The Balancing Mechanism
The Balancing Mechanism (BM) is one of the tools used by National Grid to balance electricity supply and demand close to real time. Electricity cannot currently be stored at scale and must be manufactured at the time of demand and so it is becoming increasingly important for the success of the transition to more flexible, renewable sources of energy. Where National Grid predicts that there will be a discrepancy between electricity production and demand during a certain time period, they may accept a ‘bid’ or ‘offer’ from a Market Participant to either increase or decrease generation (or consumption).
In today’s market the Balancing Mechanism is used around 3,000 times each day, at a cost of £350 million a year. With the renewable energy sector continuing at a pace, and the associated volatility this creates in the system, we know that this market is just going to keep growing.
Headline figures of £2,500/MWh certainly catch people’s eye, especially when compared with £50/MWh in wholesale markets. While this happens only rarely it is not uncommon for the price to sit above £100/MWh for a lot of the time, as it has done around a third of the time over the last two years.
When it was established, BM was expected to balance 2% of the market in 2001. On an average day in 2018 it is being used to balance 5% of electricity, and National Grid have even been known to use the Balancing Mechanism to reposition over 50% of the market. There is clearly an opportunity here for our PSH projects.
Currently the market has been dominated by the big 6 energy companies, whoever this month a company called Limejump has been admitted into the Balancing Mechanism using a virtual Power Plant making it the first company to use an ‘aggregated’ BM unit (BMU) in the market. They currently have three aggregated units with a total of 178MW available. The company expects to operate up to 600MW+ as the business develops and grows.
Limejump have 150MW of batteries and other demand response assets within its managed portfolio, and sees their entry into the BM as an opportunity to compete with the big six energy suppliers and other large power plants in this £1 billion a year market. We believe that our PSH projects will benefit massively from this evolving market, and will be attractive to a great many aggregate operators and anyone else hoping to challenge the dominance of the big six.
This all coincides with a need for the National Grid to change the way it procures for Black Start services. Indeed, National Grid are keen to migrate to a competitive process that allows for a more diverse range of technologies into the mix.
Cathy McClay, head of commercial electricity at National Grid writes, “The world of energy is changing around us; as our industry moves towards a low carbon future, this presents us with challenges. Fewer traditional providers of system restoration services, also known as Black Start services, are now available to us…. This calls for us to look at the future approach to Black Start.”
As coal has been pushed off the grid by a combination of policy and cheaper renewable energy sources the National Grid has sought to rethink its Black Start Strategy. One problem currently is that the conventional power stations that make up the largest portion of the current framework cause problems simply due to the time it can take them to power up. Our PSH projects can power up almost instantly, only a fraction slower than batteries but on a significantly larger scale. As these projects are still in the planning stage National Grid has not yet taken these into account but has planned for different technologies to be capable of providing Black Start at different stages, starting with interconnectors.
At ILI we think it makes more sense to use our own natural assets in this country and that is why we are promoting the benefits of UK based Pump Storage Hydro.
