Energy and Utilities Update | 19 May 2020

Written on 18 May 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at the two measures introduced by National Grid Electricity System Operator to combat the fall in electricity demand, Vattenfall and Cory Riverside's collaboration on a new low carbon heating London network, Tesla's application to generate electricity in the UK market, and more. 

Grid Code modification and new Optional Downward Flexibility Management Service introduced amid 20% fall in demand

National Grid Electricity System Operator (NG ESO) has announced two measures amid an unprecedented slump in electricity demand to balance the system. NG ESO estimates that electricity demand has fallen by 20% due to a fall in electricity consumption by commercial and industrial users as a result of the Covid-19 lockdown.

Grid Code modification around last resort disconnection of embedded generation

Grid Code modification GC0143, which came into effect on 7 May, has been introduced to provide NG ESO with the ability to instruct Distribution Network Operators (DNOs) to disconnect embedded plant where there is an imbalance risk to the system as a result of the shift in demand patterns due to the Covid-19 pandemic.

The modification was put forward as NG ESO claimed that its powers to instruct disconnection under the existing Grid Code were "ambiguous", compared to its ability to disconnect participants in the balancing mechanism.

Under the Grid Code, NG ESO is entitled to issue emergency instructions, where necessary, to preserve the integrity of the system. Modification GC0143 expands on the entitlement already set out in the Grid Code by allowing NG ESO to issue an instruction requiring a DNO to disconnect an embedded power station from the network.

The modification is only a temporary measure to combat low demand and high renewable generation over the summer as the disruption caused by Covid-19 continues. It is scheduled to expire on 25 October.

Read more here.

Optional Downward Flexibility Management Service

NG ESO has introduced a new flexibility management service, the Optional Downward Flexibility Management (ODFM) scheme, which will grant NG ESO flexibility by allowing it to pay users to either: use more electricity at times of low demand (being the periods between 23:00 – 7:00 and 11.00-17.00); or to stop exporting electricity during those periods.

NG ESO currently anticipates its requirement for the ODFM service will be for three to six hour windows during the overnight period at weekends and during both time periods on Mondays.

ODFM requires the following of service participants:

  • A minimum commitment of 1MW (which may be aggregated from the same grid supply point);
  • The ability to deliver for a continuous period of three hours;
  • Energy providers cannot be separately registered as balancing mechanism units or active in the balancing mechanism; and
  • Energy providers cannot be signed up to a DNO's active management scheme or flexible connection.

Given NG ESO's decision to treat ODFM as an "applicable balancing service", the new ODFM Service will not expose providers to imbalance price risk, unlike the 2016 original Demand Turn Up service.

Read more here.

National Grid ESO prepares for pan-European frequency response platform

National Grid ESO (NG ESO) has submitted a modification to the Balancing and Settlement Code (BSC) in order to implement the necessary amendments for the introduction of a pan-European frequency response platform.

In 2017, EU Regulations required NG ESO to participate in the Manually Activated Reserve Initiative (MARI), an exchange for manually activated frequency restoration reserves. The planned platform will increase competition by giving NG ESO access to a wider pool of providers, whilst granting providers in Great Britain access to European markets.

NG ESO has said that a similar modification will be submitted to the Grid Code in order to implement the platform. The aim is for all the necessary amendments to codes and balancing systems to be implemented in 2021 and for the platform to go live in July 2022.

Whether or not the UK will still participate in MARI after the transition period ends on 31 December 2020 is dependent on the outcome of negotiations between the UK and the EU. However, NG ESO has chosen to proceed as if Great Britain's participation will not be hindered, in order to prevent delays to the platform.

Read more here.

Tesla applies to generate electricity in UK market

US electric vehicle and battery storage company Tesla has applied for a UK electricity generation licence. A licence to generate, transmit or sell electricity is required under section 6(1)(a) the Electricity Act 1989, unless a statutory exemption to the general requirement to hold a licence applies. The application was made by UK registered company Tesla Motors Limited.

In 2017, Tesla built its Autobidder platform, a large-scale grid-connected battery storage system called the Hornsdale Power Reserve in South Australia which is now operated by Neoen. Tesla's previous experience has led to market speculation that Tesla could have similar plans for the UK. For now, Tesla's exact plans in the UK are yet to be confirmed.

Read more here.

Vattenfall and Cory Riverside due to collaborate on London heating network

Cory Riverside, a London based energy waste plant operator, has appointed Vattenfall to develop a new low carbon heating network in London.

Vattenfall will design a heat network to capture the heat wasted at Cory Riverside's waste plant at Belvedere to supply low carbon and ultimately zero carbon heat.

The East London Heat Network will initially provide heat to 10,500 homes, however, the design plans to allow for thousands more properties to be added as they are constructed. It aims to extend 30 km across four London Boroughs, linking up both existing and new properties and businesses on one centralised network.

Vattenfall and Cory Riverside are working together on an application for funding from the UK Government's Heat Networks Investment Project. If the project moves to the construction phase, Vattenfall will lead the construction and eventually will operate the network.

Read more here.

Innovative project launched to increase local renewable energy generation on the Orkneys

Project TraDER is an innovative pilot project led by Electron which aims to maximise renewable energy production by creating a market for renewable energy producers to pay for increased grid capacity when they are producing excess energy.

Renewable energy generators will trade with flexible energy providers on the Local Energy Trading Market, in order to reduce grid congestion and to prevent the curtailment of renewable energy generation. For example, on a day with high winds a wind turbine owner can pay a diesel generator for their space on the grid. As of 4 May 2020, there have been 1,300 trades on the platform in the region of the project.

The Orkney Islands were chosen as the location for the project because of the abundance of available renewable energy generation and the fact that 10% of the population are already producing their own power.

It is hoped that this project will act as an example of how renewable energy generation can be maximised to help the transition to net-zero carbon emissions and also act as a solution to the difficulties of balancing the network, particularly at present.

Read more here.

Total follows growing trend of targeting net zero by 2050

Total has followed in the footsteps of other Europe-based oil and gas giants such as Shell (read more here) and BP (read more here) in pledging a target of becoming net zero by 2050. Total has broken down its target into three major steps, which are:

  • Net zero across Total's worldwide operations by 2050 or sooner;
  • Net zero across Total's production and energy products used by its customers in Europe by 2050 or sooner; and
  • A minimum of a 60% reduction in the average carbon intensity of energy products used worldwide by Total by 2050 or sooner, including in the short term, a 15% reduction by 2030 and 25% reduction by 2040.

In the statement, Total also set a target of 25GW renewable generation gross capacity by 2025, as well as confirming that it will double the proportion of its capital dedicated to low carbon electricity to 20%.

The actions of Total and its European competitors contrast with US oil giants, such as ExxonMobil and Chevron. American oil majors are yet to make commitments as bold as their European counterparts, despite mounting pressure on US banks to withhold financing from fossil-fuel projects.

Read the statement here.