A new ancillary service procured by National Grid ESO to manage the frequency of the GB electricity system remains undersubscribed more than four months after its launch.
Analysis by energy consultancy EnAppSys reveals that prices for the Dynamic Containment (DC) service are “significantly higher” than those accepted in other frequency response service auctions.
DC was launched on 1 October 2020 to support GB’s green energy transition and is applicable for energy storage assets.
It is the first of three new frequency response services designed by National Grid ESO to help manage system frequency under conditions of low inertia associated with high amounts of renewable generation, and is expected to provide new market opportunities for battery projects.
DC is tendered day-ahead, so provides a flexible revenue stream that units can optimise participation in alongside the wholesale market, but EnAppSys data shows that the average daily volume of bids accepted in DC has remained below targets set by the grid operator for the service.
In October, the average daily volume of 197MW was less than half the initial target of 500MW and January’s 333MW figure was still less than the 600-800MW target for the month.
On average, 92% of tendered volume is accepted, with the rest either rejected for being above the price cap (1% average) or withdrawn, potentially so the unit can participate in other markets (7%).
At this low level of uptake, without competition, DC prices have remained at or near £17per megawatt per hour (MW/h), a premium of around £10/MW/h over the prices achieved over a similar period in other alternative auctions for similar services.
These include the weekly and monthly frequency response services (though the costs of service delivery for participants may differ in each case).
EnAppSys senior analyst Katie Fenn said: “The undersubscription may be due to a number of factors, including the technical requirements for DC in terms of performance and metering, which may have deterred some participants.
“Also, more active market monitoring and tender submissions are needed to participate in a daily auction service such as this compared to monthly or even weekly tendered services.
“At these levels of participation in the DC market, so far prices have remained near a cap of £17/MW/h, so for participants that have entered, DC is currently providing a useful revenue stream.”
She said there have been occasions – notably around the middle of January – when procured DC volumes fell as some units switched to the wholesale market instead to access “super-high” prices in the day-ahead market and earn higher revenues.
“This highlights the usefulness of DC as a flexible revenue stream; by operating as a day-ahead auction, it allows participants to take a view of alternative markets and opt in or out of them to maximise revenue.
“DC participants that operate Balancing Mechanism (BM) units can now also stack their DC activity with bids in the BM following recent changes to the scheme.
“This allows them to place bids in the BM for the volumes they need to recharge, to replace power they’ve exported in delivering DC, and receive payment for it rather than having to do it at their own expense.”