Regulation changes and BESS in the Capacity Market with Lisa Waters (Director @ Waters Wye Associates)

The capacity market is designed to secure enough capacity on the system to keep the lights off. Those kind of the lights are going out moment is supposed to ensure that we always have enough capacity for that not to happen. If what's caused the stress event goes on for a day, most storage couldn't deliver. If we instead took storage outside the Centimeters and said, okay.

Right. We'll have a capacity agreement storage on a similar basis to to the capacity market. But instead of saying, okay. Stress event starting in four hours, really steady go, and everything starting to discharge, you let the system operator say, okay.

Well, we'll let you charge over there and now you and now you and now I want you to start discharging. You could get a far better value out of storage for customers, I think. Don't we want the all the industry that wants capacity, has capacity, and therefore people will compete in generation, you will push down wholesale prices compared to saving a fiverr or not having built something. And when you look at constraint costs running at, like, ten million pounds a day, we could have a lot of cable in gold for that money, I suspect.

Hello, and welcome back to Transmission.

This week, Ed Porter is joined by Lisa Waters, founding director at Waters Y Associates.

The conversation explores the capacity market, the role storage plays within it, the process of regulation changes in the UK energy industry, and lots more. If you're enjoying the podcast, please hit subscribe so you never miss an episode and leave us a review wherever you listen. Let's jump in.

Hello, and welcome to another episode of Transmission. Today, we're joined by Lisa Waters. Lisa, welcome.

Thank you.

And to give our listeners some context, could you run through what you do and what do what does Wye do?

So WatersWhy is a regulatory and commercial consultancy.

We've been around for twenty two years, which is a bit scary, and we help companies navigate the regulatory maze. So that might be keeping up speed with changes on industry codes.

It might be helping trade a capacity market unit, market entry Mhmm.

Making sure your compliance procedures are up to date in case Ofgem do come around and raid you. So it's pretty broad. We have also once organized a party by accident for a very large energy company. So, yeah, we'd always say to companies, give us a go. If we don't know how to do it, we probably know someone else who does.

I think in the field of accidentally throwing a party, you're in safe company with with Modo. This is this is something that that happens quite a lot. You know, you you think we're just gonna have a a regular week, and then all of a sudden, there it is, another party. Good. And then in terms of your role within Waters Why, so around for twenty two years, you have got a number of roles within industry as well. And so I think that would be maybe really useful context for helping people understand kind of the breadth of what you cover in the space.

Yeah. So Waterwise got three directors.

My founding partner, Nick, leads on gas. Gareth leads on retail, and I lead on wholesale power. And as part of that, over the years, you dip in and out of things that you didn't mean to do. So for example, I was on the steering group that put in place the current electricity trading arrangements.

I was, a member of the panel of technical experts before for government, and I am again now. I've been attending the BSC panel both as a member and as an alternate for probably the best part of fifteen years. And I sat on the imbalance settlement group from go live until last year. So that was David.

So you've seen your you've seen your fair share of kind of tea and biscuit meetings, but also, like, been a crucial part of of the of the of the governance process of how actually the energy system is run within the GB market.

Yeah. And I'm for a really wide variety of clients. So originally, when I left university, I worked for the Confederation British Industry, and their big focus, obviously, CBI members are largely energy customers and not producers. And at the time, there were only the big companies around the table, and we were wrestling things like he built the thought nuclear reprocessing plant. Should we turn it on? Was it still a good idea to reprocess nuclear fuel? So some very, very, varied things from some very different angles on behalf of amazingly different clients.

And if you're thinking, what on earth is the BSC? What on earth is the the panel of technical experts? We'll we'll come to that in a in a few in a few moments and make sure we kind of give that sort of a a, like, appropriate airtime.

But just at a really high level, so you've been in the market for a number of these changes, and the the perhaps we kind of just get a really quick condensed history of what are the big things that have happened that have taken us from early stage, the pool, through to where we are now.

So when we did privatization of the electricity industry, we basically privatized only two generators, National Power and PowerGen. At the time, National Power was also supposed to take on all the nuclear generators, but the city wouldn't wear it, so that all got pulled. And then the distribution companies owned National Grid.

So the monopoly source remained the same. And then over time, things got broken up. The electricity distributors who'd also been the suppliers got separated out. The generators bought the suppliers.

Suddenly, we actually had a market that had an awful lot more players in it, but still as essentially settled, very much command and control from National Grid. At at the time, not a very sexy part of the industry. It was considered to be a bit sort of boring what it did.

And then the customers complained and said, we hate the pool. We're being overcharged. The generators are manipulating the market. They are persistently rocking up with broken ball bearings and saying not our fault that the price has gone through the roof.

And they wanted they lobbied government for a proper market where they could go to a company and sign a bilateral agreement and didn't have to buy at the same price that domestic customers were buying effectively in every half hour. So we did NEETER. It was originally called RETA, the review of electricity trading arrangements. Sound a bit familiar?

Sounds very familiar. Going around in a circle. And then it became new electricity trading arrangements, which was great because one of my clients actually phoned me up and said, can you please explain to my wife that Rita in my diary is an industry meeting?

So yeah. And then we did the review, and we implemented what we now have, which is this very different bilateral market, which is supposed to only have a residual balance or at the center of it.

And the parties were supposed to be, you know, looking for places to sell power and and trade out. And all these American traders turned up, which was loads of fun. The American traders were loads of fun. But then, of course, everyone went under, and everybody fled back to the US with their tails between their legs.

