How to monetise demand flexibility in GB

There are two ways to make money from energy flexibility in the GB electricity system.

Load shifting is simple to understand. Flexible assets can consume more energy when prices are cheap, and consume less energy when prices are high. This shifted usage can be arbitraged on the wholesale power markets. Shifting demand is good for your wallet, and good for the planet too (the most expensive electricity usually coincides with the dirtiest electricity).

Grid services are a bit more complicated, because there are a lot of them in GB. We can split them into two types:

Grid services - local

Local grid services are sometimes called congestion or constraint management. They exist because very specific wires or substations can get overloaded.

Here’s an example of a zone with a constrained grid connection near Nottingham.

The UK has six Distribution Network Operators (DNOs), and they all pay people to provide local flexibility. Building new wires or substations is expensive, so it’s often cheaper to pay consumers to adjust their power usage during certain hours. Sometimes consumers will be paid to 'turn down' and reduce demand on the system; sometimes they'll be paid to 'turn up' and use excess energy from wind or solar.

For more details, check out our full blog on local network flexibility here.

Grid services - national

The NESO is the system operator of the UK power grid, and they have the unenviable task of maintaining stability 24/7.

The NESO needs tools to help it balance the grid, so it “procures” various services from flexibility providers. Put simply: NESO pays people to add or subtract energy when necessary, to ensure that the grid stays stable.

Let’s walk through each in turn.

Frequency response

All modern grids operate an alternating current, at a precise ‘heartbeat’. In the UK and Europe it’s 50 Hz, whilst in the US it’s 60 Hz. When supply doesn’t precisely meet demand, the frequency of the grid gets pulled away from it’s heartbeat, and the grid slows down or speeds up. Sudden changes in supply or demand (like a power plant tripping offline) can result in big frequency spikes or troughs.

Grid frequency is like a tottering statue. React quickly and you steady the wobble with ease; react slowly and your best efforts may not prevent a crash. Frequency response is fast acting, automatically snapping into action at the earliest sign of a deviation.

The NESO currently pays for four different types of frequency response. The Dynamic suite (DC, DM, DR) has response times ranging from 0.1 to 10 seconds, whilst Static Firm Frequency Response (SFFR), has a 30 second response time. All are paid using an availability fee, regardless of whether the service is utilised or not.

At Axle, we are the first in GB to qualify centrally dispatched home batteries and EV chargers for frequency response. For more details, check out our full blog on frequency response here.

Reserve and Balancing

Frequency response is a small amount of correction applied automatically. But despite its best efforts, the electricity system is always in imbalance, so the system operator steps in to resolve minutely and hourly imbalances using Reserve and Balancing services. These are large amounts of correction applied manually.

Reserve and Balancing services are both dispatched centrally by NESO’s control room. They are the primary tools that the control room uses to match supply and demand throughout the day.

Reserves are contracted in advance, and are paid to be on standby throughout the period of their contract. By contrast, the Balancing Mechanism runs near to real-time, and pays whoever is available to turn up or down at a particular moment.

Every 30 minutes, electricity generators and suppliers tell the control room how much they are planning to produce or consume in one hour’s time. They also submit how much they could increase or decrease those plans, along with the price they’d need to do so. The control room determines the lowest cost way to resolve supply and demand mismatches, and dispatches instructions via the Balancing Mechanism and Reserves as appropriate.

Note: balancing has a locational component too, since supply and demand need to be balanced in both space and time. Whilst the total supply and demand might match at a national level, we don't always have sufficient grid capacity to send energy across the country.

Demand response

Electricity demand varies significantly throughout the day and the year, and demand in peak periods can easily be double that in troughs.

The grid may only reach ultra-high levels of demand for a few hours a year, but everything still needs to function in these hours. Building wires and power plants just for these times is very expensive, because that peak grid capacity sits unused during the rest of the year.

Instead, the system operator can procure demand response (also called peak shaving), where it pays electricity consumers to reduce their demand. In GB this is predominantly done via the Demand Flexibility Service, where consumers are paid generous fees (up to £3,000 per MWh) to reduce demand during the dozen or so highest-demand hours of the year.

Most other flexibility services are designed for generators (supply-side), and are open to demand-side resources as an afterthought. Demand response is - as you’d expect - specifically geared towards the demand side.

We wrote a full blog post about the second evolution of the Demand Flexibility Service here.

Capacity Market

Electricity generation in Europe used to be centralised. Later, when generators and system operators were split up, the system operators ran into a problem: they were no longer able to guarantee that there’d be enough generation to meet demand for years into the future. If the economic incentive wasn’t sufficiently attractive or predictable, independent actors may not build enough generation to meet growing demand.

To resolve this problem (often called “resource adequacy”), many system operators created a capacity market. Capacity markets pay out a guaranteed price for offering excess supply (or demand reduction) years into the future. In the UK, capacity market contracts run from 1 year for existing assets up to 15 years for new builds.

By participating in the capacity market, you’re committing available capacity to help out in emergencies, and receive an availability payment for doing so. The UK’s capacity market is reserved for major sticky situations on the grid, and has yet to be called upon during its 15-year existence.

Summary

There are a wealth of ways to monetise flexible assets in GB. We’ve touched on the main ones here, but there's plenty more nuance under the hood. If you'd like to find out more, we’d love to chat about how we can help you participate.

The cheapest way to provide flexibility to the grid isn’t with gas peakers or purpose-built grid scale batteries; it’s with the cars, heat pumps, and batteries that consumers are adding to their homes. Axle builds software to harness EVs, heat pumps and batteries to provide this flexibility. We already orchestrate many tens of thousands of devices, automatically fulfilling grid requirements and earning revenue for their owners.

We’re also hiring. If you like moving fast, and you want to work on the biggest bottleneck to decarbonisation, join us!