Pricing
04 Apr 2022
Alex Done

Quick Take - short-term DC forecasts

In today’s Quick Take, we’ll be taking a look at yet another exciting development in the Dynamic Containment market - specifically National Grid ESO’s newly published short-term requirement forecast. What does this mean for owners and operators of battery energy storage systems?

Context - what’s happened?

  • Back in late January, National Grid Electricity System Operator (NG ESO) published its monthly frequency response market information report, announcing it would be releasing a new, short-term forecast for DC service requirements. (Affecting owners and operators of battery energy storage.)
  • This new forecast would provide a 4-day, forward-looking view of the ESO’s DC requirements for both the high and low services.
  • On 31st March we got our first glimpse of the forecast, available to download via NG ESO’s data portal.

Motivation - why is this interesting?

  • The ESO’s new forecast represents a step-change in market transparency moving from a month-ahead indication of requirements (e.g. “in the next month we expect to require 200-400 MW of DCL 25% of the time”) to a single value detailing specific requirement forecasts at specific times (e.g. “we expect tomorrow’s EFA 4 requirement to be 343 MW”).
  • Since volume requirements for DC fell in November, market saturation has played a huge role in the pricing dynamics of the service, with substantial day-to-day price swings. As such, understanding how much DC the ESO is likely to buy is a key variable in understanding the potential value of the service.
  • With a forward view of ESO requirements, a model of the auction’s clearing algorithm and a view of participant bidding behaviour, battery energy storage optimisers are well placed to forecast clearing prices in the DC service.

Graphic - what does it look like?

DC requirements forecast for April 4th to April 7th inclusive - affecting owners and operators of battery energy storage
Dynamic Containment requirements forecast. Source: NG ESO data portal.
  • The ESO’s new DC forecast will detail the expected service requirements for both the high and low services and specify a megawatt value per EFA block for the next 4 days of auctions.
  • The forecast is based on the ESO’s expectations for demand, inertia and largest loss sizes across the forecast horizon, in addition to frequency-response holding from other services (e.g. FFR, MFR, EFR).
  • It’s worth noting that this forecast is not a firm commitment from the ESO to buy a given quantity of DCH/DCL. Actual ESO requirements (detailed in the ESO’s buy order) may vary from those forecasted as the ESO’s view of demand, inertia and loss sizes improve closer to real-time.

Impact - what does this mean for battery energy storage?

  • As the only technology type to participate in DC since its inception, battery energy storage is uniquely positioned to take advantage of the increased visibility in the frequency response markets.
  • An important (and lucrative) trend we’ve seen over the past 6 months, has been the cross optimisation of batteries between day-ahead wholesale trading and DC. With increasing forward visibility of DC value, BESS operators will have new tools to incorporate into their short-term, optimisation decisions.
  • With Dynamic Regulation (DR) and Dynamic Moderation (DM) launching this year in April and May respectively, we expect to see requirement forecasts launched for the new product in due course. For battery energy storage systems - which are technically capable of participating in all three of the services - this will provide a lot of new data for optimisers in the face of increasing operational complexity.