Yes. We've we've covered we've covered quite a lot of ground there. Just to put some just to put some dates on that. So so, Neeta, when when was that?

So we started work. It came in in two thousand or was it two thousand one? I think it was due in two thousand, but the final bits probably went until two thousand and one.

Okay.

And that So twenty months ago. That's when the market that we know today started to look a little bit like, Like?

A lot like.

Yeah. So we've had a lot of changes in rules, but the the fundamental structure of the market is the the wholesale trading arrangements are the same. Things that have changed have been things like how you support renewables and introducing capacity markets, but the Yeah. The structure of the wholesale market is pretty similar to how it was then.

And maybe to ask, a bit of a a nuanced question about that. So so who who has actually who has overseen all of those changes? So this sounds like a lot of change to go from DePaul to NEETR.

To what degree is that led by industry, and to what degree is that kind of government mandated?

So to do the big bang thing, so to do NEETR and to now do Rima, you need government because you need legislation and you need, therefore, sign up from government to spend the time doing it. Once you've put the industry arrangements in place, then the industry has these codes, the codeies, that you can change, and that has is what fine tunes things. I mean, we we had when we bought in the balancing of settlement code with NITA, I think the first change was on day one.

Someone raised a rule change on day one. And then, you know, we're up to five or six mods by the end of the first week when people went, oh, that didn't work. Oh, we'd like a shorter gate closure. Oh, can we have dual notification of contracts into central systems? So it's very quick that people start saying, well, we can make this better.

Do you what's quite interesting about that is that people look at Rhema and think, oh, well, we'll do that, but only if we can kinda get, like, this perfect system. And I suppose looking back at those changes that we had originally, the perfect system wasn't found. We didn't move to something and then it was kind of static forever. We moved and then we fixed stuff. And maybe that's a nice analogy of maybe where we're going to with Rhema that if we do change, so let's say the market does change, that actually from day one of that, we would be able to kind of guide that market to be in a sensible place.

Yeah. And, it's it's always a sort of you wanna get to ninety ten, don't you? Ninety percent of it is right, and therefore, it's basically gonna function and basically everything will work. And then you say, okay. Well, we could always do things better. And and as an industry, we're always gonna do things better because it's always changing.

Mhmm.

You know, when I when I look back at the privatization and and, amusingly, the fact that every single company that was sold off by the government in its sales brochure had a bunny rabbit in it.

I mean, we were the bunny rabbit industry, apparently.

What's the bunny rabbit?

Yes. I don't know. But every I joined the industry, and someone said, you gotta read all the prospectuses, and they will know how the industry works. And I kept saying, they've all got pictures of rabbits in them, nice fields with rabbits, no pictures of power stations.

But, you know, the the the country was just full of big coal fired power stations. We haven't started the gas. That wasn't until about ninety six. And then we've you know?

And now look at it. We've got batteries and wind farms and all these things. So and that that'll change. Something else will come along.

Yeah. I think well, we don't see many prospectors with with rabbits in these days. So that definitely that definitely has changed.

Sounds it was good. When we did when we did NEETR, we did meet. The whole industry met in the NEC in Birmingham to talk about it was very open, very transparent, very inclusive. Mhmm. And one of the members of the industry is deaf, so we had, someone doing sign language, and everyone kept talking about rabbits. So this poor sign language person kept having a go.

Kept on doing that. Kept on having to add the bunny ears to the whole the whole piece. I I suppose maybe on the subject of, like, the ninety ten. Right? So ninety percent of it's right, ten percent of it's wrong.

You've seen a lot of this you've seen the market kind of evolve a long way. What what are we actually what are we doing really well, and what are we getting wrong?

So I think we do really well trying to manage changes that occurs and industry being leaders. And I think we are an industry of really positive people, generally. Mhmm. You know, people want things to be better. They want things to change, and that that's a really good thing, and it's a really nice industry to work in in that way.

What I really struggle with is how regular particularly the regulator gets down a rabbit hole of something that is nice to have, but really not a priority in terms of delivering value for customers and trying to get them to focus on these are the things we actually really need to do and have the the staff at a senior level committed to rock up and work with the industry. Because the industry rocks up at a senior level for for change meetings and things. And I don't find that the regulator matches the industry in its achievements.

And maybe to put an example on that. Right? So something where we we're missing we're missing engagement from Ofgem's side in terms of the big changes that we want to put through?

So the I think connections reform.

So we've had these connections reform changes going on. The industry's been meeting at least two to three times a week trying to get the work done. Ofgem said they wanted it. Well, why are they not rocking up and leading it? And we've ended up in a place with alternates all over the place, twenty nineteen, twenty alternative changes being raised by the industry. Whereas if the regulator takes a bit more of a lead on some of these things, it may not be what the industry wants, but it will be a lot quicker and a lot more efficient.

And you yesterday, we had a there was a meeting. And then just after the meeting, the regulator puts out a blog saying, well, when we said we wanted that, we now think we want something slightly different.

And you've issued that to the industry in a blog.

And in that blog, you've said, and our board won't meet this month because it's August. But you're expecting the industry to meet.

It's that kind of thing I find very frustrating.

Yeah. And I think others would find that frustrating as well. In terms of connection reform, it's quite clear it's been an issue for a while. We are definitely working on it. But, yeah, could could we have gone much faster with a more centralized approach? Possibly.

Well and it I think it's been an issue for a lot longer than people think. So I was trying to get a connection agreement for a client in two thousand and nine due to commission in twenty fourteen, gas fired plant, southwest of England, sort of place where you think, actually, we need we need some conventional generation to provide system stability. And I was stuck behind Hinkley, which at the time was due to commission in twenty sixteen.

