Changes in accepted BM offers: What’s the STORy?

In August 2018 National Grid (NG) made a change to its internal processes, restricting the operational window in which its staff could engage Short Term Operating Reserve (STOR) assets from four to two hours ahead of delivery. This has contributed to a significant reduction in the number and volume of STOR actions used to maintain headroom, as shown in Figure 1.

Graph showing decline in non-Balancing Mechanism STOR volume

In its October Operational Forum, National Grid noted concerns from market participants that long-duration flexible STOR actions were distorting the cash-out prices and effecting market efficiency, and as a result National Grid issued new guidance to reflect the short-term nature of the service.

NG uses Balancing Mechanism (BM) STOR for maintaining operational reserve – power available to the system operator (SO) to cope with short-term changes in supply and demand – the SO keeps enough operational reserve around to cope with the largest infeed loss and the margin of error on its demand and wind forecasts.

The reduction in STOR volumes is clearly illustrated in Figure 1, while Figure 2 gives the percentage split of accepted offer volumes through BM and STOR actions, segmented by generator size (small represents plant of less than 50MW capacity). In August 2018, small-scale STOR represented almost 8% of the cumulative accepted offer volume, but its contribution has not exceeded 4% since that date. In contrast, the cumulative proportion of accepted volume from large BM providers has risen from 88% in August 2018 to over 97% in March 2019.

Graph showing split of accepted offer volumes (Balancing Mechanism and STOR)

Power Responsive also released its 2018 annual report on 8 April 2019. It highlighted that NG saw an increase of 100% of new units entering in Ancillary Service markets compared to the previous year, with an average of 10 new units per month, and said that overall STOR utilisation increased by 49% in 2018 as a result of cheaper accepted prices in the service. While this represents a marked increase in participation, it does not necessarily reflect the decrease in utilisation of STOR after the operational changes made in August 2018.

The recent decline in STOR utilisation volumes may alter the behavior of providers in future tender rounds, potentially seeking lost value from higher availability fees or utilisation prices.

While this trend is concerning to many STOR market participants, there is a silver lining – NG is investing in new systems to bring wider access to the BM and Project TERRE (the European reserves exchange) and has created a new distributed resources desk to cope with the new volume of participants. The question arises, will wider access to the BM make up the difference for smaller participants who are seeing a reduction in their STOR utilisation volumes? Project TERRE and wider access to the BM is due to go live at the end of 2019.

In the future, Grid will be forced to do more to balance the system with smaller participants as the traditional providers of flexibility decline – and NG ESO has now committed to being able to balance a 100% low carbon system by 2025 – which will be impossible without the use of new smaller participants connecting in the distribution network.

For more information on Cornwall Insight’s services covering the Balancing Mechanism and Balancing Services, please contact t.dixon@cornwall-insight.com

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