Commercial opportunities in UK’s £1bn ancillary services market (2014 / 2015)

Jun 09, 2015 No Comments by

Ancillary services are a suite of specialist services and markets provided by the system operator to facilitate and support the continuous flow of electricity and ensure demand matches supply and balance supply and demand in the final hour before settlement. The purpose of ancillary services is to provide support across the whole of the electricity system to ensure that the system remains stable at all times.

Many of the UK’s ancillary services are being wrapped into commercial products by a new wave of Smart Grid companies looking to deploy technologies such as energy storage and demand response. Particularly popular services include as Short Term Operating Reserve (STOR), Commercial Frequency Response, including: Firm Frequency Response (FFR) and Frequency Control by Demand Management (FCDM), Footroom and Fast Reserve.

This post provides an overview of the UK’s Ancillary Service market in 2014 / 2015, with further details on the popular ancillary services of Fast Reserve, Short Term Operating Reserve (STOR), Commercial Frequency Response, including: Firm Frequency Response (FFR) and Frequency Control by Demand Management (FCDM) and Footroom available in supporting posts.

Total cost of running the UK’s Ancillary Service was ~£1bn in 2014/2015

The total cost of delivering Ancillary Services in the UK is wrapped up within the Balancing Services Use of System (BSUoS) charges. BSUoS charges are split into two components:

  1. Internal costs: National Grid’s costs of running the UK’s ancillary services including balancing staff, accommodation and IT systems which are covered by its regulatory settlement
  2. External costs: charges from generators and / or consumers for ancillary services

Balancing Services Use of System (BSUoS) charges were almost £1bn in 2014/2015 (£989m), down slightly from £1,002m in 2013/2014. This represents £1.88/MWh for each MWh generated.

External UK ancillary service market valued at ~£560m in 2014/2015

The external market size for ancillary services in the UK can be considered as the sum total of all external BBUoS charges, which are mainly provided by 3rd parties and not National Grid. Excluding transmission constraints, the total external costs of running the ancillary service market in 2014/2015 were ~£560m.

Over the past 10 years, external ancillary service costs (excluding transmission constraints) have grown at ~1% per year from ~£430m in 2005-06. Extrapolating from National Grid’s March 2015 forecast suggests this cost will rise slightly to ~£570m in 2015-2016.

UK ancillary services market estimated to be worth £560m in 2014/2015
The services which make up the ~£560m of external costs include:

The table below provides an overview of the market size for each ancillary service in 2014 / 2015, in both £m and GW. Fast Reserve, STOR and Frequency Response services cost a combined £366m, or 65% of all external ancillary service costs (excluding transmission constraints). The majority of capacity is allocated against fast reserve, although STOR and commercial frequency response are also significant.

Revenue per year per MW varies across the main commercial services varies from £25k-£35k per year for Footroom to £50k-£55k per year for commercial frequency response.

Market size 2014/15 (£m)Market size in GW 2014/15 (5)Minimum generator / loadRevenue / year (£/MW)Mandatory serviceGeneratorsLoads
Total556
Fast Reserve130~350MW£40k to £50k
STOR62~23MW (1)£25k to £45k
Commercial freq. resp.126~2.510MW for FFR
3MW for FCDM
£50k to £55k
Mandatory freq. resp.48N/AGenerators >100MW (National Grid area)Varies;
covers costs
Reactive power72N/AGenerators
>50MW
Varies;
covers costs
Footroom8~0.3N/A£25k to £35k (2)
Others109
(1) STOR runway is a route for smaller providers to participate with less than 3MW of capacity
(2) Flexitricity estimates that Footroom can generate revenues of £15k to £35k per year per MW (see: http://bit.ly/1I8TShd).
(3) Firm frequency response.
(4) Frequency control by demand management.
(5) Market size divided by estimated revenue / year per MW.


Market Outook: Ancillary Service Growth to 2015 / 2016 likely to be mixed

The highest growth services are STOR, Frequency Response and Footroom. In 2014/2015, STOR cost £62m, frequency response cost 174m and Footroom cost £7.5m. However, other services such as Fast Reserve and Reactive Power are both forecast to fall in value.

UK ancillary services growth to 2015 / 2016 mixed: STOR, frequency response and footroom expected to grow most quickly

Commercial outlook: Potential for owners of STOR, Frequency Response and Footroom capacity to profit from increased costs for their services

National Grid’s figures do not provide an outlook for the growth in generation / load capacity for the STOR, Frequency Response and Footroom markets. If capacity doesn’t grow inline with total costs, holders of existing STOR, Frequency Response and Footroom capacity could be inline for a significant boost to their revenues.

Assuming no change to capacity, this could move revenue per MW per year for STOR up to ~£35k-£60k, for Commercial Frequency Response up to ~£50k-£60k and Footroom up to ~£40k-£60k. However, the dynamics of these markets are likely to be difficult to predict. This area of ancillary services has drawn significant recent competitive interest from a number of Smart Grid providers including Flexitricity, KiWi Power, Endeco Technologies, EnerNOC, Open Energi and generation experts like UK Power Reserve, GreenFrog and Stor Generation.

References

Ofgem: Future Challenges & the role of DSR (provides information on the cost / kW / annum for frequency response, fast reserve and STOR)
National Grid: Monthly Balancing Services Summary (see March 2015 summary for 2014/2015 data)
National Audit Office Balancing Services Report, 2014
Flexitricity Footroom overview

Ancillary Services, Companies, Manufacturers and Markets, Latest Smart Grid News, Network Operators, Thinking Grids

About the author

The owner of Thinking Grids is a published author in smart grid topics ranging from smart monitoring and advanced computational techniques for distribution networks, power quality and stability. He's particularly interested in the business benefits of Smart Grid technology, and the overlap between information technology and electrical engineering.
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