It’s a year since Cornwall launched our Flexibility Forum. With ten members already, the group has got off to a successful start. And with the sign-up of Powervault to the group earlier this month, we welcome our first pure energy storage provider.
Over the past year, the GB energy sector has witnessed a combination of unprecedented technological progress and a high level of regulatory uncertainty, keeping GB energy sector participants in a state of perpetual motion. The bi-monthly meetings of the forum have allowed participants to time-efficently keep track of a nexus of complex issues from evolution of balancing services, multiple capacity market auctions, the landmark smart, flexibility call for evidence, controversial embedded benefits reform, to increasingly volatile energy imbalance pricing. All of these and the interaction between them cannot be ignored by the growing ranks of new types of player entering the energy market.
The complexity of the issues facing smaller, newer participants was well-evidenced by our January Insight report, which distilled our outlook for 2017 and the challenges being faced by non-traditional business models. In it, we concluded there were four critical factors that are likely to drive market evolution over the next 12 months and more, and this is proving to be very much the case.
These factors were:
- The transition to a world of sharper flexibility signals in a world still dominated by national market model that favours scale
- A slowing down from high growth in renewables driven by changes in government policy
- An erosion in embedded generation values, which have historically been at the heart of the business case for decentralised generation and controllable demand
- Emergence of an array of disruptive technologies
The general election is being seen as a mixed blessing by flexibility providers. On the one hand, they await notification of the next steps on a key flexibility worktream following the joint BEIS/Ofgem call for evidence late last year. With officials now analysing hundreds of responses, the depth and complexity of the issues is plain to see. BEIS had promised that the responses to this document, as well as wider engagement, will “help shape a plan that we expect to publish in spring 2017. This plan will set out the specific actions we plan to take to remove barriers, improve price signals, catalyse innovation, and shape roles and responsibilities in the shift to a smart, more flexible energy system which meets the needs of consumers and businesses now and in the future.”
To add to this Ofgem has separately acknowledged that existing codes and rules don’t work for storage providers, and it has flagged its intention of dealing with this complex issue through its Targetted (Network) Charging Review and has invited the industry to bring forward rule change proposals. That review, of course, will also be tasked with taking a more holistic review to the recovery of sunk network costs across the system, as well as the value of decentralised generation to the system.
But with spring moving into summer, delay is now inevitable. There are real concerns that, with the June election and new ministers to be inducted, progress could be pushed until after the Recess. Even then ministers’ attention will be dominated by Brexit.
A similar position applies on the follow up to the draft industrial strategy published late January. Responses to the green paper have now been published, but we see risks that final proposals and also the keenly-awaited Clean Energy Plan are slipping into the second half of the year.
Delay, though, is being welcomed in other areas, most notably that of embedded benefits and the reform of the triad benefit. Ofgem proposed a reduction in the value of the payments to sub-100MW distribution connected generators that reduce transmission system demand at times of high system use in March, which would if implemented see values slashed from £45/kW to less than £2/kW over the coming three charging years. But it has said that it will not now finalise its decision until after the election.
Few market participants are expecting a significant change of approach from Ofgem, and battle lines are being drawn up in the expectation of judicial challenge. But given the enforced pause for thought and the wide-ranging commercial damage this change would bring to investor sentiment, let’s hope Ofgem listens and lets its wider review work catch up and avoid isolated decisions that could well need to be revisited.
So, there has never been a more crucial time for flexibility developers and operators to track these complex and inter-related issues. Each of these streams could materially impact their costs and revenues and the risks and opportunities they face.
For more information about the Flexibility Forum contact Ben Hall on 01603 604405.
Elizabeth Adams from UK Power Reserve:
“As a leading provider of flexibility services in the UK, we have found the flexibility forum invaluable in helping us keep up to date with the latest developments in this arena. The insight and data from Cornwall’s experts helps inform our business strategy and growth plans and allows us to engage with peers and other stakeholders on the challenges and opportunities that really matter. ”
Gareth Goodall from NewStream Renewables:
“We have found the flexibility forum really useful in what is such a fast moving market particularly with regard to regulation. The forum takes place in a relaxed but professional atmosphere and is well attended by a broad selection of market participants".