Do you remember
Just under 10 years ago I worked at Ofgem, as part of a team focused on the electricity System Operator incentive scheme. Much of my time was spent evaluating expenditure by National Grid (now known as National Grid Electricity System Operator(ESO)) on their actions pre- and post-fault to determine if it was sensible and cost-effective. This also included looking at regression analysis to determine if historic actions and costs were correlated to activity or participants (similar to the first balancing services taskforce’s work).
National Grid ESO in its current and previous forms have published information to the market on the cost of balancing services through its daily and monthly reports (going back to 2006-07). It’s a fascinating summary of how the electricity system is managed pre and post gate closure, using contracts, trading, the Balancing Mechanism (BM) and even disconnection within their toolbox. The blackout of 9 August 2019 was an extreme version of these short-term management challenges, but in reality, it is a 24/7, 365 day a year task that doesn’t stop.
The area that has always interested me most is constraints, taking decisions to manage network power flows at least cost, with significant interaction between long-term investments and short-term decision making.
There are three main constraints being managed by the control room:
- Thermal: making sure the power flow doesn’t exceed the thermal limit of the equipment.
- Voltage: making sure the voltage is within the correct technical range to ensure safe and stable operation.
- Stability: making sure the system is safe and stable to operate in the case of faults or outages.
The ESO has issued pathfinders looking at all these problems and we shall focus on the thermal part for this blog.
Against all odds
The ESO announced in late December that a pathfinder would be set up to look at constraints, through the Constraint Management Pathfinder (CPF). This interacts with the wider Networks Options Assessment (NOA). The NOA assesses how network and non-network solutions across the transmission and distribution system could meet transmission network needs. A key input into the NOA assessment is the Electricity Ten Year Statement (ETYS), which aims to encourage innovation and inform developments that ensure a secure, sustainable and affordable energy future.
The CPF specifically aims to reduce the cost of thermal network constraints through a new service aimed at instantaneously removing MWs from congested areas of the transmission system and injecting MWs into less constrained areas after a fault on the network occurs.
The objective being ultimately to provide another option to the ESO for managing those assets in constrained areas, rather than often paying them to either reduce their output or turn off to manage any network constraints through the BM. The benefit of this could be a lower cost to the consumer by reducing balancing services costs, be cheaper than building additional transmission network and potentially provide more optionality to manage future uncertainty in the generation mix.
Another day in paradise
The most prevalent of actions by the ESO to manage constraints on the system to date is to use bids (to reduce output) and offers (to increase output) in the BM.
A common and well-reported example is the constraint on the Cheviot Boundary between Scotland and England. If it’s a windy day in Scotland, then due to generation levels being higher than local demand, electricity will flow south to England. If the transmission system is unable to cope with the power flow over a given piece of the transmission network the ESO can either pay to constrain off a wind farm in Scotland or conversely receive a payment from a thermal generator also located behind the constraint who can reduce output.
Given the dominance of wind generation in Scotland, it is likely that the ESO will have to pay the wind farm to turn down. The wind farm will bid at levels to recover any lost revenue, normally the sum of market and subsidy scheme value, with a small margin for operating and maintenance costs. At the same time, the ESO will have to issue an equivalent offer to another generator to increase output on the import side of the boundary to maintain system balance.
While the system isn’t broken, concern has existed for a long time that the cost of doing so is increasing and this may not always be the most cost-effective approach. So why not build more transmission network to allow the power to flow wherever? There are challenges with this approach with network reinforcement around the length of the investment in transmission and uncertainty in long-term forecasting of usage and need, risking the creation of a stranded asset that still will need to be paid for by the consumer. There are also planning consideration to take into account, which are particularly sensitive in the Cheviot Boundary area.
It is also worth bearing in mind that GB policy for transmission connections still remains as ‘Connect and Manage’, in which generators who wish to connect to the system have a fixed date for receiving Transmission Entry Capacity, thereby allowing developers to connect and manage reinforcements to the network over time, but with constraint costs socialised across network users rather than being borne by the parties contributing to the problem (as was the case under the previous ‘Invest and Connect’ approach to transmission connections in the 2000s. This has allowed us to meet the UK’s European renewable targets (20% off all energy renewable by 2020) and is likely to be even more important with the net zero target although there are wider issues about transmission and distribution charging that haven’t been addressed to meet this.
