The new Quick Reserve service will launch in November 2024. This is the second initiative to secure firm reserve in advance, following the launch of Balancing Reserve in March 2024. The new service requires fast response times and could end up being provided only by battery energy storage.
Quick Reserve provides a fast response to energy imbalances on the grid
Renewable generation, especially wind and solar, is not ‘firm’ generation. It is forecastable, but wind gusts or moving cloud cover can cause output to deviate from this. As more renewable capacity comes online, it will increase the volatility of generation. This means there is a higher chance of power generation suddenly increasing or decreasing for short periods of time.
As a result, the ESO is planning to purchase fast-responding reserve volume at the day-ahead level through the new service. The service will require faster response times and shorter dispatch durations than Balancing Reserve, suiting battery performance capabilities.
What is reserve? Reserve power corrects imbalances between supply and demand, restoring grid frequency to 50 Hz after a deviation. Buying reserve at day ahead gives the ESO better visibility of how much reserve they have at their disposal.
Batteries are one of the only technologies able to provide Quick Reserve
Any technology that meets the service requirements can provide Quick Reserve. The service will be split into Positive and Negative Quick Reserve, requiring providers to increase generation or demand, respectively.. Units must be able to ramp up or down to their contracted power within 1 minute and maintain that power for a further 13 minutes, before ramping back to their original power.
These fast ramp times mean pumped and battery storage are the only technologies capable of providing the service in either direction. Renewables, such as wind, could provide Negative Quick Reserve.
Balancing Reserve - the reserve service launched in March 2024 - requires slower response times, meaning gas peakers and CCGTs can provide the service. However, these units typically ramp in 2 - 4 minutes or longer, too slow for Quick Reserve.
While other pumped storage could provide the service, none of these units have secured Balancing Reserve contracts to date. This suggests they may be unlikely to participate in Quick Reserve, especially at launch. As a result batteries could be the only providers of the new service.
The service will initially launch for just Balancing Mechanism-registered units
At launch, Quick Reserve will only be available to Balancing Mechanism registered units. This is the same as with the launch of Balancing Reserve. However, by summer 2025 the ESO plans for the service to be available to non-BMUs, via their Wider Access platform. The ESO refers to this as ‘phase 2’.
The ESO will procure 300 MW, but this amount could increase on windy days.
In normal conditions, the ESO will purchase 300 MW of Positive and Negative Quick Reserve. However, this will increase when renewable generation is high to protect against increased system volatility. The ESO will publish separate Market Information Reports on its website setting out the volume required for the next day.
The ESO will cap the maximum volume requirements at 3 GW when the service launches. It is unlikely they will require this volume at launch, but this indicates the volume of Quick Reserve that could be procured as the service matures.
Availability and utilization payments will be made separately
Quick Reserve splits payments into two parts, in the same way as Balancing Reserve payments.
Availability payments
Winners of Quick Reserve contracts that provide positive or negative reserve will receive an availability payment in £/MW/h. A pay-as-clear, day-ahead auction will determine prices. These contracts provide the ESO greater visibility into the fast-acting reserve it has available to balance the grid.
The ESO will procure Quick Reserve and frequency response in a single auction, running at 2 pm each day. However, Quick Reserve contracts are for each half-hour period, rather than 4-hourly EFA blocks for frequency response.
Procuring frequency response and Quick Reserve in the same auction allows the ESO to purchase volume for each service at the cheapest possible price. The ESO call this ‘co-optimization’. They expect significant crossover between technologies providing Quick Reserve and frequency response at launch. This means co-optimizing these products will be more cost-effective initally.
In phase 2 of the service, they could hold the Quick Reserve auction at the same time as auctions for Balancing Reserve and Slow Reserve (yet to be introduced). Combining these auctions would allow the ESO to co-optimize procurement of all reserve products together.
Utilization payments
The second part of Quick Reserve payments is the utilization payment. Units providing Quick Reserve will submit Bids and Offers in the Balancing Mechanism. Those instructed to import or export power will then be paid (or have to pay) for the energy they deliver in £/MWh.
These dispatches will compete with other Balancing Mechanism actions that can provide a similar response. So if a BMU that isn't contracted via Quick Reserve can balance the system at a cheaper price and with the same performance, the ESO can use it.
The ESO will monitor providers of Quick Reserve
Units providing Quick Reserve should have enough energy footroom or headroom available to provide 100% of their contracted MW. If a unit does not have enough capacity, it will lose its availability payment for the half-hour period. A unit's headroomis determined by its Maximum Export Limit minus its Physical Notification (MEL - PN). Its footroom is its Physical Notification minus Maximum Import Limit (PN - MIL).
This means a unit must maintain 30 minutes’ worth of energy, and is the same performance monitoring that the ESO uses for Balancing Reserve. However, the ESO has announced that Quick Reserve will have some additional monitoring of provider pricing in the Balancing Mechanism.
The ESO will penalize units that price ‘unreasonably’ in the Balancing Mechanism
After the launch of Balancing Reserve in March 2024, the ESO highlighted that units could be paid for the service while being effectively unavailable for dispatch. This was done when units secured reserve contracts but then priced themselves highly in the Balancing Mechanism, meaning they were unlikely (or sometimes completely unavailable) to be dispatched.
This effectively means that, despite being contracted, these units don't provide reserve.
Pricing in this way is not against the service terms of Balancing Reserve, and so the ESO don’t penalize units following this strategy. However, Quick Reserve service terms will include the option for the ESO to de-register units from the service if they price ‘unreasonably’.
Whether the example above would be considered unreasonable is not clear as the ESO has not set a specific price limit. However, this demonstrates that the ESO is planning to implement more regulations for its contracted reserve services so that they provide effective energy security to the system.
Quick Reserve could be the first service to include location-based procurement
The service will launch at a national level, meaning a unit’s location will not impact it winning a contract. However, the ESO has not ruled out adding a locational element to the service in the future.
This would allow the ESO to avoid contracting reserve from units located behind an anticipated network constraint, which would prevent them from being available. The ESO has not indicated that this approach will be used for other reserve services.
Quick Reserve could result in higher contract prices in winter 2024
Batteries currently provide 1.9GW of frequency response and Balancing Reserve volume in each direction, almost half of total installed battery energy storage volume.
The new Quick Reserve service will increase the total ancillary service volume for batteries by a minimum of 300 MW in November 2024, reducing total unreserved battery capacity. This could lead to an increase in prices across frequency response and reserve at times following launch, although there is still more than enough capacity to meet the combined service requirement.
We expect to see significant battery capacity buildout in 2025, with 6.7 GW online by the end of the year. While frequency response and reserve volumes will increase, any price increase is likely to be short-lived as battery capacity installations outstrip rising reserve and frequency response requirements.