National Grid ESO has just provided an update to its plans for the new Balancing Reserve service. The launch of the service had previously been put on hold - following Ofgem’s rejection of the previous plans.
Balancing Reserve will allow the ESO to contract its bulk reserve requirements at the day-ahead stage. Currently, it procures this through the Balancing Mechanism - sometimes at extremely high costs (up to £6,000/MWh on one occasion last winter!).
You can read more about the reasons behind the creation of Balancing Reserve - and what it will look like - here.
Proposed changes mean more battery assets will now be able to participate
The ESO's latest proposals will open the service to a wider range of assets than the initial design allowed for. Many more batteries - and other distributed flexible energy resources - will meet the new entry criteria.
Units now must have a minimum size of 1 MW to participate
The initial proposal for Balancing Reserve contained a minimum participation size of 50 MW. This meant that the service would only be accessible to the largest generation and flexibility assets on the system. This was one of the main reasons Ofgem rejected the initial design.
The new 1 MW threshold opens the service to any Balancing Mechanism Units (BMUs) meeting the other criteria.
Mandatory Frequency Response capability is no longer required to participate
The initial service design meant that participation would only have been open to assets with the ability to provide Mandatory Frequency Response. The idea behind this was that it would have allowed the control room to know how much Mandatory Frequency Response they could access ahead of time.
Currently, though, no batteries provide Mandatory Frequency Response. Along with the minimum size, this was the largest barrier to participation for batteries.
Aggregated units will now be able to participate - aggregated by Grid Supply Point (GSP) group
The above changes also mean that the service is now accessible to aggregated BMUs. This opens the service up to a wider range of potential providers.
The service will be open to all BMUs that have a backup means of dispatch - through either control or system telephony
In order to participate in Balancing Reserve, providers must have a ‘control point’ - which should be staffed during any period in which a BMU holds a contract. This control point must have a backup means of dispatching the asset if necessary - “control telephony” and/or “system telephony”. These are defined within the Grid Code.
Most operators in the Balancing Mechanism today should have this functionality in place. For battery energy storage assets, this will likely be “system telephony”.
Penalties for non-delivery are now linked to the most expensive Balancing Mechanism action in that settlement period
The second reason for the rejection of the initial service design by Ofgem is that penalties were initially capped at £250,000 - per unit, per Settlement Period. The new design will instead link performance penalties to the cost of the most expensive Bid or Offer action in that settlement period.
This means penalties will be market-reflective - and therefore incentivize the best performance when it’s most needed.
Balancing Reserve should launch by the end of February 2024
A new consultation on the service will begin very soon. The current plan is for the service itself to launch at the end of winter 2023/24 - if Ofgem approves the latest design!
There are still some potential barriers to participation for battery energy storage
The latest changes open the service up to many more batteries. However, market design (largely the timing of the auction) may limit how many batteries choose to participate.
The auction is still due to run in the morning - before both day-ahead wholesale auctions and the later auction for Dynamic frequency response services (and other reserve services - when they launch). Therefore, providers who win a contract in Balancing Reserve will not be able to compete for potentially more lucrative contracts later on.
Secondly, the market will likely have a much wider field of assets competing for contracts. Will batteries be able to win contracts at prices that make Balancing Reserve worth it?