INTERVIEW: UK aggregator access to wholesale markets to boost flexibility

New access for aggregators to the wholesale electricity market should prompt a surge in much-needed flexibility in the GB power system, Balancing and Settlement Code (BSC) manager Elexon told S&P Global Commodity Insights Oct. 17.

On Oct. 6, energy regulator Ofgem approved a modification to Britain's BSC allowing access to the wholesale market for flexibility dispatched by Virtual Lead Parties (VLPs) -- aggregators of demand side response and flexibility.

Currently, VLPs can only offer services in the Balancing Mechanism, making money by offering National Grid ESO "turn up" or "turn down" flexibility from a variety of energy users and generators.

"We are seeing growing interest from start-up businesses looking to enter this market," Elexon CEO Peter Stanley said.

Some 15 VLPs have entered the British market since 2019, when entry to the balancing mechanism began. Now these VLPs will be able trade a new type of settlement volume, known as a deviation volume, on the wholesale electricity market.

"Flex providers can now think about optimizing assets across different markets, reflecting the value of flexibility to the system," Stanley said.

Flattening peaks

The key benefit to trading flexibility is to avoid having to build new generation, new networks or meeting peaks, Stanley said. The challenge has been to have it valued in markets as highly as pure generation.

"There is a clear imbalance -- what we get paid for your domestic solar PV is a mere fraction of what you pay for energy," he said. Building size and expanding market access should level the playing field as aggregators offer greater volumes, useful for constraint control.

"The more you can encourage flex providers to develop products and enter the market, the more peak demand flattening goes on, the more you defer the need for additional generation. It also gives you a bigger lever in terms of time shifting to deal with intermittency," Stanley said.

Compensation costs

Since 'downward actions' under the code change will commercially impact suppliers, there is to be compensation. Under Ofgem's favored solution, compensation costs are to be mutualized across all suppliers, with Elexon doing the calculations.

"Compensation will be paid at a price that represents the average supplier sourcing costs," the regulator said. "This is favorable to the VLPs, and you might say is that fair? When you look at the business case overall, however, this has a greater economic outcome because it creates a strong business case for VLPs to develop, stimulating the demand side, reducing wholesale costs and benefiting everyone -- including suppliers," Stanley said.

Half hourly opportunity

Once market-wide half hourly settlement (MHHS) comes in in 2026, household consumers themselves will be able to provide flexibility directly.

"Our platform, Elexon Kinnect, has been built in the cloud to be scalable because we expect to see much higher transaction volumes from consumers themselves," said Stanley, noting that Elexon will process up to 12 billion meter reads per annum once MHHS is live and the smart meter rollout complete.

The opportunity was directly linked to the penetration of electric vehicles, and the potential to provide vehicle-to-grid services, as well as the move from to heat pumps.

"The switch of vehicles and heat to electricity is increasing consumer demand and becomes more powerful when aggregated. This can only happen at present through suppliers [like Octopus, a major player in National Grid's Demand Flexibility Service], but in future other entrants like VLPs will be able to compete [for households]," Stanley said.