Pricing
23 Jun 2022
Robyn Lucas

Mandatory Frequency Response: the other frequency response market

Here at Modo, we’re obsessed with markets for batteries - which often means frequency response. Over 90% of battery revenues in 2022 have come from these markets: Firm Frequency Response, Dynamic Containment, Dynamic Regulation, and Dynamic Moderation. These markets are entirely geared towards and dominated by battery energy storage.

However, there exists a whole other (significant) market for frequency response: Mandatory Frequency Response (or MFR). On the whole, it’s procured from larger thermal power stations, via the Balancing Mechanism. MFR may be a requirement of a connection agreement, and/or as a signatory to the Grid Code, and it’s been around for decades. MFR is not available to batteries connected to the distribution networks. Transmission connected sites (like the Oxford Superhub) are required to participate.

We're aware that some readers have found the video below too quiet. You can watch a louder version of that video here.

Quentin and Neil discuss mandatory frequency response.

What is MFR?

Much like FFR, MFR is the change in power output of a power station in response to grid frequency, as it deviates from 50Hz. This means the power station will generate more power when frequency is below 50 Hz (primary and secondary response), and generate less power when frequency is above 50 Hz (high response). The response times are similar to FFR as well: primary requires a change in power output within 10s, secondary within 30s, and high within 10s.

MFR is a real-time service: the ESO will instruct MFR units to provide frequency response via the Balancing Mechanism, when the system requires more real-time balancing. When this happens, these power stations will typically lower their output, so that they have enough headroom to respond to the needs of the system.

The MFR market is large - with 360 MW of primary MFR, 230 MW of secondary MFR, and 540 MW of high-volume MFR procured on average (per month) between May 2021 and May 2022. Monthly procured volumes are shown in figure 1 (below). Though slightly smaller than DC, MFR is comparable in size to FFR.

MFR Volumes

So how do participants get paid?

Unlike Firm Frequency Response or the Dynamic frequency response services mentioned above, there is not one simple £/MWh price to consider when looking at MFR costs. Instead, units are paid via:

  1. A response holding cost - this is a capability fee (£/MW/h) for providing a primary, secondary and high service. Units submit their capability fee each month, and are paid it when they are ‘armed’ (ready to be dispatched) to provide the services.
  2. Positioning costs - these arise from the BOAs required to increase or decrease power output in order to provide the desired response.
  3. Reserve for response costs - a unit must have enough headroom and/or footroom in reserve in order to respond to frequency deviations. For example, for 500 MW of primary response, 1000 MW of headroom (or positive reserve) is required. Additional units may be brought on to ensure there is enough in reserve across the system.
  4. Response energy costs - these represent the net value of energy delivered by a response unit, depending on fuel type and the (estimated) real-time energy price.

Figure 2 (below) shows an example of a large power station - Seabank, a 1.14 GW CCGT providing MFR. A series of bids are accepted throughout the day so that the power output of the plant is reduced. This gives Seabank the headroom to respond to grid frequency deviations.

Figure 2: The large CCGT, Seabank (BM Unit ID SEAB-1), accepting bids via the Balancing Mechanism to lower its output, and providing over 4 GWh of MFR across the primary, secondary and high-volume MFR services on 30th May 2022.

What are the revenues?

MFR is pay-as-bid, and the majority of providers offer between £2-10/MW/h for the high service, and £0-5/MW/h for the low services. The distribution of capability fees for the high service is shown from December 2021 - June 2022 in Figure 3 (below). By producing power at a lower output than they would otherwise have done to provide the high service (ie. turning down when grid frequency is above 50Hz), units will be sacrificing revenues from energy - as they produce less power. The energy they do produce is generated at a lower efficiency. This could explain the difference in pricing.

Capability fee distribution

Figure 3: The distribution of capability, or response holding fees, that are bid in by providing BM Units. Most BM Units offer the high service at around £5/MW/h.

In May 2022, 51 BM Units made money from providing MFR. Figure 4 (below) shows the revenues for each of these units. It should be noted that this is not normalised to the size of the unit, and as above, there are several other factors which make up the total revenue from providing MFR.

Figure 4: Response holding revenues, or revenues from capability fees, for BM units delivering MFR in May 2022. Numbers are not normalised for the size of the unit.

A leaderboard of the top-10 earning BM Units from response holding revenues only is shown in figure 5 (below), along with the prices bid in for each of the services.

Figure 5: Top 10 performing BM Units which participate in MFR across May 2022, ranked by total response holding revenues.

So does Mandatory Frequency Response affect batteries?

While batteries are unable to participate in the Mandatory Frequency Response service, it remains a valuable tool in National Grid ESO’s armoury for tackling deviations in grid frequency. The estimated costs of procuring MFR play a significant role in shaping the ESO’s price caps for its Dynamic suite of frequency response services - as we’ll explore in another piece, coming very soon!