And so that project was then having to wait Until all the investment of Hinkley was done.

And that was never gonna be twenty sixteen, I mean, realistically.

And then, likewise, when we worked on seven power, that the crossing across the seven estuary is very congested, and that was back in two twenty ten, twenty eleven. Yeah. So these are not new issues. These this has been building up and building up. And Ofgem seem as much more interested in, okay. Well, out of the capacity we've got, how do we share it out? Who has capacity at any given time?

And that feels to me like deck chairs on the Titanic.

Yeah. You know?

Well, don't we want the all the industry that wants capacity, has capacity, and therefore people will compete in generation or with DSR as well, hopefully, but you will push down wholesale prices compared to saving a fiverr or not having built something. And when you look at constraint costs running at, like, ten million pounds a day, we could have a lot of cable in gold for that money, I suspect.

So so so just to kind of put that another way, effectively, you're saying we could if there was more direct involvement from, say, Ofgem, then we could have run a more centralized process on connection build out and be a lot further along in comparison to where we are today. What's quite interesting is that almost feels like what things like Rima are trying to suggest and with NISO becoming like, having this kind of mandate for centralized strategic plans, feels like that's a little bit of what's being put forward.

I think there are two different things. One, you can still have a market where industry puts stuff on the table, and the regulator walks up and says, okay. Well, let's try and develop this idea and see if it runs, and then say, well, over here on this one, we just don't think that's a runner, so let's not waste any time on it.

So I think there's a difference between being totally centrally planned and the regulator taking a more strategic role and being clear up front about what they will and won't will not accept.

And and that used to be how it was, I think, until the regulator starts to get taken to court. Mhmm. We haven't had any judicial review. Well, not many recently, but, we did go through a bit of a spate of them.

And And just to kind of explain to people what a judicial review is?

Oh, so when they so the regulator makes a decision, and then the one of the companies will take the regulator actually to court to a judicial review to say you're it was a bad regulation or you're mad. As it it's basically those are the only two grounds.

And the last one we had was around the capacity market, I think.

Well, that ended up in the European court. That wasn't a a challenge to Ofgem. And one of the famous ones was transmission losses when we'd spent about four years arguing about transmission losses. Eventually got to a modification. Ofgem signed off.

I think it was British Energy and a couple of others judicially reviewed them, and it turned out Ofgem hadn't provided the right paperwork to its board. So it lost the judicial review. And so we started the whole thing again.

And as everyone will know, we have transmission losses.

So they got there in the end, but it was very painful for us all.

Yeah. I think really useful kind of to understand a little bit about how this process is working, how the kind of governance of all of it slots together. Maybe to talk about a more specific part of the market. So let's talk about the capacity market because you work a lot with clients on the capacity market. And let's let's just kinda run through some of the basics. So what is what is the capacity market?

So the capacity market is designed to secure enough capacity on the system to keep the lights on in a system stress event. A system stress event is defined in the capacity market rules, but basically, it's something like you start to get power cuts because you haven't got enough energy on the system. So grid's called calling voltage reduction from the distribution companies. Those kind of the lights are going out moment is supposed to ensure that we always have enough capacity for that not to happen.

So different countries do it in different ways. We decided that we would try and pay companies to stay open. So that was at the time, you know, this was we designed in twenty twelve, started in twenty fourteen. It It was keeping companies like EGRA keeping coal fired power stations, usually that lot, on the bars while we build new plant.

And then the way it works is we hold an auction.

It's supposed to be this year, but the timetable got slipped several years ago, and we've never pulled it back, which is a bit of a nightmare. But we hold the auction for capacity needed for the year ahead, so for running from October each year and then capacity four years out. And if you're an existing plant, you can get one year agreement.

Depending on how much you spend, you can either refurb or be new. A refurbishing plant is expected to spend less, and they can get up to a three year agreement from the t minus four auction. And a new plant can get up to up to a fifteen year agreement from the t minus four auction.

So that's what's behind it. You are paid based on how much derated capacity you've got in the auction that clears, and everything is take take it all or take nothing. So it will be your whole capacity market unit or none. There's no sort of halves. And then in return for that money, if there is a stress event, and you must be given four hours notice prior to a stress event occurring, if you do not rock up with the energy, then you will be penalized for nondelivery.

So it we've never had a stress event, so we don't know if it works.

Yes. I was gonna ask that question because in some ways, the question is, does it work? And we've never had a stress event, and so you could argue yes.

Yeah. That I would argue yes. It's worked because you haven't had a stressor.

But then you could also say the cost of procuring a lot of that capacity, has has that been has have have UK consumers had a good deal out of that?

Think so. I think they've had an awful deal.

Okay.

Truly awful deal. I mean, it's really expensive. So so you paid oh, you could you can do it several ways, can't you? You can do what other countries do, which have strategic reserve. So you only buy so many new power stations in a year. You can potentially buy those power stations and hold them out the market. So the system operator only uses them when they are stressed.

There there are lots of different ways to do it, but it feels like we have paid quite a lot of money to parties that probably would have been there anyway.

Because it it also has a a knock on effect. Right? So if you pay the parties to be there, then that gives you more capacity on the system as it as it as it as it sounds like. But that does reduce an element of kind of scarcity pricing or volatility that you have in the market.

And so Which is probably a good thing because governments hate and regulators hate volatility.

