New Opportunities for Distributed Generators: The Balancing Mechanism

As SmartestEnergy have dispatched our first trade in the Balancing Mechanism since it opened up to distributed generation, Head of Asset-Backed Trading, Simon Kneale outlines what the BM is and the opportunity it now offers.

Put simply, the BM is National Grid’s primary tool for ensuring that the system remains in balance – meaning that generation equals demand near to real-time. Markets dictate supply and demand up until gate closure (1 hour before any given half-hourly settlement period throughout the day). National Grid then steps in and uses the BM (along with other tools) to balance any remaining discrepancies, be it too much or too little generation or demand.

Historically, with a power system dominated by large fossil-fuelled power stations, it was relatively easy to dial generation up or down as required. But now, with the proliferation of renewables across the grid National Grid has more unpredictable generation to manage, dependent on when the sun shines and the wind blows.

Of course, the System Operator has a range of tools to ensure security of supply, such as the Capacity Market, Short-Term Operating Reserve or Frequency response for example. However, the BM is the most key product in terms of ensuring supply and demand match near to real-time.

In order to help manage these new system challenges, the BM has now been opened up to generators connected to the distribution network – where previously it had only been available to transmission connected generators. This not only helps National Grid access a wider range of assets, but also offers owners of embedded generation an additional tertiary market.

Prices within the BM are (necessarily) more volatile than the wholesale market. Currently, indicative prices in the BM for a gas peaking asset are around £80/MWh, notably higher than the £50-£60/MWh that might be achieved from the wholesale market. However, during a winter scarcity period, achievable offer prices could run into the thousands of pounds per megawatt hour as National Grid seeks to keep the lights on.

We’ve been investing in the technology required to help our customers access these revenue streams too. Having partnered with Quorum, who help us with our technological requirements in order to interface with National grid, as well as Origami - our aggregation control technology partner, we’ve coupled the technology with our own in-house expertise to make sure we can help independently-owned generators maximise the value from this new opportunity.

The BM is available for SmartestEnergy customers, including operators of gas peakers, batteries and wind projects for curtailment. We’re also working on future plans to provide access for even smaller assets and demand side response participants.

To find out more about the Balancing Mechanism and how you can maximise the value from your generation asset, get in touch.