With demand for flexibility on the rise, John Hayling of AMT-SYBEX explains why more organisations should participate in local energy markets
There’s been a lot of talk about how the UK needs its distribution network operators (DNOs) to evolve into distribution system operators (DSOs) in order to meet the challenges of a 21st century energy network. We’ve even covered the subject ourselves in a previous Know How.
As a quick summary: the increase in renewable electricity generation such as solar panels and storage including a large uptake in electric vehicles means that distribution networks need to get smarter in order to balance supply and demand.
One way to ensure that networks can handle fluctuating supply and demand is to build new assets, traditionally or smarter such as large-scale energy storage systems. However, while storage can work well as a means of balancing the grid on a national level, the challenge for DSOs will be to handle constraints on a more local scale, within each group of substations. With today’s technology, it is simply not economically viable to build storage systems at every major node in each of the distribution networks.
Instead, DSOs will require new markets from where they can purchase flexibility services from local companies to help them operate their network. If the DSO needs extra capacity for a certain period, they can call upon these companies to either reduce their consumption (for example, turning down their use of the air conditioning) or provide additional generation (for example, switching on their backup generator and connecting it to the grid).
Making flexibility work
DSOs are working hard to get these new local markets up and running as quickly as possible and putting the required systems and processes in place to handle market interactions. At Western Power Distribution, for example, the Electricity Flexibility and Forecasting System (EFFS) project will enable the company to forecast flexibility requirements and optimise the use of flexibility resources to maximise network reliability and minimise cost.
However, it takes two to tango. It doesn’t matter how well the DSOs prepare for these new markets if they can’t get other parties to participate in them. Without a wide range of companies acting as flexibility providers in each market, there will not be enough liquidity for the markets to function effectively.
Locality is the big problem here. If a transformer at a substation fails, the shortfall needs to be made up by flexibility providers within that same substation group—an area of perhaps 20 square miles.
While many large organisations, especially water companies and heavy industry, already act as flexibility providers for the National Grid transmission network, there simply aren’t enough pumping stations and steelworks in the country to provide the same flexibility services for every group of substations in each local distribution network. Unless there are sufficient providers, the use of flexibility by the new DSOs will fall short.
Spreading the net wider
Instead, the UK needs to recruit market participants who own assets that either generate sufficient amounts of electricity within each node of our distribution networks. Examples might include companies that manage large office buildings or shopping centres, whose heating and air conditioning systems could easily be turned down for short periods without any noticeable impact on employees or shoppers.
In many cases, these companies won’t have been involved in energy markets before. They won’t have the necessary infrastructure in place and may not even understand the benefits of participating. It’s up to the industry to raise awareness and educate these new potential participants, to make the markets commercially attractive to them, and to make it possible to get on board quickly and at minimal cost.
Making the business case for participation
So, let’s get started. If your business could potentially participate in local energy markets, what are the key points you need to understand about becoming a flexibility services provider?
- New revenue streams: while the precise commercial terms will vary between markets, in most cases participants can expect to earn fees just for making flexibility services available—even if the DSO never needs to use them. And if the DSO does call upon your business to provide generation or reduce consumption, you will also earn an additional utilisation fee for each megawatt you provide.
- Minimal business impact: in general, the UK’s electricity distribution networks are highly reliable, which means that in practice, DSOs will only rarely need to call upon their flexibility providers. In essence, you are providing an insurance policy for the DSO, not a regular service, which means the impact on your business is likely to be minimal. You might be asked to turn heating systems off for a short time which may only affect the temperature by a few degrees for a couple of hours once or twice per year, for example.
- Greater sustainability: for both geopolitical and ecological reasons, the UK needs to create a more efficient energy network, and all businesses will need to play their part. Working with DSOs to build smarter networks that do more with less is a matter of good corporate social responsibility, as well as good business sense.
- Low barriers to entry: aggregators can act as intermediaries between smaller participants and the markets themselves, providing services that make onboarding easy for new companies. For larger players, or companies who do want to interact with the markets directly, AMT-SYBEX provides a powerful, all-in-one solution that automates energy asset and market optimisation—helping to ensure that you always get the best price for the flexibility services you provide.
Taking the next step
If we can raise awareness about the upsides of these new energy markets and get new companies on board, it will be a key step towards a smarter grid future—where not only large enterprises but also small businesses and even homeowners will participate in a cleaner, more efficient energy market.
If you are wondering whether your business could benefit from participating in local energy markets, we’d be happy to help. Reach out to us today at firstname.lastname@example.org to learn more.