Posted: 22 August 2016
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Ready for change

David Preston, Strategic Projects Lead at National Grid, explains how the much-anticipated arrival of the Capacity Market will underpin security of supply. He also offers advice to industry participants, linked to new obligations for National Grid as the System Operator.

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Ready for change

Ready for change

CM gives National Grid new obligations as the System Operator.

"It is vital for CM operators to be clear what a CMN is and, critically in our view, what it is not"

David Preston, Strategic Projects Lead at National Grid.

Insight:

For the first 12 months, the Capacity Market will operate in a transition phase, with only around 1-2% of the market’s entire generating capacity included.

Source: National Grid.

The arrival of the Capacity Market (CM) on 1 October is a significant landmark in the roll-out of the government’s strategic energy plan. It’s a core component of their Electricity Market Reform programme, designed to ensure the future security of the UK’s energy supply.

1305007. 8th May 2013.

David Preston, Strategic Projects Lead at National Grid.

With 20% of the UK’s current generating capacity projected to close over the next decade, the CM has been developed to encourage the generating industry to invest in flexible electricity capacity to replace it. This will help to create sufficient available capacity for when the sun doesn’t shine, the wind doesn’t blow or when we encounter unexpected demands or outages.

The CM gives capacity providers of all sizes, from demand-side participants to major power stations, the opportunity to bid for electricity supply contracts that will give them steady and predictable revenue streams. This will allow their future investment plans to be made with confidence. In return, providers have to be ready to deliver energy to the network at short notice to support it at times of system stress, when consumer demand is unexpectedly in danger of outstripping the supply capacity.

 A new, purpose-built platform

CM gives National Grid new obligations as the System Operator. Most important of these is the requirement for us to issue a Capacity Market Notice (CMN) to the market when there’s a higher possibility of a shortfall. We will have to publish a CMN alert four hours ahead of a potential breach of the safety buffer threshold set by the UK Government (which is initially set at 500MW above expected demand and National Grid’s operating margin requirements).

A good analogy is to view a CMN like a fuel warning light in your car. It’s letting you know that additional capacity might be needed in four hours’ time, and says to participants that they now need to pay closer attention to the other information that’s available to them.

 An automated alert

National Grid is ready for CM. In mid-September we will launch a new, purpose-built and dedicated CMN website. All industry participants and observers will be able to view it as well as subscribe for automated email and SMS alerts.

In this run-up to launch, National Grid has an important message for operators that join the CM. It’s vital to be clear what a CMN is and, critically in our view, what it is not. This will avoid the risk of confusion or misinterpretation.

A CMN is an automated alert: it is not an operational dispatch signal. It’s also essential that participants don’t confuse it with the operational warnings that the National Grid Electricity Control Room will continue to issue. This is because CMNs are triggered automatically using data items provided by industry participants that are not yet final.

As such, the Control Room team has no prior warning of a CMN being issued, but will continue to conduct their own analysis and employ their own knowledge, skills and experience to deploy operational warnings. Nevertheless, CM participants will be assessed on how they perform if a CMN is active and where we subsequently issue demand control (thankfully a very rare occurrence to date). They will open themselves up to potential penalty if they don’t deliver in the manner that was expected.

All industry participants are therefore advised to see what happens post-CMN issue initially, and pay great attention to the system warnings and other data available.

Transition phase

For the first 12 months, the CM will operate in a transition phase, with only around 1-2% of the market’s entire generating capacity included (0.4-0.8GW this year and 54GW expected in 2017/18), so we will have a great opportunity to see how it works in operation and learn from that.

This first year will involve small assets at an industrial/commercial level, up to 20MW, and not the big power stations. This will include demand-side aggregators, together with owners of generators not linked to the National Grid network – for example owner-operators who have their own generators, and others with back-up generators.

In this first winter season I will be very interested to learn whether two constants in the calculation are effective and appropriate. Firstly, how appropriate is the four-hours-ahead threshold, when it is based on data that is not necessarily going to be final, or in the control of National Grid? Secondly, is the 500MW constant an appropriate level to set the threshold?

A learning opportunity

What will success look like over the next year? I would like to see a handful of CMNs be issued so that we can analyse how the market responds. However, if we end up having to issue 30-40 CMNs in the year, then I suspect that we may need to review the current CM rules to see what is appropriate.

On the other hand, if we issue no CMNs it could just be an unusual year, or it could be that the rules are compromised in another way. Whatever happens in the transition year, the experience will provide us all with learnings on how the CM operates, which we can then feed into our demand modeling.

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