As the share of renewables in the UK energy system increases, so does the need for flexibility in the grid. To achieve this operational goal, the National Grid is more and more shifting its focus away from traditional energy providers to those outside of the sector.
Most recently, the UK’s third largest supermarket chain Asda announced it will use fridges located in 300 of its stores and 18 distribution depots to act as a ‘virtual battery pack’ to support the grid. When demand for electricity needs to be reduced to balance operations to avoid a blackout, energy to the fridges will be cut at short notice. This will free up 13MW of power from the grid – enough to power 8,500 homes.
Of the contract, Asda’s energy manager, Peter Smith, has said it was a ‘no brainer’, as the company can easily cut this electricity while keeping the temperature of its stores stable. Meanwhile, management of the service is entirely run by energy aggregator, Flexitricity. Therefore, with little effort, the supermarket chain will receive a new revenue stream and contribute to lowering its emissions. A no-brainer, certainly.
However, while this service, which is known as demand side response (DSR), is a win-win for both the National Grid and companies with energy intensive assets, industry insiders says it faces several challenges to expanding.
The importance of DSR
“Demand side response is making use of a resource that already exists,” explains James Sprinz, head of decentralized energy at BloombergNEF, “It’s using the inherent or latent flexibility that is already within the system.”
DSR works when energy aggregators, such as Limejump and Flexitricity, manage a pool of electricity users and small-scale producers, to, at sub-second response times, supply energy or reduce electricity demand, depending on what’s needed to balance the grid.
While most of the £1bn National Grid pays out in contracts through its energy capacity market is still awarded to power plants, those going to aggregated energy firms are on the increase.
In fact, last year, National Grid established the GB Balancing Mechanism Market to enable small generators, battery storage and DSR providers to compete with larger power plants to offer power and services to the grid. And this year, within National Grid’s control room, a new Distributed Resource Desk has been created to enable power system engineers to give instructions much faster to these providers.
National Grid reported that within the first 24 hours of operation, the number of bids and offers accepted by the control room from aggregated providers was 87MWh, up 113% on average.
In August, DSR operators, including Flextricity, provided vital support during a rare power cut across parts of the UK. When a combined-cycle gas turbine power plant and offshore wind farm tripped, Flextricity was asked to switch its battery charging aggregation into discharging, helping to fill in the power gap.
However, despite clear support from National Grid for more DSR to balance the grid, the UK market is growing less quickly than expected, says Sprinz. This is, he says, reflected in the fact that many DSR companies started as start-ups but, unable to continue alone, have been acquired. Kiwigrid and Limejump have both been bought-up by bigger market players.
Market challenges
Increasing competition in the DSR market has seen prices fall for services such as Firm Frequency Response (FFR). This is the type of flexibility Asda provides with its fridges. The average price for static FFR decreased from £46.18/hour in 2017 to £32.46/hour in 2018.
However, as more competition has entered the market, including from batteries and virtual power plants, the ability of the grid to take advantage of it has remained limited. A key prohibitor for demand response is the rules and regulations of the market were created primarily with large fossil fuel-based power plants in mind, says Sprinz. The market is structured with a minimum size to operate and long contracts are favoured towards bigger power producers.
“In the UK capacity market, an issue was that DSR companies only received a one-year contract, while coal plants got 10 years,” says Sprinz. “Therefore, these companies would argue they are not operating on a level playing field because they are having to compete on rules designed for incumbent technology, rather than rules designed to maximise the benefits of every technology.”
Dr.Alastair Martin, CSO at Flexitricity says the market has been challenging and they have had to change with it.
Martin says he is not angling for change in regulation but is pleased that following the August blackouts National Grid has raised the question ‘about whether the methodology used to appraise security is the right one.’
Future of DSR in the UK market
Internationally, there are good examples of DSR technology taking up market share that the UK could follow.
In the PJM Energy Market in the US, which is one of the largest in the world, DSR makes up around 5-7% of its capacity market. That is multiple gigawatts of capacity. In Texas, where Sprinz says rules are considered good for its equivalent of FFR, it makes up 60%.
“DSR should always be the first port of call,” says Sprinz. This is because it’s much cheaper, for one thing.
“Asda, for example, can’t turn its fridges off all the time but it can do it much more than most would think, the cost of doing that compared to building a new asset is much lower,” he explains.
Furthermore, Sprinz says aggregate battery capacity is limited compared to demand response that is already in the market and there’s plenty of potential for more.
In fact, many others are already starting to do it. Centrica plans to use its customers’ smart home energy devices to create a virtual power plant and Tesco has also run DSR trials with its fridge network.
Assuming the policy environment changes, which Sprinz expects, BNEF has a bullish outlook for DSR in the UK market. In a report published last year, it stated it expects the UK to adds 14GW of distributed capacity by 2035, made up of rooftop solar, behind-the-meter batteries, and demand response. Martin believes the UK will need more DSR to meet its climate commitments.
However, as noted in BNEF’s report, industry is not just looking at pure DSR, but virtual power plants, which incorporate energy storage, batteries and other types of assets that are flexible and aggregated through a platform, similar to DSR.
“That is what the future looks like – not just flexibility provided by fridges but Asda might also have its own batteries which it uses together with its fridges,” he says.
