UK's National Grid to allow 'game changing' revenue stacking in balancing mechanism

London — UK electricity system operator National Grid is to allow the stacking of revenues in parts of the Balancing Mechanism from Jan. 27, the ESO said Jan. 20.

The move is seen as "massively significant" by battery asset owners, allowing them to participate more fully in the mechanism, Aaron Lally, managing partner of trading house VEST Energy, told S&P Global Platts Jan. 21.

"This is a real game changer and a sign National Grid is finally taking flexible assets seriously," said Aaron Lally, managing partner of trading house VEST Energy.

While it is already possible on the trader side to submit different battery storage megawatts into different services, "what you have now is the ability for an asset to provide both ancillary services (Dynamic Containment) and to trade in the Balancing Mechanism," Lally said.

Last year, National Grid paid out GBP1.789 billion ($2.442 billion) for balancing services, up 49% year-on-year.

"We anticipate this additional flexibility and revenue stacking will increase the efficiency of battery assets delivering the service, [and] increase competition which would in turn reduce costs to the consumer," National Grid ESO said.

A soft launch of stacking Jan. 27 is to begin in Dynamic Containment services within the BM. These ancillary services are deployed after a significant frequency deviation, with full delivery of the service required within one second.

"Currently, the electricity system is experiencing lower inertia and larger, more numerous losses than ever before. Faster acting frequency response products are needed because system frequency is moving away from 50 Hz more rapidly as a consequence of imbalances," the ESO said.

National Grid would take a cautious, staged approach to implementing BM stacking because dynamic containment was "crucial to operational security", it said.

Providers must ensure that any stacked BM activity did not "erode or compromise" their ability to deliver on dynamic containment obligations, it said.

In one example, a storage provider would offer competitively priced downwards BM bids, allowing a DC-providing unit to re-charge following depletion, the ESO said.

"We are excited to add the capability of BM stacking to the new Dynamic Containment service as part of frequency reform," it said.

The ESO would include stacking for all new services introduced to the market in future, it said.

The speed with which the reform was being rolled out "is quite breathtaking given the current COVID-19 issues and the need to address security of supply, so hopefully this is a sign of things to come," Lally said.

"I'm not sure what investors are waiting for when revenues for storage are currently twice what they have been historically, with asset payback within four to six years on a 10-year asset life," he said.