INTERVIEW: Volatility, net-zero driving UK demand side response -- Enel X

UK businesses are warming to the opportunities offered by demand response.

Suspending operations, reducing electricity demand and being paid to do it is an increasingly attractive way for industrial and commercial concerns to remain competitive during times of price volatility.

Participating in demand side response markets, however, is complex, hence the advent of specialist DSR service providers like Enel X UK Ltd.

The subsidiary of Italian utility Enel has had a productive February.

On Feb. 16, it was provisionally awarded 318 MW of Demand Side Response capacity for 2022-23 delivery in Great Britain's latest T-1 Capacity Market auction.

Then on Feb. 22 it was awarded about 530 MW of DSR capacity in the T-4 auction for 2025-26 delivery.

This capacity is unproven, meaning Enel X must either extend existing capacity into this delivery year or recruit new capacity between now and delivery. It has 318 MW under management that could be extended.

Speaking to S&P Global Commodities Insights, Tony Whittle, the head of Enel X UK & Ireland, explained why, at GBP75/kW/year and GBP30.59/kW/year, respectively, the T-1 and T-4 clearing prices were the highest seen to date in the six years of the auctions.

"In the past, the T-4 results for DSR have been quite low because of general oversupply, but coal coming off the grid has been a huge factor in tightening the market and prices are rising to where they are in other capacity markets," Whittle said.

Managing disruption

In simple terms, the cost of demand response equates to the opportunity cost of lost production. Interrupting business operations, however, "is incredibly disruptive to our customers," so the benefits need to be compelling, Whittle said.

This is becoming the case both as price volatility increases and as companies commit to long term decarbonization goals.

"Energy is now a big budget line item talked about in the board room where before it was barely mentioned," Whittle said.

For cement manufacturers, energy is such a major cost component that demand response is integral to their operational schedules.

For other consumers, demand response can be more about being a good grid citizen -- assuming this makes business sense.

"They understand that with the energy transition, National Grid needs more tools to balance the grid and enable the integration of renewables," Whittle said.

These consumers may also have their own solar and battery storage assets that can be recruited to help grid management, he said.

The UK market was naturally evolving with more consumers getting involved via the year-ahead capacity auction in the first instance, Whittle said.

"It's more of a challenge for everyone to forecast where we are going to be four years out, so where the auction landed feels about right to me," he said.

And while DSR had to "roll with the punches" in the T-4 auction and all the uncertainty that it brought, the DSR resource had many more real-time revenue streams to pursue like balancing and frequency markets, such as dynamic containment, he said.

Data center leaders

Of all consumer groups, the wave of power-intensive data centers springing up in Ireland and the UK had pushed the boundaries of demand response.

"They demand stuff from us that nobody else does," Whittle said, notably around onsite assets and participation in grid services.

"We're excited in Ireland about the potential for UPSs and batteries on data center sites to participate in frequency control services," he said.

There was an acute need for flexibility in Ireland as wind output grew, Whittle said.

In February, wind farms provided 53% of Ireland's electricity -- the highest share of demand ever met by the source.

In turn, improving grid stability safeguarded against expensive outages.

"Data centers have huge costs from any downtime but have improved their internal processes so any switchover to their own generators is a lot less risky," he said.

Pharmaceutical and manufacturing companies were following this lead and learning from data centers, Whittle said.

Ireland: demand-side agreements in capacity auctions:

Stack of services

"No country has the grid challenge figured out yet, and the challenge is different wherever you are, depending on the generation mix and interconnection availability," Whittle said.

Enel X's energy markets team builds portfolios of clients that can provide demand response to specific ancillary, balancing and capacity market needs, while the clients benefit from providing an optimum stack of services.

"A capacity market would be a standard product for people to participate in, while a CHP asset might participate in capacity and balancing markets with an ability to ramp up and down in real time depending on market signals," he said.

A lot of businesses are catching on to the profits to be made from demand response and have employed specific managers to maximize opportunities.

Automation, meanwhile, is rapidly sweeping through the sector and offering new levels of reliability.

"Raising awareness of these opportunities will help companies participate, helping the grid while making their own decarbonization journeys easier," Whittle added.