A new ancillary service procured by National Grid to manage the frequency of Britain’s electricity system remains undersubscribed more than four months after its launch, but is showing its potential as a useful new revenue stream for battery projects.

Market data and consultancy service EnAppSys has been following the evolution of the new service, which is currently seeing prices significantly higher than those accepted in other frequency response service auctions.

DC was launched on October 1, 2020 to support the country’s green energy transition. It is the first of three new frequency response services designed by National Grid to help manage system frequency under conditions of low inertia associated with high amounts of renewable generation, and is expected to provide new market opportunities for battery projects.

DC is tendered day-ahead, so provides a flexible revenue stream that units can optimise participation in alongside the wholesale market, but EnAppSys data shows that the average daily volume of bids accepted in DC has remained below targets set by National Grid for the service.

In October, the average daily volume of 197MW was less than half the initial target of 500MW and, while participation has increased steadily, January’s 333MW figure was still less than the 600-800MW target for the month.  On average, 92% of tendered volume is accepted, with the rest either rejected for being above the price cap (1% average) or withdrawn, potentially so the unit can participate in other markets (7%).

At this low level of uptake, without competition, DC prices have remained at or near £17/MW/h – a premium of around £10/MW/h over the prices achieved over a similar period in other alternative auctions for similar services. These include the weekly and monthly frequency response services (though the costs of service delivery for participants may differ in each case).

Katie Fenn, senior analyst at EnAppSys, said: “The undersubscription may be due to a number of factors, including the technical requirements for DC in terms of performance and metering, which may have deterred some participants. Also, more active market monitoring and tender submissions are needed to participate in a daily auction service such as this compared to monthly or even weekly tendered services.

“At these levels of participation in the DC market, so far prices have remained near a cap of £17/MW/h, so for participants that have entered, DC is currently providing a useful revenue stream. This price cap relates to the cost to National Grid of taking alternative actions to reduce Rate-of-Change-of-Frequency (RoCoF) risk in the event of a large generation or demand unit imbalance. Examples of this include bidding off/down large generation units or reducing high levels of interconnector flows if there is insufficient inertia in the system.

“There were occasions – notably around the middle of January – when procured DC volumes fell as some units switched to the wholesale market instead to access super-high prices in the day-ahead market and earn higher revenues. This highlights the usefulness of DC as a flexible revenue stream; by operating as a day-ahead auction, it allows participants to take a view of alternative markets and opt in or out of them to maximise revenue.

“DC participants that operate Balancing Mechanism (BM) units can now also stack their DC activity with bids in the BM following recent changes to the scheme. This allows them to place bids in the BM for the volumes they need to recharge, to replace power they’ve exported in delivering DC, and receive payment for it rather than having to do it at their own expense.

“In turn, this also gives National Grid greater control over these potential volumes; the Grid can decide when the recharging takes place, allowing it to better manage power flows on Britain’s electricity system.

“This change to the service may feed into more variability of tendered prices as the ‘price risk’ of re-filling at the bidder’s own cost may be judged to be lower.

“We’re currently in the first wave of DC procurement, with the second wave planned for this spring.  The second wave is expected to enable more participation resulting from National Grid’s continuing engagement with market parties, so we will be following the service closely to see how it evolves as more units come online.”

The daily Dynamic Containment activity – volumes and prices per unit – can be tracked by companies using EnAppSys’s data platform to gain insights into this new market and other segments of the GB and EU electricity markets. For more information visit www.enappsys.com