The state of our market....
- Nov 20, 2019 12:49 pm GMT
- 835 views
I think that the UK energy industry is a mess, more specifically the Demand Side Response Market.
I’ll explain why…..
The Capacity Market has recently been re-instated after it was suspended in Nov 2018. Whilst this is great news for those waiting for payments and general clarity for the market, I think it is a bit of an embarrassment that the European Commission has taken a look at a market that is “rewarding” participants with a price of £0.77p/KW in the most recent auction and then simply re-instated it, suggesting that it is working just fine. I realise their scope was quite refined to the legalities of compliance with state aid regulations, however I was hoping some changes may have been considered taking into account the fact that Demand Side Response customers are having to compete against electricity generators in the same market. https://theenergyst.com/capacity-market-cleared/
A handful of my customers were lucky enough (because CUB made it happen) to enjoy the highs of the TA auction when it cleared at £45/KW. Whilst the market realised this level was likely to be unsustainable it actually started to build further interest and activity in an essential market, curtailment.
Stay with me here…
With the backdrop of the recently set target of Net Zero emissions by 2050, we have and need a massively (and rapidly) changing supply and demand landscape where generation is less predictable, and demand is likely to increase and become more peaky with end users relying on electricity for heat and transportation.
So what do we have in consultation? Surely there is a light at the end of the tunnel due…. Think again!
We have a further piece of legislation TCR (Targeted Charging Review) due that is likely to do just one thing – push up electricity demand from Industrial Users, whilst at the same time costing those very consumers who are already participating in the Smart Grid Revolution more money. That’s a great way to incentivise UK Industry right? https://www.ofgem.gov.uk/electricity/transmission-networks/charging/targeted-charging-review-significant-code-review
Going back to curtailment, when the capacity market cleared at record levels, TRIAD and Red Band DUOS costs were looking to increase and the UK was moving towards a Smart Grid future those customers with the ability to reduce load at peak times were well positioned to be able to participate in the future energy system, and rightly so!
What, however we have now is an absolutely flabbergasting situation where policy and legislation appear to completely contradict the Net Zero by 2050 target. As the old saying goes the cheapest unit of electricity is the one you don’t use and so the same can be said for carbon emissions. If the grid needs to balance supply and demand at peak times, why not rely on customer that are ready, willing and able to balance the grid and have 0 emissions for doing so?
Instead we are heading backwards by considering a policy change that will only incentivise generators of power, that in many cases will result in additional carbon emissions.
What I find most frustrating with all of this is that customers, have and will continue to lose faith in the DSR market at a time when we need exactly the opposite to be the case. All is not lost however!
In theory if we see a higher peak demand, created by a lack of appropriate policy then the wholesale energy market will become more volatile. This isn’t great news for a customer unable to manage demand at peak times (ironically those which the TCR is aiming to protect) as this is likely to lead to higher wholesale costs as a whole. It does however create a more lucrative revenue stream for flexible end users through wholesale market optimisation/Balancing Markets.
Quite simply customers who have purchased power over and above the spot market/balancing market price (likely in the peak hours) can reduce their load at these times and sell the excess power back in return for a financial reward. If you are a flexible end user this is an exciting and increasingly important area to consider now, commercially and environmentally, particularly as it allows participation in the Smart Grid revolution and therefore moves your organisation towards Net Zero by 2050!
Please give me your thoughts, feedback, opinions or experiences on subjects mentioned in this article and if you want to come and see me in person, I will be attending EMEX London next week on Wednesday and Thursday 27th and 28th November.