They always sort of say they love markets. But if you've got, you know, an an unexpected war occurring or something, prices have gone through the roof. You've got everyone running around going, oh, we we can't have the prices like these. Yeah. These are the wrong prices.

And that's always a problem. Yeah. What basically, civil servants don't tend to really believe in markets. They're they're a bit half hearted about it.

Yeah. Nobody wants to be in charge when a blackout happens, for sure. So then we've got so the does the Centimeters work? I think, yes, but it was expensive. Second part of that, does the Centimeters work for battery storage?

So I don't think it works at all for battery storage. I mean, to be fair to to the government, it was never designed with batch storage in mind. We knew that we'd have the pump storage stations in, but that's quite a different type of storage. So the problem with storage under the Centimeters rules was and because it's it's duration limited, it therefore gets very heavily derated.

And over time, it's becoming more and more derated. It's gone slightly up this year, but, basically, there's no sort of reliability associated with it. And then you it's got to do these extended performance tests where it has to prove it can do its duration. And, of course, as batteries degrade over time, those might become increasingly difficult for parties to do.

And then in a system stress event, they must deliver for the duration of the event. So if what's caused the stress event goes on for a day or twelve hours, most storage couldn't deliver, and they'll end up being penalized. And that just doesn't feel fair when if we instead took storage outside the Centimeters and said, okay. Right.

We'll have a capacity agreement storage, and they all signed up on a similar basis to to the capacity market. But instead of saying, okay. Stress event starting in four hours ready steady go and everything starting to discharge, you let the system operator say, okay. Well, we'll let you charge over there and now you and now you and now I want you to start discharging.

You could get a far better value out of storage for customers, I think.

It's more of like a reserve Coordinated reserve.

A coordinated reserve. Okay.

Coordinated storage capacity reserve.

Okay. There we go.

Account with a good acronym because we want a good acronym. You have to get the acronym right.

That's critical. I suppose the counterpoint to that would be that actually when you get let's say that stress event happens and you're a battery, you kinda mentioned two things. Right? So there's the there's the stress event and there's the kind of the extended performance testing.

Extended performance testing is based around the connection capacity, which is slightly unusual, but the performance in a stress event is based around the derated capacity. And so maybe not for a full day's worth of stress event, but let's say a stress event happened for an hour and you're a hundred megawatt hours worth of battery, you might be required to deliver twelve let's say you're twelve percent derated, twelve megawatt hours, so you deliver that. But you could also deliver more in that event. And as a battery site, you probably do want to do that because the price is probably gonna be quite high.

So you'll probably try and dispatch as much as possible into that event. So you'll have twelve megawatt hours that will be compatible with the system stress event. Let's say that happened for an hour, and then you have all this extra energy that you also delivered. And what what can you do with that energy?

So anyone who over delivers has got, I think, it's nine or ten days after a stress event to trade it out. But you would assume anyone who can deliver is overdelivering, and that is another what I think is sort of fundamental problem with the capacity market. So I've issued a warning four hours ahead.

So hasn't that just told all the storage assets to to charge?

So doesn't that push us into a system stress event quicker?

I think they would already be charging. Like, they they I I don't see any world where batteries won't see that coming. Like, they're already running, like, twenty four, forty eight hour forecast ahead of time. So I would expect that many of the batteries would already be ready to go. You are right, though. There would be some that might be doing something else and might rush to try and charge, but I think that's that's very I think that's probably quite a limited portion of the the fleet.

But depends what causes stress event, doesn't it? So if we have an unseen and a interconnector on fire, sudden cold weather in on the other side of Europe, gas plants starts to freeze, then you could be actually in a stress event prior to at the point you get the four hours notice. So so you've actually got rolling blackouts. You've got four hours to get your stuff together before a stress event technically starts under the rules, and you are tell you would be telling the batteries to charge.

Mhmm. Yeah. So so it does depend if you get a quick event or a slow event and whether or not you can see it. And then also the moment the stress event starts, you've just told everyone to discharge and all generators to effectively do the equivalent of max gen.

And suddenly, you've got a system that's gone from maybe a little bit short to very long.

Yes. Okay.

So I would really hate to be in the control room. Well, actually, I'd love to be watching the control room.

But when that stress event comes through yeah. The panic. Yeah. Okay.

Because you don't get we've got so much generation that the system operator can't see.

So you so I think you could end up in this bizarre position where all the distributed power stations are done and storage that aren't. I'll just think of storage as power stations, in the balancing mechanism.

They're all doing their own thing. The system operates has got no control over them, and so they are taking down you know, they're they're accepting offers to come off from every other power station in the country. All the big ones are all being told to to close down because the DNOs have gone mad. You know? You don't you don't know how it play out.

So let let's just talk about that for a second because it's it's a bit of a niche part of the market. Right? So the ESO's control room can see everything's registered the balancing mechanism. These other assets that sit outside, why do they sit outside of the balancing mechanism? What are they?

So if you're over fifty megawatts, you are licensed, and your license requires you're in the balancing mechanism. If you are transmission connected, you must be in the balancing mechanism. And if you want to be in the balancing mechanism, you can be in the balancing mechanism.

But if you're under fifty megawatts, forty nine point nine is quite a common size for a power station in the UK, then you're connected to distribution systems. You don't have to be in the balancing mechanism if you don't want to. It doesn't mean you may not participate in other wholesale markets like balancing reserve or response markets, those kind of things, but you don't have to be in the balancing mechanism. So Grid cannot see you in real time, and it cannot instruct you in real time.

