On 29 September 2021, National Grid Electricity System Operator (NG ESO) released an update to their Dynamic Containment (DC) requirements, which brought with it a number of new ideas for the industry to get to grips with. In this article, we’ll dive into all of them and take a look at:
- Revisions to how DC requirements will be communicated.
- Revisions to November low-frequency DC (DCL) requirements.
- A first look at requirements for the high-frequency DC service (DCH).
- A forward look at Summer 2022 requirements.
- What this all means for BESS.
How are requirements being communicated?
Before we discuss DC requirements, we will look at the new format the ESO is using to communicate the requirements for its services. Figure 1 (below) shows the details of the new volume requirements for DC as found in the ESO’s November 2021 market information report.
Let’s unpack the above graphic and explain what it means:
- On the left of the table, the ESO lays out its volume bands - instead of specifying a precise requirement, the ESO has opted to share a range of values between which their requirement will fall.
- At the top of the table, we have EFA blocks - with the move to EFA block procurement, the new requirements are specified in 4-hour windows.
- The body of the table shows the percentage of time the ESO’s requirement will fall within each volume band, in each EFA block.
Let’s look at EFA block 5 for November 2021. For 7% of the time in November (or 2 days), EFA 5 DCL requirement will be somewhere between 1-300 MW. For the remaining 93% of the time (28 days), DCL requirement will be 0 MW. Moreover, there are no days in November when the ESO will require more than 300 MW in EFA 5.
New low-frequency DC requirements
Figure 2 (below) shows the values describe above, in addition to the average DCL requirement for each EFA block.
What is particularly striking about the above graphic is the percentage of time in which the ESO requires little or no DCL.
- Across all EFA blocks in November, the ESO will require no DCL for 36% of the time.
- For 67% of the time, the ESO will require less than 300 MW and will only require >600 MW for 9% of the time.
- The (time-weighted) average daily procurement level for November is 221 MW, with highs of 480 MW (in EFA block 1 - 23:00-03:00) and lows of just 10 MW (in EFA block 5 - 15:00-19:00).
When compared to the maximum procurement volume to date (929 MW, on 15 August 2021), one thing becomes clear - Dynamic Containment will reach saturation starting in November. In fact, assuming all 929 MW of DC-eligible sites continue to play in DC, even at the highest requirement levels, the market will be saturated for every EFA block in November.
With this saturation, market competition will increase, causing prices to fall. Knowing exactly how saturation will impact clearing prices is not straightforward, but what is for sure is that we haven’t got long to wait until the “true” value of DC reveals itself.
How have things changed?
So, how do the new requirements compare to what we’ve seen in the market so far? Figure 3 (below) shows historical DC requirements, in addition to the newly announced November requirements.
Notably, these revised DC requirements are considerably lower than those announced previously with the average requirement dropping from 1100 MW (in October) to 221 MW in November - an 80 % decrease.
Dynamic Containment High: a new hope (Episode IV)
While the ESO’s requirements for DC low-frequency are falling away (with prices likely to follow suit), there is some consolation for DC providers - the launch of high-frequency DC (DCH), which is set to be introduced on 21 October 2021. Figure 4 (below) shows the proposed requirements in more detail.
On the whole, this is good news for BESS - a new market is opening, with average procurement levels of 177 MW. While this isn’t large enough to accommodate all installed GB BESS, it does provide a new cash flow to support the revenue stack.
It should be noted that the ESO hasn’t currently released any information regarding how volume requirements will vary within the day. However, we do expect this soon, with the ESO promising to communicate “more specific [DCH] requirements, including by EFA block, in the coming weeks”.
Stacking
Importantly for DC providers, stacking of the high and low products will be permitted. As such, we’re likely to see BESS assets bidding into both services simultaneously and delivering symmetric frequency response upon successfully securing contracts.
What does that mean in practice? Well, the introduction of DCH won’t increase the size of the frequency response market - we’re still expecting fierce competition for both high and low DC. Instead, DCH can be seen as a way of bolstering revenues for existing DC providers (which is great timing, given the expected drop-off in DCL revenues).
In this new world of saturation and multiple markets, bidding strategies will have to evolve in order to successfully secure contracts - curtailable bids and linking contracts across markets and EFA blocks will be key.
The bigger picture
In addition to the November 2021 requirements for DCH and DCL, the ESO also released details of its summer 2022 requirements for both services. Figure 5 (below) shows their forecast for average DC requirements.
Based on current forecasts, the ESO expects to procure larger volumes in summer 2022. This is driven by lower demand and reduced system inertia, as well as a higher risk of consequential RoCoF (rate of change of frequency) failures associated with higher levels of embedded solar generation. These factors will play a significant role in the future of frequency response requirements.
The longer-term view of DCH/L requirements is still unclear, but here are some things to keep an eye on regarding the future of the services:
- New capacity additions that will increase the largest generation or demand losses on the system and alter the inertial profile of the system, e.g. interconnection; renewable buildout ; large generation projects.
- Retirement of legacy services, e.g. EFR; FFR.
- Introduction of new products, e.g. Dynamic Regulation and Dynamic Moderation.
- Progression of various NG ESO initiatives, e.g. stability and inertia Network Operability Assessment (NOA) pathfinders; the Accelerated Loss of Mains Change Programme (ALoMCP).
How will BESS respond?
Long story short, we’re re-entering a period of frequency response market saturation. Figure 6 (below) shows installed BESS capacity relative to the frequency response market size.
In the first three quarters of 2020, we saw market saturation. Thankfully for BESS owners, DC came along in October 2020 and buoyed the market. As DC volume falls away, we will see a return to saturation, but this time with an additional 420 MW of BESS on the system. How will BESS respond?
If past experience is anything to go by, we’ll likely see BESS returning to traditional FFR services - either the weekly auctions (while they last) or the monthly tenders. However, FFR and DC alone will not be able to support all 1.3 GW of GB BESS.
With this in mind, we’re likely to see the emergence of merchant-ancillary hybrid strategies, with BESS securing DC contracts when market depth allows, and otherwise moving into wholesale markets to secure revenues.
Key takeaways
The final quarter of 2021 will likely be a volatile time for BESS. The most lucrative revenue stream is drying up, new services are being introduced, and (if September is anything to go by) winter is poised to bring high power prices.
Prices in DCL will fall from £17/MW/h at the start of November, with market saturation expected for every EFA block across the month. With DC prices set to fall, the introduction of DCH will provide some consolation to providers. While they won’t be securing £17/MW/h in DCL, DCH will offer BESS access to a new revenue stream, albeit another saturated one.
We’re likely to see new bidding strategies developing in DC, with some movement back into legacy services and an increased focus on merchant trading to recoup lost revenues. Be sure to keep an eye on the Modo platform to keep up to date with the latest developments.