Utility Week

UTILITY WEEK | JANUARY 2023 | 15 Electricity to innovation projects. As of yet, none of these types of markets are being operated as part of business as usual. Hubbard separates flexibility markets into three strata: the "top-down" markets of the National Grid Electricity System Operator (ESO); the "middle-down" markets of distribution network operators (DNOs) who are taking on the new role of distribution system opera- tor (DSO); and the "bottom-up" markets of peer-to-peer trading between distributed energy resources (DER). She acknowledges the benefits of both top and middle-down optimisation of the energy system, wel- coming the possibility of either zonal or nodal locational wholesale prices as mooted in the REMA consultation and advocated for by organisations including the ESO, Octopus Energy and the Energy Systems Catapult. But Hubbard says the biggest gains will be found from bottom-up optimisation on local distribution net- works, where around a third of generation and the great majority of demand is connected to the power grid. With the rollout of low-carbon technologies such as electric vehicles, heat pumps and renewable generation, these networks will become increasingly congested. She says the trading of network capacity at these levels is going to be "one of the biggest, most valuable forms of flexibility anywhere". Hubbard gives three examples of the kinds of trades she is talking about, the first being renewable generators with flexible connections seeking to avoid curtailment. She says there are already around 2GW of flexible connections in Britain, and with Ofgem's reforms to net- work access arrangements, due to take effect from April 2023, they will start to become the norm. Unlike transmission-connected generators, which are paid by the ESO through the Balancing Mechanism to limit their output: "If you are connected to the distri- bution level and you're curtailed, you, as a renewable investor, lose all that revenue that you would have made by generating." Local energy markets can allow generators to avoid this curtailment by buying supplementary grid access rights from other network users beneath the same point of constraint, which can be paid to lower their output or increase their consumption. Hubbard says Electron is facilitating this type of trad- ing as part of the £8.4 million BiTraDER project led by Electricity North West, which began last March. "We're getting a signal from the active network man- agement system saying turn off your wind farm. We're getting a price from the wind farm that they'd pay to stay online. That price and volume is then going live at the point where the active network management system is saying turn off and local multiple aggregators can match with this price, and do demand turn-up, for example, to help create space on the network to bring the wind farm back online." The second example she gives is of an EV chargepoint operator facing a long wait to get the size of grid con- nection they want. In this instance, the operator could opt for a smaller connection in terms of firm capacity, but then buy extra grid access rights on the fly or during peak charging hours, paying other network users to reduce their demand beneath the relevant constraint. In theory, Hubbard says, they could even have a firm connection of nil: "You could plug your battery straight into the grid but you don't have the right to use the grid unless you buy it. It's a whole different concept. Instead of having a fixed grid capacity, you've got a market- based grid capacity and it's a whole different product." Taking things a step further, she gives the third exam- ple of an industrial or municipal zone being given a capacity limit beneath a network node and then allowed to optimise how this capacity is used. Parties operating in these zones could trade freely between each other and together in aggregate with other network users. "That's completely innovation. That's one step fur- ther on decentralisation. That's the DNOs saying, here are your limits and you handle it behind the limit." "We're moving away from this world where you just get dumb access to push or pull what you need from the grid and towards a world where everyone has to use it a bit more thoughtfully and economically," she adds. Hubbard says the absence of these kinds of markets is leaving lots of flexibility on the table, particularly as many potential providers are "not really willing to com- mit to six-month bilateral capacity obligations" through DNOs' flexibility tenders. "They need something a bit more dynamic; a bit more opt in and then opt out. And they also need to know that those markets they're investing in are going to endure. It's not enough to have all these different experi- ments and innovation markets." The government's REMA consultation did discuss local energy markets, for instance, raising the possibility of creating markets equivalent to the current national market at each point of connection between the trans- mission and distribution network. But Hubbard is concerned that too little attention is being paid to the kind of local energy markets she wants to see – primarily focused on trading network capac- ity – which could end up taking a back seat to reforms of energy markets at higher levels such as severing the link between fossil fuel and renewable power prices or introducing locational wholesale prices. She fears that local flexibility will end up being "pulled into the national market without thinking about the local market," saying truly local optimisation of the energy system is "a real blind spot" for the industry. She worries that for a battery operator, for example, there will be a divide between local and national mar- kets that mean "both markets are half as valuable." Done poorly, Hubbard says the government's market reforms could create "confusion as to whose job it is to optimise at a local level" or require that "everyone, even distribution connected assets, pool into some larger locational market that doesn't take into account local network constraints. "If you're at a local level you've got to have some say as to how your network capacity is prioritised, even if you can't control when and where the DNOs make all the relevant upgrades… The anxiety at the moment is it feels like the two conversations are being explicitly separated." Tom Grimwood, insights editor

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