In recent weeks, we’ve seen the capacity market brought forward, National Grid calling on businesses to keep the system balanced during summer months as well as winter, and businesses setting up their own demand response initiatives. But is this evidence of a system in chaos or simply the result of a more dynamic energy market?
The UK needs between £14 billion – £19 billion of investment in energy infrastructure each year between now and 2020 to ensure security of supply in the medium to long term. We need more gas plants and new nuclear as well as renewable technology, yet the economics of new gas plant remain questionable and the ongoing saga of Hinkley Point C – with its shaky business case, ongoing technical concerns and problematic EDF finances – means that a big question mark is hanging over the head of new nuclear being delivered by the mid-2020s. The continued growth of renewables (now making up almost a quarter of our energy mix) is a positive story, but its intermittency means that without new investment in responsive baseload plant we could face an increasingly volatile market in the coming years.
The Government has announced changes to the capacity market, bringing it forward to 2017/18 and procuring more capacity to ensure sufficient generation is available in the coming years to help deal with tightening capacity margins – but this is one aspect of their efforts to create a more responsive system. It is the inflexibility of renewable generation compared to responsive gas, coal and nuclear plants means that is forcing National Grid to look to businesses to provide the flexibility needed to keep the system balanced.
The role of businesses in helping balance the Grid during periods of peak demand is well documented: last winter saw an unprecedented 0.13GW of business capacity made available through demand side response schemes, a figure that is sure to grow as more businesses realise the benefits of earning revenue from turning down consumption when the system is strained.
But as renewables earn a bigger share of our energy mix (wind up 15%, for example), balancing the system isn’t just a concern for the winter months. Demand for summer 2016 is set to fall to a record low of 35GW, compared to an anticipated generation capacity of over 67GW. Maintaining system frequency means that inflexible renewable generators may be asked to reduce output during weeks when demand is anticipated to be at its lowest (forecast to be weeks commencing 20 June, 25 July and 29 August). However, businesses can play a role here too.
In its recent summer outlook report, National Grid announced that businesses would also be offered financial incentives to shift their demand-intensive processes to periods when demand is lowest over the summer period, countering the extra electricity being produced by inflexible renewable technology.
The acknowledgement that businesses can play more of a role throughout the year is also inspiring innovation from suppliers such as DONG Energy who have created Renewable Balancing Reserve, their own demand side scheme to help balance wind generation. Businesses are also taking matters into their own hands: last month Sainsbury’s, United Utilities and Aggregate Industries launched Living Grid, a new demand-response ‘energy ecosystem’ creating a network of smart equipment, with appliances that power up or down to respond to peaks and troughs in energy demand.
The message is clear: as we transition towards a low carbon energy market, businesses are becoming the dynamic and responsive solution to keep the system balanced and the options available are growing. The revenue and rewards available means that organisations stand to benefit from unlocking their flexibility and participating in schemes: faced with rising costs from every direction, it makes commercial sense to investigate how your business can get involved.