Okay. And we're we're slightly getting ahead of ourselves going into the the BM the BM side of this. So let's let's kind of roll back a little bit to the capacity market. We touched on secondary trading. So this kind of concept of delivery in a in a capacity stress event, we've never done it. That feels like it's gonna be chaos the first time it happens.

Oh, totally.

Okay.

Well, that's okay.

We're, you know, we're sort of interested in what it's out. Somebody back in twenty fourteen, I think it was RWE, did produce a draft because we tried to get I think it was we asked government to come up with a draft contract so we'd have something ready up our sleeves, and I assume somebody's got a copy of that email.

So some yeah. Well, the good news is the whole industry is based around someone searching through their drafts from twenty fourteen for a secondary trading contract when it happens. What could go wrong? I think Could go wrong? Yeah. What could go wrong? Good.

Well, and then you've got to register all the volume reallocations into grid systems, and the delivery body doesn't have the best systems.

So and well, yeah. Who knows if the IT wouldn't just fall over?

And then how does all this get agreed in terms of price as well? It feels like another like, is it all just bilateral traded, or would there be kind of almost an exchange? I don't think there's gonna be an exchange.

So See, a lot of parties will be having the same penalty, but there will be a handful of parties. So if you're on a fifteen year agreement and you're five years in and you're or a fifteen year agreement to four years in, then you've got different prices to the people who are just on a t minus one.

So I don't know how the the industry will work that out.

But Yeah.

That's gonna be it's gonna be interesting if it happens. If it happens, it it might not.

I just hope not because the whole point of the capacity market is keep lights on.

Absolutely.

Not to have them go out.

Absolutely. And and so the other part of this in terms of batteries coming into the capacity market, many battery projects will come in, will pick up a capacity market contract, and then something will go wrong. So they will go to National Grid, and they will have a conversation potentially about a transformer somewhere, and we'll find out that actually that's never gonna happen or it's gonna be delayed by five years, and they're gonna totally miss their Centimeters dates. A whole host of other reasons as to why this might happen. How do parties change or cancel their capacity market contracts?

So the most important thing to know is you're not allowed to terminate your own agreement. So once you're on got an agreement, you're on the hook for it. So there are a number of things you can do. There is a chapter of the rules that says it's about trading, but it doesn't really work. And I can't tell you how many rule changes I've raised and said, please please can we help make trading work?

So in theory, you can trade an agreement, but you can only trade it after you have reached your substantial completion milestone, which is basically built a power station. And if you built a power station, why would you wanna trade it?

Yeah.

That sort of misses the point. So there is something in there called a location change.

And then what you can do is if you can find someone to buy your project who's got the same pretty much the same technology, same planning, and everything else, then you location change your capacity market agreement to their site.

And then they hand you back all the things that you had at your sites because you have to make these trades absolutely match, and they can take on your agreement.

So it is very difficult.

Do not go into capacity market thinking, oh, well, if I get a really expensive price for for my battery technology, I won't bother building. It'll be fine. I'll just hand back my agreement. You cannot hand back your agreement.

So what so what happens? Because, yes, you could either find someone else to take it. It could get canceled not by yourself, but by other events that are happening on that particular that particular project. What happens if time runs out and the thing isn't built?

So you do get any so if you've got a long term contract from the t minus four, you do get an x g. You've got a long stop date that is a year after your original delivery year. So that's one option.

You could do minimum completion rather than substantial completion, which you build fifty percent of the capacity, and then you wouldn't get terminated. Substantial completion is you got done ninety percent. And then your agreement gets scaled back. So you've got less an agreement.

If you're late because your network connection hasn't rocked up, actually, that just rolls forward.

And and again, I've raised I've raised a rule change. No no one's doing my rule changes. That says if your connection was gonna move by two years, for example, you are allowed to get out of your agreement because it's not fair.

These companies are missing out on both energy income and capacity market income, and that doesn't seem very reasonable.

The point of fifteen year agreements was because the government thought you needed fifteen years to bring forward new technologies and and new plant.

So if you only end up with twelve or thirteen years, then people not unreasonably don't wanna build.

Oh, yes.

At the moment, no one's taking my rule change.

No one's taking the rule change. Okay.

That's sad.

I'm almost nervous to ask this next part, but but how often do people get this wrong?

Quite a lot. Okay. So I think so there were so there are some key mistakes that people make is they don't understand the difference between the extended performance test and their obligations in a stress event.

So I think that's an issue. I don't think people understand that once they've got an agreement, they can't just get out of it. I think they think they can just terminate it. It's not like any other industry contact where you normally can terminate for one reason or other.

And I think people, particularly the people who took contracts of very low prices, thought there was sort of nothing to it. It was money for doing nothing. Well, it's not. You do have to do satisfactory performance tests, everyone, but batteries, they do extended performance as well.

And you do have to deal with the delivery body, and that's not a zero cost activity.

Yeah. And, invariably, you know, we get people coming to us saying, well, I don't understand what this is and that is. And then you're ending up paying for very good value consultancy fees. Yeah. But, yeah, the it's not as simple as people think, and and that's a mistake. Okay.

So let's move on from the Centimeters to the BSC. So you're a member of the BSC panel. What is that? What do you do?

So the balancing settlement code is the rules, the contract, just contract, that covers all energy settlement, energy flows and energy settlements as opposed to the other codes in the industry. So the connection system code covers how transmission system works and is charged for. The distribution connection system code covers how the distribution company's connections charge it network charges work. But the key energy document is the BSC.

So the once you want to trade NG, you will sign the BSC if you're a physical party that's licensed, so supplies and generators.

