Utility Week

14 | 14TH - 20TH SEPTEMBER 2018 | UTILITY WEEK Policy & Regulation Analysis A s the system operator for the transmis- sion network, National Grid is respon- sible for ensuring supply and demand is kept in balance. One of its main tools for achieving this equilibrium is the balancing mechanism. It's certainly the most expensive of the various balancing and ancillary services procured by National Grid, accounting for around £400 million of the roughly £1 bil- lion it typically spends each year. This bill is expected to rise significantly in coming years as more intermittent renewables come online. Ever since its creation, the balanc- ing mechanism has been the domain of large power plants. Up until now, alterna- tive sources of flexibility – demand-side response, batteries and distributed genera- tion – have been locked outside, peering in through the window with envy. But, aer years of knocking, the door is finally opening. Last month, Limejump entered the first truly aggregated unit into the balancing mechanism in the form of a 168MW "virtual power plant". The company's chief executive, Erik Nygard, says it is an important milestone in the transformation of the energy system. "It signals a very positive message for the future of energy we're all trying to build," he says. "We've worked very closely with National Grid to break open this door. We hope every- body can come in because it's great." Aggregators were already able to access the balancing mechanism if they were the registered supplier for the sites they were aggregating. Limejump secured a supply licence for this purpose in 2015. However, the Grid Code also stipulates that balancing market unit (BMU) data sub- mitted to the system operator must be aggre- gated at the grid supply point (GSP) level. In a recently published roadmap set- ting its plans to widen access to the bal- ancing mechanism, National Grid said in practice this meant the "supplier route" was previously only used in "locationally specific cases". All involved single sites and were therefore not aggregated in any meaningful sense. Limejump's virtual power plant is the first BMU to be aggregated across multiple GSPs. To allow this to happen, Ofgem granted the company a derogation from the aforemen- tioned rules on data submission. It has instead been allowed to aggregate BMU data at the GSP group level. A GSP group covers all of the GSPs within a distri- bution network licence area, of which there are 14 across Great Britain. The derogation was specific to Limejump. However, Ofgem recently approved a modification to the Grid Code called GC0097, which will allow others to do the same. The modification will introduce a whole suite of reforms necessary for Great Britain to participate in a new Europe-wide balanc- ing platform called TERRE. (Trans-European Replacement Reserve Exchange, see box). The regulator has also given the all-clear to a similar modification to the Balancing and Settlement Code (BSC) known as P344, which will implement the common settle- ment arrangements to be used by countries participating in TERRE. This includes creat- ing a new type of signatory to the BSC known as a "virtual lead party". A virtual lead party will be able to create an aggregated BMU without being the regis- tered supplier for the sites it is aggregating – or holding a supply licence at all. Ofgem has issued a direction for P344 to be imple- mented by 28 February 2019. Nygard is extremely excited by the changes he is witnessing. He says they dem- onstrate how National Grid and Ofgem are turning rhetoric into action. He believes access to the balancing mech- anism will be great for aggregators, add- ing another important layer to the stack of potential revenues on which their business models are built. "It provides a more liquid market for flex- ibility," he explains. "Today, we generally have monthly, quarterly or even annual ten- ders for flexibility." This can be "a bit of a hit or miss situation. You don't always know whether you're going to get a tender." Nygard hesitates to say what proportion of the company's revenues he expects to come from the balancing mechanism. It will vary over time as Limejump hunts for the best returns in the various markets in which it operates. Aggregators are go Once the preserve of the big power plants, the balancing mechanism is now welcoming in smaller players. It's a milestone for aggregators, says Tom Grimwood.

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