24 Mar 2023
Wendel Hortop

Balancing Reserve: a potential market for battery energy storage?

Balancing Reserve is a new service being proposed by National Grid ESO. Last week, we wrote about Reserve Reform, and the two new services it will introduce - Quick Reserve and Slow Reserve.

In this article, we look at Balancing Reserve. So, let’s find out:

  • How the service differs from Quick and Slow Reserve.
  • What’s holding up the introduction of the service.
  • And how likely battery energy storage is to participate in the service.

What is Balancing Reserve?

Balancing Reserve is not part of National Grid ESO’s ongoing Reserve Reform work. It has been introduced separately to fulfill an urgent operational need.

Balancing Reserve will be used to procure a service called ‘regulating reserve’. Like Quick Reserve, this manages energy imbalances between supply and demand. (To find out what we mean by ‘reserve’, head here.)

So, what’s the difference?

  1. Balancing Reserve will procure more volume than Quick Reserve service.
  2. Delivery will take place across slightly longer timescales than in Quick Reserve.

Figure 1 (below) illustrates how regulating reserve - procured through the Balancing Reserve service - will manage energy imbalances.

Figure 1 - how Balancing Reserve will be dispatched.

Why does the ESO need it?

At the moment, regulating reserve is entirely procured via the Balancing Mechanism control room. Operational plants are told to change their output via bids and offers - to reserve either headroom (space to turn up) or footroom (space to turn down).

Procuring it this late (i.e. after gate closure) means National Grid ESO risks being able to maintain sufficient reserve levels. Additionally, at times of scarcity in the market, the ESO has paid huge amounts to generators (including offers of up to £6,000/MWh) to provide regulating reserve.

Balancing Reserve will enable National Grid ESO to procure regulating reserve at the day-ahead stage. This will reduce the risk of reserve shortfall - and will ultimately lower consumer costs.

When will Balancing Reserve arrive?

Well, that’s the million dollar question.

The idea for Balancing Reserve emerged October 2022 - with the aim to bring the product to market as soon as possible. This is due to the reasons mentioned above: the pressing operational need, and the costs of the current procurement method.

After a brief consultation process, National Grid ESO submitted a proposal to Ofgem in January. However, last week, Ofgem announced that they have officially rejected the proposal, citing two key concerns:

  1. The planned 50 MW minimum volume requirement. This is seen as a discriminatory barrier to entry for smaller flexibility providers.
  2. The planned £250,000 cap on the penalty for failure to deliver. This is seen as an insufficient deterrent.

Therefore, as of right now, there is no planned start date for Balancing Reserve.

We expect National Grid ESO’s response at the end of March. Overall, Ofgem does support the need for the service - so there’s a strong chance an agreement will be reached.

What are the details?

How much will be procured?

  • National Grid ESO aims to procure between 0.5 GW and 2.5 GW.

How will it be procured?

  • An auction will run ahead of the day-ahead market in the morning.

What are the technical requirements?

  • In order to participate, assets must be Balancing Mechanism-registered (a.k.a. BMUs).
  • Assets must also be able to provide Mandatory Frequency Response (MFR) when armed. Assets must have a commercial contract with ESO to do so. This will be a barrier to a lot of battery energy storage assets being able to provide the service (see the next section for more details).
  • The minimum ramp-up and ramp-down rate of assets must be at least 10 MW/minute.
  • And assets must be able to begin delivery within two minutes of receiving a dispatch instruction.

So, will Balancing Reserve be a market for battery energy storage?

In short, we don’t know - yet.

  • The technical requirements fit in with what battery energy storage can provide - but they are also broad enough that batteries will likely have to compete with a range of other technologies.
  • As mentioned above, the biggest barrier to widespread battery energy storage participation is the ability to provide Mandatory Frequency Response. Some battery systems will already have this functionality - but many won’t.
  • One final consideration is the timing of the auction. By running the auction ahead of the day-ahead wholesale market and frequency response auctions, securing a Balancing Reserve contract will mean risking being locked out of other, potentially more lucrative markets.

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