UK National Grid neglecting storage in balancing mechanism

The UK National Grid is preferring to dispatch higher carbon assets rather than energy storage in the balancing mechanism, a strategy that is putting billions of potential UK storage investment at risk


August 25, 2023

  • National Grid preferring use of high-carbon assets in balancing mechanism
  • Battery storage ‘skip rate’ could be as high a 91%
  • Billions of pounds of energy storage investment at risk as a result

The National Grid ESO – the electricity system operator for Great Britain – is failing to make the best use of available energy storage in the balancing mechanism (BM) and is, instead, opting for more expensive higher carbon-emitting assets when seeking to balance supply and demand.

That was the damning verdict of The Electricity Storage Network – the UK industry group dedicated to electricity storage – in a recent letter sent to Fintan Slye, the executive director of the National Grid ESO. In the letter, which was signed by Rachel Hayes, director of the Electricity Storage Network – whose members include Fluence, Zenobē and Voltalia – concern was expressed about cheaper, low-carbon energy storage units being “skipped”, that is, not being dispatched in the BM in price merit order. Alarmingly, the letter said that this was happening the “vast majority of the time”. Instead, larger, more expensive and much longer minimum runtime (often six hours) higher carbon assets are being “preferentially dispatched first”, the letter said.

What is the current skip rate?

Exactly how frequently are energy storage assets skipped by the National Grid in the BM? Data quoted by the Electricity Storage Network shows that the average skip rate was 80 per cent – across 10 representative batteries in Great Britain in June 2023 – with the rate referring to instances where batteries were skipped over “whilst in price merit”. However, this may be a conservative estimate, an analysis by Modo Energy showed the skip rate of battery energy storage to be 91 per cent.

The National Grid’s failure to properly utilise readily available energy storage assets makes a mockery of its claim that Great Britain’s electricity system is “on track to be at 100 per cent zero carbon” by 2025. Trust in the National Grid will surely be jeopardised if it is overlooking clean energy assets, available now, which will help achieve this target.

National grid control room not fit for purpose

Is the National Grid wilfully overlooking energy storage in the BM? For its part, the National Grid published a ‘Markets Roadmap’ report in March this year, in which it acknowledged that the BM is “currently high carbon intensity” and admitted that its IT systems and control room processes “present barriers to entry for emerging low carbon flexible assets”. The National Grid is saying that its systems and processes are basically not up to the job of efficiently incorporating energy storage assets into the BM. “Current systems are not flexible enough to deal with many smaller units, and the manual nature of some ESO control room processes limits high volumes of instructions to many assets,” the report said.

This is a serious problem. Not only is the National Grid unnecessarily facilitating the production of increased carbon emissions – by using high carbon assets rather than storage in the BM – it is also potentially deterring investors from ploughing billions into UK energy storage assets. “Investment decisions on storage projects in the UK pipeline depend on efficient dispatch of electricity storage assets in the BM as a crucial segment in the revenue stack,” Hayes’ letter said. “Current dispatch issues are putting billions of pounds of investment at risk.”

Storage skipping angers investors

The fact that energy storage assets are being skipped by the BM has angered energy storage investors. Gore Street Capital has already made clear its growing frustration that its assets are being skipped in favour of larger, higher carbon assets. In fact, Gore Street has claimed that its 10 MW Breach Farm asset is one of the most skipped systems when in merit. “The lack of transparency over how ESO makes its decisions when selecting assets in the BM is a key barrier to GB’s almost 3 GW BESS fleet delivering cheap, reliable power for consumers,” Gore Street said in a blog post on its website. “Failure to provide further clarity is stopping BESS operators from making informed decisions over their commercial strategy, particularly when such systems offer a cheaper and cleaner alternative to the large-scale gas-peaker plants being selected in their place.”

Gore Street has called for a wide-scale upgrading of the National Grid control room. Without the necessary digital transformation, it seems clear that the National Grid can only perform a small percentage of the actions required in order for the BM to truly operate effectively. Gore Street argues the National Grid is “turning to a smaller number of higher impact actions at the expense of smaller assets that were in merit order – often BESS assets”. While acknowledging that CCGT [combined-cycle gas turbine] plants may offer a simplified solution to the needs of the system – because it means only one asset is called to deal with a multi-settlement-period constraint instead of several – Gore Street says that they are more carbon intensive, which leads to further indirect costs for the consumer.

Ofgem under pressure

But it’s not only the National Grid that is in the line of fire. Criticism has also been aimed at Ofgem, the UK government electricity market regulator, for not requiring the National Grid to implement a more effective system.

Gore Street has argued that lessons can be learned from electricity markets in Germany and Texas. The investor says that, in the German market, for example, assets “derive liquidity from the demand for generators to settle their supply imbalances before facing high system charges, removing the need for a BM equivalent.” Meanwhile, in Texas, grid constraints are settled every five minutes based on the most economical bids that are able to solve the prevailing issue at that moment.

Where lessons can be learned

The essence of Gore Street’s argument is that the German and Texas markets provide greater transparency about why decisions are made when seeking to balance supply. What UK storage investors want is more urgency from the National Grid when it comes to addressing the issue of making dispatch more effective. The longer it shies away from this important issue, the more UK energy storage investment is jeopardised.

Priorities for National Grid should include implementing interim measures to allow for the effective dispatch of batteries until skip rates decrease in line with system improvements. Meanwhile, The Electricity Storage Network has also called on Ofgem to make effective dispatch of low carbon flexible assets a “key performance metric” for the National Grid and the Future System Operator.

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