If you want to be in the b balancing mechanism, so you could be ten megawatt embedded storage and you want to be a balancing mechanism unit, then you would sign up to the BSC. Well, normally, you could get a supply to do it, but most people do it. Or you're a trader. So nonphysical traders who just trade ENGIE but want to take ENGIE through to the day, they sign up to balancing and settlement codes. So those are the parties that are signatories to it, and it it tells them how their NG flows are gonna be settled.

And that sounds easy to say. When someone comes to you and says, okay. I want to sign up to the BSC. I want to become a balancing mechanism unit because I think I can get better returns from that. What does that process look like?

A lot of form filling.

Lots of forms.

Lots of forms. So the the issue with it for at the moment is so smaller assets, particularly storage, need to be aware that if you are a non balancing mechanism unit and you become balancing mechanism unit, you are not supposed to be able to backtrack from that. So once you're in, you're in. I personally think Rhema is gonna make more generators be BMUs anyway, so you might just be getting ahead of the curve.

So And that comes back to something you were saying earlier, which is for the non BMUs, it's hard for National Grid's Control Room to see what they're doing.

And so you could see why, e g, around a system stress event, you would want to have more information flowing into the control room so that they could better understand what assets were going to discharge, etcetera.

Yeah. And and I think the rest of the market needs to see as well. Yeah. We're we're looking at how do we get distributed energy resources?

What does the underlying demand look like? And what we see at the moment from national grids is transmission demand. Well, that's not real demand, is it? We need to see what the changing shape is as more people get EVs and heat pumps.

As an industry, what do we need to do to respond? And I don't know how we do that if we can't see demand, and we can only see demand if we start stripping out the generation. So there's lots of reasons to say we should just be way more transparent about what's going on in these distributed networks.

And so and so just to kind of just to make sure that's really clear for people that there is kind of there's the underlying demand, which is, as it sounds, demand, people consuming electricity, then you have effectively so let's say that that number is fifty gigawatts of of demand.

Before that reaches the control room, there is generation that gets kind of mixed in with it and so effectively negative demand. And so we always see this kind of residual demand coming through rather than actual demand.

Yeah. So the the data you see on National Grid's website is what they term as transmission demand.

So every wind farm, battery, domestic solar panel that could well be generating the distribution system has been effectively reducing the demand that then gets accepted by the transmission system. So we're not seeing demand in the distribution network unless it happens to be dark and not windy. And even then, there's gonna be some batteries running.

Well, it it's batteries, but also dark and not windy. I imagine you've also got a number of resets that are running as well.

So smaller Coal bed methane and, you know, there will be some hydro that's sitting in various parts of the country.

So there's lots of things mixed up in what you see coming onto the transmission system, and that means we don't understand demand.

Can we can we talk about that for a second? Because whenever, grid talk about, carbon intensity, they're talking about the carbon intensity of the stuff they can see. What's gonna be really hard when we think about kind of clean power twenty thirty, someone has got a resip, a small five megawatt resip on their site. Let's say, I don't know, it's a water utility, and that is running for a particular network charge that's quite nice and and kinda pays them out a certain amount of money. But that is it's kind of it's, like, totally off the radar.

Yes. Yeah. You did. So Grid does make estimates of what embedded solar and wind is doing, and they do present that to the industry.

But yes. So all the so for example, every hospital has backup generation that is invariably something that's oil or gas fired. They all run them every week to test them. And when they run, nobody will ever see them.

So there's this huge kind of challenge around the clean power twenty thirty.

We need to kind of find a way of better describing what these systems are doing. And then as part of that, then Yeah. We can better talk about what the actual carbon intensity of the the grid is.

And we also assume that imported electricity is zero carbon because the carbon's been accounted for the other side of the interconnector, and that might be true if you're getting it from From France. Awake.

Yeah. Maybe a lot of France are assuming their nukes are working, but other countries, not so much.

Not so much. Okay. So then may maybe making this real for, a battery owner. So they come through.

They've got a forty nine point nine megawatt battery project, and they decide that, actually, they do want to be a BM. They've seen some really good activations in the balancing mechanism, and they think, okay. That's it. I wanna I wanna do that.

How how long does it take, to get that done? Is it just signing forms in terms of cost, or is there kind of more to it than that?

So it depends on how they want to do it. So the the biggest issue for people is getting into grid systems because for grid, every time you are adding BMUs into their system, you're adding new bits of kit into a live environment that they're actually using for balancing as they're doing it. So they do those in batches or about every couple of months. And getting into that queue can take some time.

And then the paperwork you have to do, that's pretty easy if you just focus on it a bit. And then whose systems you're using because you do need the computer systems that talk to and from Alexa's systems that tell you what you know, you're notifying where where you've sold electricity to. Your meter reads are going in and out. You're receiving notifications from the system operator about turn up, turn down.

You're sending in and out dynamic data. And how either you buy those systems and you need to make them work for you or you let get someone Mhmm. To let use their systems. So quite often, we see people like aggregators or optimizers who say, well, we will do all of that for you, and you, therefore, are using their IT.

But if you decide to buy it or build it, that tends to slow people down. We try and encourage people to leave about five or six months just to because things go wrong. Yeah. Because stuff happens.

Okay. Five or six months to go in. And then as you say, once you're a BM, you shouldn't technically leave the BM. No.

It is a one way street. Okay. It's a one way street. It's a one way street.

No leaving once you're in. Okay.

So let's then just go on to talk a little bit more about batteries specifically.

