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BLOG: How National Grid’s SNaPS could create fresh opportunity for renewables

Rachelle Money

Director of Communications

Posted on 06/07/2017 by Rachelle Money

National Grid has a tough job.

In its role as system operator it has the responsibility of ensuring that supply meets demand at all times, guaranteeing that the system operates within a number of defined limits and that it has the necessary tools to deal with ‘system events’.

To make all this happen National Grid Electricity Transmission (NGET) has traditionally set contracts with flexible generators through markets like the ‘balancing mechanism’.

With less synchronous generation (large coal and gas plants) and more embedded generation required to meet our carbon targets, the publication of National Grid’s System Needs and Product Strategy (SNaPS) consultation is welcome recognition that change is needed.

New demands require new tools.

These changes could bring with them some exciting opportunities for renewables, potentially opening up new revenue streams and making existing ones easier to understand.

At the very least it should be seen as a step towards a more level playing field

NGET has committed to:

  1. Develop new products for frequency response, reserve and reactive power
  2. Simplify existing requirements and provide more information to the market
  3. Give industry the opportunity to help shape the future market by seeking its views on preferences for short or long-term contracts, standardised or single products and tendering structures.

Change is also afoot within the Balancing Mechanism too – moves which could further open these markets to smaller generators (Cornwall Energy provide a helpful summary).

What’s wrong with the way things are?

  1. The system through which NGET procures services is too complicated

With more than 20 products available, the market for required services is complex and confusing, creating a barrier to entry for service providers.

  1. The products don’t make sense

NGET often procures services based on many overlapping issues. It would be hugely helpful for industry to know what those issues are before bids are submitted.

  1. We don’t know what NGET wants

It can often be difficult to understand why some contracts are successful and others aren’t. There isn’t much consistency, or any helpful information as to the value that NGET attach to different parameters.

  1. So many products seeking similar bids can’t be good value

Given the products that NGET seeks to procure can be very similar in terms of technical requirement and capability, valuing and procuring them in isolation may not be delivering best value for the consumer.

 

What is changing?

Now: NGET plans to review its existing suite of products with a view to reducing the number available.

It’s worth noting that in the event of change, existing contracts would be honoured. And the potential to move to a more competitive process of tendering for system services will also be offered where possible.

Next: The focus will turn to providing more information to the market by standardising the products.

This could include, for example, fixing certain parameters like contract terms.

In the future: NGET is keen to ensure that the products it procures are fit for purpose. It will therefore work with industry to develop the range of products beyond just standardising the ones we know today. 

 

So how can we influence all this?

NGET is currently consulting on its ‘product strategy’ which closes on 18th July – and in fact is holding a webinar tomorrow (Friday 7th, 10-11am ) to provide industry with more information on the proposed changes (sign up here).

It’s asking for views on a few topics:

1. Standardisation vs ‘single product’: simply put, whether to improve the products we have today or combine them within each market (e.g. a single product for frequency response, voltage control, reserve and system security).

Doing the latter would mean moving from a number of precisely-defined products to a smaller number of products which have a number of parameters.

2. Long or short-term markets? While short-term markets may bring more frequent opportunities for revenue, longer term contracts may provide the revenue certainty necessary to secure investment.

The current position is that there may be merit in providing long-term routes to market in the current climate while allowing short-term markets to develop – but your thoughts are welcome.

3. Procurement

There is some debate about whether the current ‘pay as bid’ arrangements are the best way to buy balancing services.

In addition, NGET acknowledge that the current set up of the balancing mechanism does not provide a viable route to market for non-traditional business models such as demand aggregation, distributed generation and DSR due to the high cost of participation and compliance.

NGET wants to enable wider access to the balancing mechanism and work with industry on how this can be achieved (taking account of other initiatives which are underway – project TERRE for example).

 

Get involved & help shape future markets:

Photo credit: kayakaya via Foter.com / CC BY-SA