The new face of frequency response – 1 year of Dynamic Containment


In October 2020, National Grid Electricity System Operator (NGESO) implemented the soft-launch of the Dynamic Containment (DC) service, the first in a new suite of faster-acting frequency response services. Since its launch, the DC service has been the most lucrative response service and has grown considerably in the past year. The one-year anniversary of the service provides an opportunity to review its evolution over the past year.

Introducing faster frequency response services is critical to achieve the ESO’s ambition of operating a zero-carbon grid by 2025. As non-synchronous renewable technologies make up an increasing share of the generation mix, system inertia decreases, which in turn requires response services to respond quicker to manage frequency deviations. Participants in DC must provide response on timescales of less than one second. This sub-second response requirement favours battery assets, which so far are the only technology to participate in the service.

After launch, DC prices quickly settled at £17.00/MW/hr, a level the ESO determines provides better value than taking alternative actions. With an initial volume cap of 500MW, and average procurement at 190MW during October 2020, the service was notably undersubscribed. This theme has continued over the past 12 months, with growing volumes in the service unable to keep up with rising service requirement (Figure 1). More stringent technical requirements, namely 20Hz performance monitoring, has acted as a barrier for older battery assets to jump from the monthly Firm Frequency Response (FFR) service over to the more lucrative DC service.

Nonetheless, we have seen significant month-on-month growth in DC to average 880MW in August, before a drop in volumes over September due to the shift to EFA-block procurement. This has come at the expense of the FFR service, with both monthly and weekly FFR auction volumes falling considerably

since the introduction of 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. Figure 2 shows the gross revenue accrued in the DC service over the past 12 months (i.e. does not account for costs faced by an individual asset such as wholesale purchase costs), averaged across all active units. The average gross annual revenues 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 in 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 seen 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 there will be a 65% drop in requirement in November. As such, we anticipate the service becoming oversubscribed in November, with potentially over three times more supply outstripping requirement and prices easing from their £17.00/MW/hr stronghold. On 1 November, this was realised as prices fell to £14.90/MW/hr for EFA block 6, with a volume-weighted clearing price of £16.70/MW/hr across the day. This is the first time prices have cleared below £17.00/MW/hr since October 2020. As the service matures to competitive auctions with EFA block procurement, we expect to see greater price variation and volatility throughout the day. This was exemplified on the 2 November; average tender prices ranged from £1.59/MW/hr in EFA block 2 to £47.99/MW/hr in EFA block 5, with the ESO accepting DC bids over £17.00/MW/hr for the first time amid tight system conditions.

DC bids are stackable with bid-offer acceptances in the Balancing Mechanism (BM), as long as any BM activity does not compromise an asset’s ability to meet their DC obligations. This has enabled battery assets to access multiple revenue streams within-day since BM stacking was unlocked back in January 2021. Recent developments have accelerated this trend, with the shift to EFA block procurement facilitating within-day optimisation across different revenue streams. This was showcased across October during exceptionally high wholesale power prices, where we have seen lower procurement during EFA blocks 5 and 6 as assets withdrew to trade in the evening peak in wholesale markets or the Balancing Mechanism.

Looking forward, the high frequency product of the DC service (DC-HF), designed to manage the largest outfeed loss on the system, launched on the 01 November. Although the requirement is initially relatively low this winter, it is expected to grow into 2022 as the North Sea Link (the largest outfeed loss) is commissioned at full capacity and into the summer season where periods of low system inertia are more prevalent.

The roll-out of Dynamic Moderation and Dynamic Regulation is expected in March 2022. These pre-fault services are designed to complement DC and maintain frequency within operational limits (±0.2Hz). As these services go-live, the ESO will transition away from existing FFR services completely, to be replaced by the new response and reserve services.

We will be analysing and commenting on the latest developments in DC and the ESOs wider ancillary services in our monthly Flexibility Markets Report. For more information on this service please contact Tom Ross at t.ross@cornwall-insight.com.

You may also be interested in…

Flexibility markets report

This report provides key analysis of the commercial developments throughout the flexibility revenue streams across GB. Providing a collective view of value across all National Grid ESO and DSO flexibility markets, the report provides a monthly analysis of market forecasts and revenue benchmark and backcast assessments.

Related thinking

Power and gas networks

New Fault Ride Through compliance arrangements introduced for transmission-connected generators

Ofgem approved Workgroup Alternative Grid Code Modification 1 (WAGCM1) of GC0151 Grid Code Compliance with Fault Ride Through (FRT) Requirements on 5 November. In short, this decision introduces a new, legal process, into the Grid Code – the legal text that governs those connecting to the electricity transmission system -...

Regulation and policy

Just the bill please – who picks up the costs of market exits?

This article is an extract from our Energy Spectrum Nutwood. find out more about a subscription to Energy Spectrum here. Between 9 August 2021 and 19 November 2021, 22 energy suppliers exited the market impacting more than 2mn mainly domestic customers. Supplier exits result in a number of costs being...

Commercial and market outlook

Be the change you want to see – my takeaway from this year’s BIEE conference

On 13 September, I spoke at the British Institute of Energy Economics (BIEE) Energy for a net zero society conference. The conference considered the legacy of the Covid pandemic and how the means of recovery will influence the pace and direction of the net zero transition. The timing of the...

Low carbon generation

BEIS Hydrogen Strategy

The flagship Hydrogen Strategy paper was unveiled by BEIS on 18 August and confirmed that hydrogen will form a crucial part of the UK’s net zero economy. Perhaps disappointingly, the paper only reaffirms the 5GW of production capacity by 2030 commitment as set out in the Ten Point Plan with...

Heat networks

Reallocating electricity policy costs to incentivise low carbon heating technologies

Funding the cost of decarbonising the power system has mainly been through the consumers' electricity bills. In fact, in 2020-21 these costs amounted to a whopping £10bn. But is this method of raising revenue for decarbonisation still fit for purpose when faced with the need to decarbonise the nation's heat?...

Low carbon generation

Nuclear energy and its potential importance for net zero

This article was originally written as a longer piece in Energy Spectrum on 21 March 2021. To find out more about a subscription to Energy Spectrum, please contact Nick on n.palmer@cornwall-insight.com. Nuclear energy has been an integral part of the UK’s electricity system for many decades. Currently, nuclear provides around...

Low carbon generation

Up north and down south – trends for generator TNUoS charging

The topic of generator Transmission Network Use of System (TNUoS) is becoming a subject of increasing interest for stakeholders as regulation, policy, and the generation mix create potential volatility for future charging trends. The significant costs posed through TNUoS are an important consideration for generators, with high variability between regions...

Net zero corporates and ESG

Sleeving Pools could enable local authorities to procure local energy

This blog post is adapted from an article in March’s issue of Energy net zero, published on 31 March. To find out more about a subscription to Energy net zero, please contact Veronica at v.truman@cornwall-insight.com. For many local authorities and corporates, development of small-scale renewables and consideration of generation production...