SmartestEnergy calls for greater support and long-term certainty for innovative flexibility

The UK is not doing enough to develop Demand Side Response (DSR), a key technology in creating a cost-effective, low-carbon energy system, according to electricity supplier and flexibility aggregator SmartestEnergy.

The company called for a complete overhaul of the market to ensure the energy system took full advantage of new technologies, and it warned that growth of DSR could suffer further when it has to compete against fossil fuel power stations in the Capacity Market going forward.

Tomorrow’s Transitional Arrangements (TA) auction will be the last reserved for DSR in the Capacity Market, which ensures there is enough electricity supply in the network to meet peak demand. SmartestEnergy has 100MW of DSR prequalified for the auction which will provide 300MW of capacity for 2017/18, and expects it to clear at a price of around £25/kW.

Robert Owens, Vice President of Asset Optimisation at Smartest Energy, said:

“This level of pricing would be consistent with what we saw in last year’s TA auction, which would start to give aggregators and customers some confidence in the business case for DSR. We need a long-term price signal to encourage all types of businesses, from grocers to manufacturers, to change the way they behave to help all of us manage the energy system."

The TA auction is for turn-down DSR only, offering payments to businesses for turning down non-essential energy use at times of high demand. The National Grid has set a target of meeting 30% to 50% of balancing services from DSR by 2020.

Fossil fuel power stations were big winners in the January’s capacity auction. Of the 54.4GW secured, gas won 40% of contracts while coal and biomass won 19%. DSR won just 209MW of contracts - 0.4% - and 583MW of projects exited before reaching the clearing price of £6.95/kW.

Mr Owens believes DSR will struggle to compete in the Capacity Market going forward unless action is taken soon to level the playing field with established technologies.

“DSR needs to get to a point where it is considered equally alongside generation as a viable option to manage the system. This will be achieved through a combination of adapting schemes to meet the specific capabilities of DSR and through overall improvements in DSR performance such that it can demonstrably match the reliability of generation.”

SmartestEnergy believes the following changes are needed to increase uptake of DSR:

  • Certainty around the year-ahead T-1 having set aside DSR capacity
  • Potential to secure agreements through the capacity auction for more than 1 year
  • Changing testing to make it more suitable for DSR, but still robust enough to ensure delivery commitments are met
  • Consistently available longer term contracts with National Grid for Ancillary Services (including frequency response)

Mr Owens also commented on the role of aggregators in developing the UK’s DSR capability:

“As well as changes to the market structure, there needs to be some responsibility placed on the market participants to develop and deliver DSR in a credible, holistic way. Aggregators have an important role to play in building the market and establishing consistent pricing for flexibility, by providing products that match customers’ requirements and investment cycles.”
This includes making customers aware of opportunities outside the headline-grabbing schemes such as the Capacity Market.
“High peak energy costs still make a powerful business case for companies to provide DSR because of the savings they can make from avoiding peak energy prices. While there is some uncertainty around the ongoing availability of capacity contracts for DSR, we urge businesses to still invest in DSR because there are significant opportunities available from Ancillary Services and non-commodity cost savings.”

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