Balancing Reserve: ESO proposes new regulating reserve service

In recent months National Grid ESO has been developing a new reserve service to improve the management of the system and enable the grid to accommodate zero carbon operation of the electricity system by 2025. On 28 September the ESO first announced at their Autumn 2022 Markets Forum, a proposal to create a new balancing service called Firm Regulating Reserve, which has since been rebranded as Balancing Reserve.

Regulating reserve looks to balance supply and demand in real time, distinguishing itself from Short Term Operating Reserve (STOR), which is largely there to replace generation after the largest loss. At present regulating reserve is obtained via the Balancing Mechanism (BM), securing and in turn utilising headroom (reduced consumption or increased generation) and footroom (reduced generation or increased consumption) from BM units.

In the past couple of years, costs attributed to securing reserve, particularly regulating reserve, have risen notably. It is not a case of the ESO procuring more volume than previous years, rather the cost of buying typical volume levels has increased. This has obviously been exacerbated this year with the bullishness observed in the wholesale energy markets, which has filtered through to the BM and wider balancing services – which at times of scarcity has led to some extremely expensive periods to obtain additional volume.

Reducing these high associated balancing costs has driven the need for a new service. The proposed Balancing Reserve service would procure regulating reserve at the day-ahead stage, in a similar way to STOR. It is hoped that this will help to reduce costs with prices instead benchmarked to day-ahead prices, whilst also better reflecting scarcity. The ESO also hope to have the auction for this service to clear before the day-ahead energy market to improve system security by procuring volume ahead of the energy market so that energy is locked in and not available to be sold over interconnectors instead.

Since the Markets Forum presentation, the ESO has held two industry webinars to obtain industry feedback and response to their initial proposals for the proposed service. A summary of the latest proposed design elements can be found in the table below.

Following the industry webinars, the ESO published an EBR Article 18 Consultation concerning its implementation, service terms and procurement rules. This closed on 14 December, and the ESO will look to submit the consultation document to Ofgem for review and approval on 16 January. This process could take up to two months, with the ESO noting that they will want to approve service go-live as soon as possible, potentially as early as April 2023. The Single Market Platform will be ready later this month to commence onboarding, with a mock auction to be announced shortly. It should also be noted that the roll out of Balancing Reserve will take priority over the Slow Reserve and Quick Reserve products, which are now expected to go-live in ~Q4 2023-24.

If approved and once operational, we will be analysing and commenting on the latest developments in Balancing Reserve and the ESOs wider balancing services in our monthly Flexibility Markets Report. For more information on this service please contact Tom Ross at t.ross@cornwall-insight.com.

This advert shows our Flexibility Markets Service, which offers regular price monitoring of key revenue streams to provide an independent view on the market landscape. Contact t.ross@cornwall-insight.com for more information.

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