As a result of the instability in the UK energy market due to increases in energy prices, some seven utility companies have ceased operating.
What measures can be put in place to address the challenges facing the UK market as a result of the limited supply of natural gas? Can energy flexibility help the UK stabilise its electricity market and avoid a similar situation in the future?
Dr Alastair Martin, Founder and Chief Strategy Officer of demand response solutions provider, Flexitricity, shares his insights:
How flexibility can help now and when the anticipated increase becomes a reality?
Gas supply shocks are real now and they have happened before. It’s worth remembering a couple of relatively recent examples. During winter 2006/07 following an earlier explosion at the Rough gas storage facility, many gas power stations switched to liquid fuel (equivalent to diesel oil), and coal stations were also heavily used.
This took place well before the recent growth in wind and solar energy. Such fuel-switching was extraordinarily expensive and substantially increased emissions.
A more recent example was the Beast from the East, in early 2017, when the cold weather caused operational problems at a number of gas infrastructure sites at just the time that heating demand was at its highest. This happened after a decade of renewable growth. On the worst day of that cold snap, wind power broke records and was a major contributor to keeping the lights on.
The recent gas price shock is unusual in that rather than happening during the winter, it landed in late summer. The relatively benign weather in fact exacerbated the problem, by reducing the amount of wind power entering the system.
At the same time, many traditional power stations have been undertaking routine maintenance. This means that the extreme electricity prices we have seen were caused not just by the high cost of the marginal fuel – which is normally gas – but the lack of plants in a state of readiness to turn it into electricity.
This time, one particular flexible asset class stood out in its contribution: grid-scale batteries, which have been able to take in electricity during off-peak periods overnight, and deliver it back to the system just as demand hits its peak.
Across our portfolio, we’ve also seen industrial and commercial sites being called to deliver reserve. Every megawatt of power delivered by merchant batteries or flexible customers reduces the amount that National Grid ESO has to pay to call on fossil power stations. That reduces both cost and emissions across the market.
The point of customer-side flexibility is to deliver at short notice when events occur. When electricity is in short supply, the most expensive source used sets the price – and that’s what has hurt small suppliers so badly.
Some customers – especially businesses – are directly affected by that, and most customers are likely to see cost rises in the long term as an indirect result.
During extremes, even a relatively small amount of flexibility can bring that cost down a long way. In doing so, it also reduces emissions, because market stress brings more polluting resources into production. The highest prices in the past two weeks were set mainly by coal power stations, all of which had to be warmed up for many hours before they could actually generate.
Flexibility is the essential partner to renewables
Where and how can flexible energy be sourced?
Customers and small generator owners can provide flexibility in large quantities. There are several categories:
Merchant batteries – that means grid-scale batteries developed specifically to help balance supply and demand in the national system – have fully justified their position in the electricity system over these last few weeks. Close to a gigawatt of battery capacity, with delivery duration varying from roughly one to two hours, is presently available. Most of this capacity is very new.
Flexible industrial and commercial load has had a role in providing flexibility since at least 2008. We see a potential for this sector to grow more rapidly over the next 4-5 years as the market for ad-hoc flexibility opens up. This arises from industry changes like BM Wider Access, which Flexitricity was the first company to make use of.
We see the potential for major growth in domestic flexibility. Electric vehicle chargers and heat pumps are major new electricity-consuming devices, but they are also more flexible than the vast majority of electricity-using devices presently found in homes.
What measures can be implemented within the flexible energy segment to avoid such an increase in energy prices again?
The one sector which we think underperformed its potential was domestic flexibility.
The problem is that time-of-use tariffs just aren’t responsive enough when fast-moving events occur.
Even the more adaptive tariffs simply flatlined over long periods, which made it impossible for customers – or their smart devices – to pick out the periods during which to pause consumption. If the price holds steady at the maximum level for hours on end, anyone who needs to charge their car is just going to get on with it and accept the unpleasant price. True flexibility can pick out the key moments, but tariffs don’t provide true flexibility.
Ofgem can help by pushing forward with the market-wide half-hourly settlement, though that will take roughly four years. Suppliers can help now, by working with flexibility experts to bring domestic-scale assets into active participation in flexibility markets.
That’s to the benefit of themselves and their customers, and the benefits are immediate – critical mass is already there, the growth curve over the next few years will be steep, and the opportunity belongs to those to do the hard work at the early stages.
The highest prices in the past two weeks were set mainly by coal power stations
Your comments on the growth of the flexible energy capacity market, industry barriers, and how they are being addressed
Flexibility is the essential partner to renewables. The government’s ten-point plan includes massive growth in offshore wind energy, and the flexibility industry stands ready to deliver the necessary counterbalance to weather variations.
However, greater flexibility over longer periods will also be needed, and one area that could be addressed now is the lack of a compelling business case for longer-term energy storage technology.
Lithium is best in the fast-moving, low-duration role; other technologies are needed for the many hours and days of flexibility that we will need in future. It’s important to find a way to bring such technologies to market now so that they can grow into that role and attain the cost savings that come with scale.
On the domestic side, customer acceptance of low-carbon technologies, together with the optimal deployment of the flexibility that they provide, is dependent on the quality and sophistication of control systems and user experience that goes with those technologies.
The thermostat in the hall is not enough in themselves to make electric heating perform for the customer or provide flexibility. On the other hand, good controls can make the best of heat pumps with the lowest amount of intervention in the home. This is a technology area that could yield substantial benefits if properly addressed.
What role can the market play in helping the UK achieve its net-zero goals?
The market will deliver the net-zero goal if the policy commitment is firmly expressed through specific and detailed actions.