Cornwall Insight comments on a year of Dynamic Containment

Cornwall Insight examines the first year of Dynamic Containment (DC) since its launch in October 2020 by National Grid Electricity System Operator (NGESO). DC is the first of a new suite of faster-acting frequency response services.

As non-synchronous renewable technologies make up an increasing share of the generation mix, system inertia decreases, requiring response services to respond quicker to manage frequency deviations. As a result, participants in DC must respond to timescales of less than one second. This sub-second response requirement favours battery assets, which are the only technology to participate in the service.

Key findings

  • After launch, DC prices quickly settled at £17.00/MW/hr.
  • Service was undersubscribed, with an initial volume cap of 500MW and average procurement at 190MW during October 2020. This theme has continued over the past 12 months, with growing volumes in the service unable to keep up with rising service requirements (Figure 1).
  • The average gross annual revenue of DC participants is £124.9/kW/year, with revenues of up to £149/kW/year available to participants active in the service for all hours of the year .
  • As the service becomes oversubscribed in November, we will see significant price variation and volatility throughout the day.

Luke Ansell, Analyst at Cornwall Insight, said:

“Despite being undersubscribed, we have seen significant month-on-month growth in service procurement, reaching a peak in August, before a drop in volumes over September due to the shift to EFA-block procurement and increased revenue jumping amid record-high wholesale prices. Unfortunately, this has come at the expense of the FFR service, with monthly and weekly FFR auction volumes falling considerably since the introduction of the DC.

“DC tender prices have remained at a premium to all other response services, with Dynamic FFR tender prices typically the second-highest ranging between £8.0-12.0/MW/hr. The average gross annual revenue of DC participants is £124.9/kW/year, with revenues of up to £149/kW/year available to participants active in the service for all hours of the year.

“Compared to revenues available in other frequency response services or for batteries in arbitrage, there has been a significant premium enjoyed by DC participants to date. Due to all parties bidding at the same price point, higher revenue is currently associated with higher activity levels in the service. The parties who have accounted for the largest share of accepted service volumes to date, and therefore accrued the largest revenue, have all been active since go-live.

“The recent procurement changes, part of the ESO’s transition from a ‘soft launch’ to a full service, now mean DC is procured by EFA block, on a pay-as-clear basis. This shift is changing procurement characteristics, with the ESO’s recent Market Information Report suggesting a 65% drop in requirement in November. As such, we anticipate the service becoming oversubscribed in November, with potentially over three times more supply than requirement levels and prices easing from their £17.00/MW/hr stronghold.”


Notes to Editors

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