Capacity Market and Demand Side Response: A love story

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FOLLOWING an eight-month long investigation, the European Commission reinstated Great Britain’s Capacity Market by formalising the granting of State Aid on 24 October.

The suspension was caused by a legal challenge made by Tempus Energy, who argued that the mechanism for securing back-up power during winter months unfairly favoured fossil fuel generators over newer, cleaner technologies, such as Demand Side Response services.

GridBeyond is a company that provides Demand Side Response (DSR) and energy management technology for large industrial and commercial clients.

ICON spoke to two of the company’s experts about what the return of the Capacity Market means in terms of DSR in practise.

Mark Davis, their Director of UK & Ireland, commented: “The reinstatement of the Capacity Market is good news for both energy users and the stability of the system.

“The energy consumers, who participate in Demand Side Response programmes, will again have the opportunity to provide their services for the Capacity Market, helping to secure the electricity network against outages, whilst providing additional revenue to participants.”

Eamonn Bell, Head of Market Strategy at GridBeyond, sees the Capacity Market as the simplest and most straightforward way for a Demand Side participant to provide an energy service.

With Market now back in operation, three auctions that are scheduled for early 2020 to secure most of the UK’s capacity needs to 2024 can go ahead.

“This is good news for Demand Side Response customers who will be helping to secure the electricity system against major outages as our energy mix pivots away from fossil fuels and towards more renewable generation”, he added.

A DSR provider can participate in the Capacity Market if they have an asset which can either reduce consumption for 30 minutes or increase generation for 30 minutes on at least three separate occasions per year.

Mr Davis continued: “As the energy mix becomes more complex, grid operators work with the government’s BEIS department to incentivise generators and DSR providers to secure enough capacity on the system to balance the demand as a last resort, after programmes such as frequency response have been exhausted.”

Capacity Market Units (‘CMUs’) must be at least 2MW in size, which means that DSR Providers, depending on their size, can either be grouped with other DSR Providers within an aggregated portfolio to reduce risk, or provide capacity directly on their own.

Mr Davis reflected on this, saying: “As Ofgem ‘minded-to’ position on the Triad system for Behind-the-Meter customers is in favour of a flatter, year-round charge which will be harder to mitigate, the reinstatement of the Capacity Market is one of many sources that can be used to offset the effects of this change.”

The provision of Capacity can also deliver a fixed revenue on top of more technical services, such as Reserve and Frequency Response (called ‘stacking’).

“Participation in Capacity Market is, however, only one of many opportunities available to industrial and commercial organisations, that want to improve their bottom line, generate savings and operational efficiencies through advanced energy management”, Mr Davis illustrated further.

“The complexity of the market requires expert knowledge and a holistic approach. The most advanced energy management solutions rely on machine-learning technologies that enable access to multiple enhanced energy services and programmes.

“Those include not only Balancing Services and the Capacity Market, but a whole range of tools including analytics and monitoring, dynamic asset optimisation, trading, NIV chasing and more.”

Read our news story on Capacity Market reinstatement here.