture increased potential value with an increasing volume of battery dispatches within the BM if reforms keep moving in the right direction.
It is frustrating to see batteries priced in merit but prevented from securing BM value due to outdated grid management systems. A frustration further enhanced given the increased saturation of ancillary service markets, meaning optimisers must increase creativity to deliver best possible returns. However, we do acknowledge the pressure National Grid and its ESO division are under to implement required change to support efficient net zero transition.
Whilst OE has all relevant technology (such as our propriety BM pricing tool) to maximise future value, its vital the grid management providers such as the ESO provide platforms with adequate capability to effect required change. Therefore, we applaud our friends and partners at the ESN and Modo for pushing for required change and highlighting current challenges respectively.
Whilst we currently still have a way to go for batteries to be recognised fairly within the BM, we look forward to seeing increased implementation of ESO’s Markets Roadmap and therefore applying our in-house developed technology to deliver market leading returns for our customers.
For more information on our offering, expertise, and experience, please do get in touch.
Article written by Open Energi’s David Maclean, Business Development Manager and Jonathan Bosch, Head of Data Science.