In the face of more energy pricing uncertainty potentially arising from conflict around the globe, Capacity Market (CM) and Demand Flexibility Service (DFS) are key mechanisms to help address any energy crisis and deliver a more stable revenue to GB businesses. Barry Hurst, Head of B2B Sales, UK & Ireland, at Enel X, explores how these schemes can help manufacturers anticipate such uncertainty.
The effects of new international conflict could herald another full-blown energy crisis, or at least an extended period of uncertainty. That said, it makes sound business sense anyway for manufacturers to mitigate the uncertainties of energy costs and security by participating in market flexibility mechanisms. And, at the same time advancing the transition from fossil fuels to renewables.
Capacity Market (CM) and Demand Flexibility Service (DFS) are two such mechanisms.
Demand flexibility service
The seasonal mechanism, DFS was trialled by National Grid ESO between November 2022 and March 2023 to support the grid over challenging winter months. A revised version returns for winter 2023-24.
DFS revenue is underpinned by a Guaranteed Acceptance Price (GAP) of £3,000/MWh for the first six test events (planned for November and December 2023) – the same as last year. What has changed is that DFS events from January 2024 could be competitive, depending on various volume forecasts and thresholds, to be communicated via National Grid ESO Market Information Report(s).
Under DFS, businesses will be invited to participate in at least 12 anticipated peaks for a minimum of 30 minutes where they can receive revenue for reducing their demand on the electricity grid or increasing their onsite generation.
There are no up-front costs for getting involved. Demand customers are monitored via their existing half hourly meter, so there’s no need to change installed equipment. Essentially, it’s a ‘plug in and play’ solution that guarantees a revenue stream until March 2024.
Not a bad earner for the short term, but the real prize lies in the Capacity Market (CM).
Capacity market
Any business with the ability to turn down or switch on one MW or more of capacity across their sites can earn revenue from the CM. Demand-side participants are incentivised to free up grid capacity when it is needed most; for instance by switching to their own backup generation and storage, or by curtailing equipment to reduce external load at peak periods.
Like DFS, businesses are paid to flex their electricity usage at periods of grid stress, but the CM offers contracts that span years rather a single winter season. Participating businesses can earn up to £34,000 per MW per year over 4 years (from 1st Oct 2023) via the CM, almost double the revenue per MW offered by DFS and for a lot less effort.
Towards net zero
The Capacity Market plays an important role in the UK’s journey towards net zero. As we transition to renewable sources of electricity generation, the CM can provide a back-up source of electricity if demand exceeds the amount of green energy available at that time. It means less use of fossil fuel power stations and avoids significant carbon emissions.
Manufacturers that behave as ‘good grid citizens’ to help ease the current energy crisis are supporting every electricity user in the country, while contributing to their own Environmental, Social and Corporate Governance (ESG) goals.
To summarise, while the DFS is a valuable seasonal initiative, getting involved in the CM is where long-term, predictable revenue stability can be achieved.
The Capacity Market represents a simple, lucrative and low-effort opportunity for organisations with high energy consumption to get paid for electricity that they do not use while helping the grid to go green. Applications for Capacity Market participation are now open and are offered on a first come, first served basis. The deadline is 29 February 2024 to enrol a CHP or 31 May 2024 for all other applicants.
Will you be attending the Manufacturing Leaders’ Summit on 14 and 15 November? Join Barry Hurst for an Enterprise Stream discussion on the benefits of energy flexibility. For more information, click here.