While investment in transmission entails difficult decisions around risk and usage, it is worth noting there has been significant reinforcement investment to mitigate constraint issues. A good example is the Western High Voltage Direct Current (HVDC) link between Western Scotland (Hunterston) and North Wales (Flintshire Bridge), at a total of 2.2GW – the so-called ‘Western Boostrap’. The project underwent significant pre-planning and environmental and marine studies necessary to obtain necessary licences, with construction starting in 2013 and commissioning completed in 2018. Despite some reliability issues, it is a good example of managing connections while limiting the costs of constraints.
In the latest NOA the ESO in 2019 identified a need for at least two Anglo-Scottish reinforcements with 2GW capacity each to replicate the benefits of the Western HVDC link on the east coast. For the first time, the NOA assessed commercial opportunities alongside reinforcements and concluded some form of service for 40 years duration is needed as soon as it can be delivered.
Even with recent network reinforcement and improvements in forecasting the management of constraints is still a rising cost for the ESO. The figure below shows how constraints costs in the Balancing Mechanism have continued to rise over time in line with growth in renewable deployment. This is unsurprising given the growth in renewable deployment and the predominance of onshore wind being deployed in Scotland.
I wish it would rain down
Rising costs of constraint management and the need for more onshore wind deployment in Scotland and the rest of GB to meet net zero targets has led National Grid ESO to look at alternative solutions. The constraint pathfinder is one such option, with the first project looking for at least 200MW with a 2-hour duration to manage the flows between Scotland and England, which currently ranges between £100-200mn a year from Balancing Mechanism actions alone.
The pathfinder will look for solutions above the B6 boundary (Scotland) and between the B8 and B9 boundary (North to Midlands). The service could either be a single location, taking energy off the grid on the exporting side (Scotland) or dual location, which is taking energy off the exporting side and injecting on the importing side (England). The dual location is the most effective solution, but the cost of the services and having multiple assets may make it more challenging for participants.
The ESO is looking for submission from parties either providing a service when the arming signal is received (Option 1) and under this it is possible to stack services if they do not impact the service provision. Alternatively, it may also be possible to provide a premium service, but this would entail participants to provide the service exclusively 24/7 with no ability to stack with other services.
The constraint pathfinder provides a great opportunity for the ESO to test the market to understand the relative cost of providing the services, giving them a new tool to manage not just current costs, but future ones too. The future costs are an increasingly important area, with Cornwall Insight identifying 9.8GW of subsidy-free onshore wind in planning and development, the majority of this in Scotland.
There are several key elements not covered in the document that will be of key interest to potential applicants to decide if they are to participate:
- What can they really stack with the Option 1 service and therefore identify the value versus Option 2?
- How will they evaluate the pricing against potential revenues in the Balancing Mechanism for participants?
- Transmission Network charging will be applicable for an asset providing a service that is not based on flowing power normally on the system, should it be exempt?
- How will the ESO consider the future pricing of BM with new distributed assets and the growth of subsidy-free wind that can provide low bid pricing?
- Minimum 10-year contracts could potentially result in a different investor profile towards investors who can take lower returns. Will they be able to, therefore, bid in at lower levels?
I for one can’t wait to see how it evolves and how we could see the start of a new service in the future.
Cornwall Insight services
Cornwall Insight’s consulting team have provided pre-eminent project and advisory services to the UK energy and water sectors since 2010. Cornwall Insight can support with the following:
- Assessment and analysis of wholesale, balancing mechanism, balancing services, pathfinders, distribution system operator and capacity market
- Network charging
- Investment appraisal
- Regulatory support
- Policy and market design
Cornwall Insight provides a number of market research and insight services including:
- Subsidy-free pipeline report – to be launched at the end of January, provides detailed analysis of the pipeline for new renewables development across technologies, locations and investor types. With a record year expected for subsidy-free development, the report is an invaluable tool for assessing opportunities and key trends
- Balancing Mechanism – The service provides a one-stop-shop for commercial and regulatory coverage of the BM, data access, analytical detail including competitor analysis, detail on generator activity and expert views from our team
- Balancing Mechanism: commercial opportunities – This one-day course explains the detailed operation of the Balancing Mechanism – the tool used by the Electricity System Operator (ESO) to help manage GB electricity supply and demand. 18th February 2020
If you are interested in any of our services, contact a member of the team today on 01603 604400.