So one thing we we're going to talk a lot about is is the the DesNES technical experts, so being part of the technical experts panel and looking at looking at the kind of the future of the market. And then just wanting to talk in particular about certain tech. So, obviously, batteries, this is very much a battery podcast, so we'll possibly start there. We have four gigs, five and a half gigawatt hours. Potentially, we have something between twenty and thirty gigs by two thousand and thirty ish. We'll we'll see. And then when we look at the connection queue, that number could be anything but two hundred to, you know, four hundred to give it a a bit of a bit Sorry.

It's seven hundred and twenty, I think. Seven twenty gigs.

But for just batteries?

Oh, no. Just but but that's just TA connection.

Yes.

So the DNAs will have a whole load more.

We'll have some extra as well. Okay.

There's lots.

So there's lots. So, yeah, the real point in there is lots of batteries that are potentially trying to connect. How do you see the future of batteries in the GB power market?

So I think that the issue is grids, the government, the regulator, and then with support from people like the panel of technical experts, we haven't yet understood how they are going to fit into the market and where they will ultimately give the best value for customers. I suspect that's not just, you know, one size fits all. There'll be different things that different people can do in different ways. But, definitely, when you look at should say, should they be in the capacity market? Do we need something that better enables dispatch of of storage across a number of time periods, better coordination in in periods when the system is stressed. Can we get the balancing systems? Can Grid get the balancing systems where they understand their state of charge, discharge?

Those those kind of dynamic data issues that I think, not unreasonably, could have been struggling with. Then there's the ancillary services and whether or not parties are offering things in that they then can't deliver, or those ancillary services aren't quite the right design to get the best out of the storage because grid's just not used to dealing with storage. So I think there's a real role for storage, particularly in a highly renewable intermittent world. You can you can clearly see it should fit and should be good. I think it's the issue when when do we work out what and how. Okay. And then when you look at the so the the role of the panel of the technical experts is to question grid about its modeling it does for the capacity market.

And it does a a different report from its future energy scenarios reports and all those kind of things just for the the capacity market. And some of the issues that that has to consider is, well, is storage the only asset that is duration limited?

So I'd say DSR some DSR is probably duration limited. Could we really ask people to come off days if we had a day stress? That seems a bit unlikely.

And then all these changes associated with capacity, what we're seeing a lot well, what I see a lot of in my job is people coming to me and saying, well, I've got a solar farm and I'm and a battery. So those two are sharing a connection agreement, and we can optimize around that. Well, that's who's got the capacity and stress event?

Are you going to say that you will leave the solar running because it's sunny?

Well, no. You won't because that hasn't got a capacity market agreement. You'll make the batch run. So understanding what's connected and what can get into the system in a stress event.

I think people have got this very weird view that we should expect a stress event on the coldest day of the year. And I think on the coldest day of the year is normally when power stations are actually ready and up and running.

Yeah. They're driven by price. So they're there ready to go. Yeah.

Yeah. So what's the issue that we're trying to plan for, and how does storage fit into that? What would it be likely to be doing in a black swan event?

I think there's on the on the kind of quick reserve, slow reserve, balancing reserve, response products, I definitely would I definitely would buy into that, that we kind of we're still almost experimenting with what structure of that works best and how does storage fit into it. Yeah. I do think there's an element of I think in some of our modeling, we get to, like, ten to fourteen gigs of of those types of services, but we just see storage kind of going far beyond that. And so there's kind of yeah. How does how does ESO get best value from those response and reserve products? But then there's also just this big block of storage that's gonna come in and do a big chunk of the intraday balancing, and I think that's that's gonna be a pretty fundamental part of the market. Maybe as gas retires, it will be interesting to I mean, when do you see as part of going to kind of a clean power system, when do you see kind of first gas projects coming off the bars?

Oh, that's a tricky one. And I left my crystal ball at home. Yes.

I can't say it coming off the bus for quite a long time.

Okay.

I I just don't think we will be confident with the security of supply.

And they may be small power stations that get left, but I think, you know, their their ability to deliver system security will be valued for quite a while. I what you might see is conversions to hydrogen or co firing rather than full on Yeah. In a new build hydrogen plant. So, yeah, that seems a bit more likely. I mean, I remember when we first did biomass standing there in a coal fired power station and watching these olive pips being shoved through this coal station, which oddly didn't work very well because the coal used to be sticky, and coal wasn't quite so sticky. So you used to have a guy with a stick trying to get it through the through the grinders.

So Yeah. Essential part of any process.

Any The guy with the stick to make it happen.

Make it happen. So you just I sort of feel that it's optimum. You might you might only be running gas a few days in the air. Yeah. But I suspect you will still be using it for quite a long time.

I think there's a little bit of that that's in the market in terms of this concept of the capacity is there, the connections are there, the gas grid is there. The if you run them for one or two days at a time, how from a carbon emissions perspective, how bad is that versus the cost of, say, converting the whole thing to, say, hydrogen to power, which when you run that process, you build an entire gas fired power station for hydrogen to power to run one or two times a year. Like, the mind boggles us to kinda just how much that's gonna cost. Yeah. Yeah. And it feels like I I don't know. I just I'm not sure we're gonna see hydrogen's power in that in in in that way unless there's a lot of money thrown at it through some form of reserve type product.

Well and, also, the other thing you do see is the government's quite and and the environment agency are quite keen on saying, well, you know, less and less emissions per power station. And then you run into this odd thing where you've got hundreds of power stations, but because they're all allowed to run for five hours each rather than just saying, okay. Well, let's have five or six strategic ones towards the end of the system, and we accept that they do run more.

