The average procurement of dynamic Firm Frequency Response (FFR) has recently sat well below each month’s requirement. According to research from Cornwall Insight, only 55%* of the requirement has been procured in FFR tenders over the past five months, dampened by the recent high price volatility. Meanwhile, volumes procured in the recently launched Dynamic Containment (DC) service are steadily increasing, as National Grid ESO looks to rapidly grow DC procurement this year.
The below graph shows the average dynamic (across the three variants of response – primary, secondary and high response) and static requirement for the past five months, along with the average volumes procured per EFA block for that month. The requirement for DC and accepted volumes are also shown, which are assumed to be available 24/7, rather than per EFA block.
Luke Ansell, Analyst at Cornwall Insight, said:
“Since November, average dynamic response volume procured (across monthly FFR and weekly auctions) has fallen month-on-month. The high price volatility observed from December to February may explain this. The potential to earn higher revenues trading in wholesale markets during volatile periods led to reduced frequency response markets’ participation.
“Meanwhile, the holding volume of Mandatory Frequency Response (MFR) has seen a month-on-month increase this winter, with holding volumes in MFR 24% higher in February than November. This suggests the ESO are looking to MFR to meet the shortfall in dynamic response volumes of late.
“We have also seen a corresponding rise in DC volumes. The ESO has previously stated it does not intend to increase DC procurement to displace other frequency services; this may contribute to the observed drop-off in FFR and weekly auction dynamic procurement.
“For battery units that can meet the more stringent technical parameters for DC, the significantly higher accepted tender prices for DC provide an incentive to enter the new service. Nonetheless, DC is notably undersubscribed, with February’s average daily volume of 387MW only 48% of the 800MW minimum service requirement. The current lack of competition has seen the tender price flatline at £17.0/MWh, with all parties bidding at the maximum price.
“The ESO has outlined a significant growth in DC requirement this year, doubling from a minimum requirement of 600MW in January to 1,200MW in August 2021.The anticipated pipeline for storage (that can provide DC response) is expected to reach 500MW by May 2021 and then rise to 900MW in July 2021. Therefore, the undersubscribed nature of DC can be expected to improve over the course of the year. As this pipeline of new units comes online, frequency response requirement will be increasingly met by DC. This could eat into the need elsewhere, especially as the Frequency Risk and Control Report (FRCR) notes that growth in DC procurement “represents good value for money” for consumers.”
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
