When the Electricity System Operator (ESO) finally laid out its plans for a second iteration of the demand flexibility service (DFS) at the end of August, long after the industry would have liked, the ESO appeared to have been sitting on its hands.
But while on the surface the plan appears to be a straight re-run of last year, with 12 tests scheduled and the guaranteed price held at £3/KWh, the ESO’s expectations that capacity will triple this winter to 1GW from 350MW hints at the improvements made to the “clunky” service following industry feedback.
It has replaced the manual process of removing meter duplications which suppliers cited as a major factor limiting their ability to use the service last year, while the inclusion of asset meters this year should allow many more industrial and commercial (I&C) customers to take part.
However, there is little to suggest the ESO’s prediction that capacity could reach as much as 2GW is realistic, as there are still many areas that need addressing.
Overall industry has welcomed the plans, recognising there wasn’t time to create a commercial in-market service or procure capacity in real time for this year.
“It’s really good that it’s back. The ESO continues to show leadership in this area. We want to make sure ESO and industry’s level of ambition on demand flexibility remains high, and this winter is key for demonstrating the overall potential for this as a real grid resource,” says Octopus global flexibility manager Kieron Stopforth.
The ESO cannot afford to rest on its laurels if it is to avoid criticism, as the importance of the DFS in stimulating particularly the domestic flex market has only increased since the delay to market wide half hourly settlement (MWHH).
Suppliers are keen to see the ESO carry through on its promise to develop the DFS into an in-market service for winter 2024, but major changes to existing flexibility markets will be needed.
In line with expectations
Electricity supplier trade body Energy UK says the plans for the DFS this year are largely in line with expectations, although the ESO could have confirmed the details earlier.
“Providers wanted more time to prepare but there is enough for them to be ambitious and grow the service,” says Naomi Baker, Energy UK’s senior policy manager. “The ESO has done a good job, industry always wants to go faster. I think the ESO has struck a good balance, they have got to try and minimise costs for consumers, they’ve got to work within existing market frameworks and within the powers that they have, but they are trying to grow the service and be ambitious.”
The ESO ruled out introducing a commercial service for the 2023-24 winter early on, with Baker agreeing there wasn’t time for the ESO to navigate the drawn-out approvals process.
However, it has made a series of key changes following consultation with the industry. “The ESO has made a lot of efforts there, last year was done in such a rush, it was probably the best that could have been done in the time but it was clunky, This year should run more smoothly.”
These include automating the process for removing duplicate meter numbers – a key restriction to growth last year.
“Customers can only sign up to use the service once, so there can only be one Meter Point Administration Number (MPAN) per household involved in the scheme. When the ESO did check then the duplicate would be out of the service until the problem could be resolved. Because it was done at such short notice and it wasn’t automated suppliers were left with a huge amount of administration.”
The ESO has also changed rules which prevented asset meters from participating in the service if another asset or part of the site behind the same boundary meter was involved in another market or service, such as the capacity market.
The change will also mean that demand response from sub-metered assets can be more accurately measured, enabling the demand response to be better compensated, and increasing the incentive for customers to engage.
This should particularly help increase participation by the I&C sector but work still needs to be done to engage this sector more, says the Association for Decentralised Energy (ADE)’s demand flexibility policy manager Sarah Honan.
“I would hope to see a big increase in the service but unfortunately I think some of the parameters still existing around Capacity Market stacking and asset meter limitations may make it difficult to achieve [the ESO’s expectations],” she says. “But we were all surprised by the level of public engagement last winter, it could very likely be increased this winter.”
There is no data on I&C participation to date as all the consumer research undertaken has focussed on domestic customers, but Honan says there is a lot of latent capacity which is being underutilised, such as the 1-3GW which was previously used in triad.
“So much of the press last year, because of the unprecedented nature of the service, was focused on the domestic angle. The ESO has been working on an engagement plan for I&C which is really good and will hopefully encourage more participation,” she says.
While the ESO has acted on much of the industry’s feedback, it has refused to allow capacity entered into the DFS to also be involved in the capacity market, which was one of the industry’s key asks.
The ESO wants the DFS to be an added resource to the capacity market, but in Energy UK’s response to the ESO’s consultation on behalf of the industry working group it said it was “disappointed” by the decision.
It said the move locks out I&C assets from providing active balancing this winter, while pointing out that the design of the capacity market was to be stackable rather than to ‘lock’ assets in. Energy UK said that enabling stacking would increase the incentive for I&C customers to engage in DSR, which would help build the market and help limit the extra consumption expected at peak times due to the end of triad.
Honan agrees the ESO’s decision is “a shame” but adds that the ADE is working with the ESO to allow this in future.
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