Local Network (DNO) Flexibility: Everything You Need to Know

Summary

• Distribution Network Operators (DNOs) are responsible for the electricity network (cables, transformers, towers) at the local level
• As the electricity system evolves, the demands on the electricity network may exceed its capabilities, leading to a constraint
• These constraints are highly locational, and would traditionally be resolved by improving, or reinforcing, the physical infrastructure
• Local network (DNO) flexibility is an alternative; instead of, say, upgrading a transformer, assets behind that transformer may agree to adjust energy usage patterns to ease a constraint
• Local network flexibility is procured individually by each of the 6 DNOs in Great Britain, and can be quite lucrative (£33/kW/yr) if you’re in the right location. ~20% of the country is in a constraint zone

What is local network (DNO) flexibility?

The electricity system is undergoing a once-a-century transformation.

Generation is moving from large, centralised thermal power stations, to smaller wind and solar farms built where the wind blows and the sun shines.

Meanwhile, demand will double over the next decade as we electrify transport, heat, and more. This demand growth is far faster than we’ve seen previously; the previous doubling took over fifty years.

The ‘traditional’ solution to this problem is construction. Lots and lots of it: digging up roads, laying wire, upgrading transformers, building new towers. If we follow this path, and continue to construct a grid that can cope with the maximum possible demand, we’ll need to roughly triple the size of the current grid.

Flexibility provides an alternative. Local network flexibility empowers the DNOs to procure flexibility to manage these local constraints, instead of resorting solely to grid improvements. An asset, such as a home EV charger, can agree to not charge during a constraint, such as the 4-8pm evening peak. This has the potential to halve the necessary grid improvements, saving tens of billions of pounds in the process.

Map of the transmission (not distribution!) network requirements over the next 10 years (Source: National Grid ESO)

How local network (DNO) flex works

DNOs are licensed and regulated companies. In the UK, Ofgem, the regulator, sets price controls for allowable (recuperable) investment. The latest price controls (RIIO-2) mandate that the DNOs procure flexibility.

Each of the 6 UK DNOs has significant leeway in where, what, how, and when they procure flex. The DNOs have voluntarily agreed to a basic level of standardisation (predominantly on the types of flexibility they procure) but material differences remain.

Products

The DNOs procure 4 types of flexibility products, all at the local level:

Sustain is a scheduled product, where an asset agrees to adjust demand for a defined time of day (typically morning or evening peaks), over a defined period (typically 3-12 months).

Secure is a pre-fault peak-shaving product, dispatched when the DNO forecasts an upcoming strain on the grid, 1 day or 1 week in advance.

Dynamic is a real-time product, dispatched by the DNO to respond to network abnormalities or planned outages. Dynamic requires a quick response (as low as 2 minutes), but is rarely called upon.

Restore is a post-fault product, following a loss of supply. Restore also requires a quick response, and is rarely called upon.

All of the above may be procured as “demand turn up” or “demand turn down”, with the majority of volume in the latter.

Note that each DNO structures their product portfolio slightly differently, within the general scheme outlined above. This can make directly participating in multiple markets complicated for asset owners.

Example product set from a single DNO (Electricity Northwest)

Locations

DNO flex is procured wherever there are local constraints on the grid. This can occur at different ‘levels’ of the distribution network, from ‘High Voltage’ (HV) down to ‘Low Voltage’ (LV). HV constraints cover larger areas, in some cases as large as a county. LV covers much smaller areas, in some cases down to a single street.

Roughly 20% of GB households are within an existing local constraint, with significant variation throughout the country.

Timelines

Most DNO flex is procured in advance, semi-annually, for a ‘winter’ and a ‘summer’ season. An example tender for summer delivery:

Participation requirements

Participation is open to any connected asset able to adjust consumption during contracted periods. Key participation requirements:

• Eligibility: demand-side or supply-side assets, of any size
• Registration: via a registered Flexibility Service Provider (like Axle)
• Metering: asset metering (e.g., metering via an EV charger, or a battery) allowed. Most DNOs require half-hourly reads. Smart meter not required
• Baselining: energy use measured against a baseline of ‘typical’ use. Baselining methodologies vary, from ‘nominated’, to standardised baselines per asset
• Min bid: 10kW-50kW per local competition
• Aggregation: aggregation allowed per local competition

Which assets are best suited to participate

Due to the localised nature of DNO flex, smaller flexible distributed assets like EV charging, batteries, and electric heating are best suited to participate. EV charging constitutes the bulk of existing DNO flex supply.

Unlike most flexibility products on the market, DNO flex has been designed with smaller assets in mind, and the DNOs actively encourage and support their participation.

This is reflected in the participation requirements; DNO flex is unique in not requiring smart metering, which both lowers the hardware burden, and, importantly, makes for a faster, simpler asset onboarding process.

Similarly, minimum bid sizes of 10kW or 50kW (or less) are much more accessible for smaller assets, compared to the 1MW standard for other flex products.

How much it pays

DNOs typically publish a ceiling, or guide, price per competition, along with the volume they’d like to procure. The vast majority of competitions don’t reach their target volumes, so winning bids today are at or near their ceiling price.

Ceiling prices vary substantially (up to 100x), from DNO to DNO, product to product, and competition to competition. Payment structures can include either or both of availability and utilisation payments, where actual utilisation is typically unknown at time of bidding.

Across all DNOs, flex revenues for 2023-24 average ~£33 per kW of flex per year, where ‘kW of flex’ is measured as the variation from a baseline.

Indicative revenue for flexible residential assets

Note that DNO flex revenue varies substantially location to location, and is only available in the ~20% of country with an active constraint.

How to learn more and get started

Axle is a software platform that connects behind-the-meter assets like EV charging and batteries to flexibility markets, including DNO flex. We can help you with the end-to-end process of participating, from customer onboarding through baselining, aggregation, bidding, and delivery.

If you’re interested in learning more, feel free to drop us a note.