So you sort of have to be quite careful, I think, about balancing the what is the environment the real environmental outcome compared to it all looks good, but we've spent so much money to get here. The customers have really not got a good deal out of this.

Yes. I think that's the that's that's the big balancing act. And I suppose the other part of this, we haven't talked about CCS slash CCUS.

You will have seen CCUS coming through early two thousands being talked about. If If it was an easy thing to do, we would have probably got it done then. What what's the kind of expectation in terms of the deliverability of CCS CCUS?

Well, it has it does feel like it's been an awful long project, but, you know, while companies are still working on it and government's still supporting it, you assume assume sooner or later, someone will crack it, and it will it will work. Probably not that well the first time, but as with all things, they get better. And you think of how small the original onshore wind farms were. I remember going to visit one in Cornwall and going, oh, god, they're so big.

Yeah.

Big windmills, but, you know, look at them now. Those are tiny little things that produce hardly any power compared to the enormous wind farms we're putting in offshore. They they these things will always come along in fits and starts.

Yeah.

So I think it's it feels twenty, thirty five ish rather than Twenty thirty five ish.

Okay. Okay. Alrighty. I think there's kind of, it's a really interesting piece. We've we've just we've seen sort of CCUS look like it would be delivered many, many times Yeah.

Many.

And and kind of and not not kind of getting over that hurdle. And the suspicion is from the outside that that there's a reason why these kind of projects aren't going ahead, whether it's cost, some sort of network around the carbon piece, whether it's around the actual efficiency of the whole process, or maybe the combination of all of that stacking up to something that just means that somebody's not willing to go ahead and do it.

So, yeah, super super interesting. Okay.

So I wanted to ask two questions just to just to finish up. So one, is there anything that you would like to plug?

Yeah. I can think of one thing I would like to plug is the government is very keen, and economists by and large are quite keen, that in a market with payers clear and in a market with payers bid, you end up with the same cost to consumers. And I just don't buy it. I think it should be payers bids and not payers clear.

With regards to Anything.

Anything.

All auction processes should be The BM, even if you have central dispatch.

Okay.

Should all be reserve markets.

It doesn't really matter what it is. I don't unless they are incredibly competitive markets with everyone having the same knowledge and same transparency and all of those things that economic theory says you need for an efficient market, which just absolutely don't exist in the real world, then yep.

Okay. And then final question. What is your contrarian view? So what is something that you believe that the rest of the market might not?

The DSR will never really happen.

I don't think the majority of the population are very interested.

And I think the removal of the triads, which you did get a lot of response from industry over the years, has just made DSR not economic and not very interesting. And why would I wanna participate in this? I mean, there's always gonna be some, but it seems to me as an industry, we oh, yeah. For my entire career, we have spent loads of time to we when we were doing it, we talked about having a a separate pool for the for demand. We were gonna have an a pool and a b pool, and b was for the demand with the customers going, but actually want to make steel, not not make steel and get paid.

Yes. I I suppose the the kind of counts to that would be we're now getting to a world where we've got the kind of this kind of information in all of the kind of parts of our home. We have it in our EVs. We have it in our heat pumps.

Every single part of our home or the the work that we do is kind of connected to the grid. And I think people aren't interested in turning off some people are interested in turning off their lights and sitting in the dark, but but not everyone. But if it was done in a way that you didn't notice it, then I think there's kind of there's an element where that might come through. So, for example, charging your EV, if that was done in an automated way overnight, then there's some shifting of demand, maybe not full demand type response, but some shifting of demand.

So I've got an EV.

Yeah. So when I get home, I charge it so that it's ready for me to use next time I need it. And that might be because some idiot child has fallen out of a tree, and I need a quick trip to A and E.

And getting there in a cab is gonna be thirty quid. And if my car doesn't have enough power to get there, that's gonna be my option. Yeah. And I'm not gonna get paid thirty quid to have my car uncharged.

It it's it's the money isn't worth it.

So when you get home, you want that to be charged immediately Yeah. Because of the potential downside of it. Yeah.

I The the optionality of a car is because otherwise, I could just take Ubers everywhere, which should probably actually be the important economic thing to do if you live in London like I do. And then there's the if you've got the Internet of things and you can set up that your house will do all this smart stuff, and then you come home to find it's all gone wrong, you'll never gonna talk or trust your energy supplier again or whoever has set this up. So I just don't think the money you get paid oh, you know, we've all well, probably not everybody, but been on holiday, come back to find your fridge is broken or there was an outage and your everything in your freezer is now. That's a lot of money.

And then say to to your supplier, well, yes. Of course, you can interrupt my freezer overnight for fifteen minutes. I know it doesn't make any difference. But I'd just be worried it wouldn't come back on because I don't particularly trust my energy supplier. And I think that would be the same for the vast majority of population.

Sadly, does not trust their energy suppliers.

Yeah. Then it's gonna be a real kind of lethargy and take up and delivery of it, and it might Yeah. It might under continue to under deliver versus expectation.

Okay. Super interesting and a genuinely contrarian view, actually.

I know. Everyone's obsessed by DSR.

Everyone loves DSR.

But they have been since the nineteen nineties. It's it's not different.

Yeah. Okay. Brilliant. Well, Lisa, thank you very much for taking us through all things Centimeters, BSC, CUSC, various rule books that kind of guide how all of this sticks together. Much appreciated. And yeah.

Been a pleasure. Thank you.

Thanks very much.

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