Elexon Insight: The key to unlocking the future of local flexibility

In spring 2024, Ofgem will decide whether Elexon, or the National Energy System Operator (the new name for the Future System Operator) should take on the role of market facilitator for flexibility.

In this article , Elexon’s Chief Executive, Peter Stanley explains why this role is needed, and why we believe that Elexon has the credentials to take it on.

This article was first published in Cornwall Insight’s Spectrum on 22 January 2024.

Flexibility providers still face hurdles when offering their services

Electricity flexibility providers are transforming the UK’s electricity system, ensuring new generation technologies, battery storage and demand side response (DSR) offer greater energy security at times of high demand.

The amount of flexibility being contracted is growing, however providers face various hurdles and complexities when offering their services. They need to access multiple markets including transmission-level balancing services, the Balancing Mechanism (BM) and numerous local balancing services markets, managed by six distribution system operators. Different registrations are required for each market, precipitating a lack of coordination on top of insufficient clarity and transparency. This hinders the pace of growth of the flexibility services we need to meet rising electricity demand. More communication is also needed to raise awareness among consumers and households about opportunities to provide flexibility.

What current issues do flexibility providers face?

The market facilitator would be a catalyst for flexibility

Ofgem will decide in spring 2024 on whether Elexon or the National Energy System Operator should take on the market facilitator role it has proposed. The market facilitator would work with new and existing participants and create a common set of rules for access to flexibility markets. It would ensure that there is a simpler, clearer process for bringing together buyers and sellers of flexibility. The market facilitator would also act as a catalyst for flexibility to play a much bigger role in meeting supply and demand.

Elexon provides the governance and balancing services that underpin Britain’s electricity market and works closely with flexibility providers.

Based on our experience, there are four elements for making the market facilitator role a success:

Flexibility trading requires clear governance	Transmission-level and distribution-level markets have to be interlinked through a clear set of rules to allow for interoperability and transparency. The market facilitator can achieve this by developing ‘stacking’ and ‘primacy’ rules for market operators and participants. Stacking rules allow for better revenue forecasting by determining whether a single flexibility asset can deliver multiple products. Primacy rules provide clarity on issues such as which flexibility purchaser takes precedence when the same asset is called on to provide a service.
The market facilitator must be independent and neutral	Through discussions with participants it is clear that the responsibility for governing processes must sit with a single party with no vested interests in either flexibility provision or purchasing flexibility products. This will ensure open and transparent consideration of views and a process that ultimately leads to mutually agreeable and implementable solutions.
Access to data	Participants require clarity on when and where flexibility services are needed, so that providers and market operators can invest in the right places to relieve network constraints. That clarity comes through better data provision, and only through this will local flexibility markets be able to grow effectively.
Speedy implementation of new governance arrangements for trading flexibility	The move to a simpler, clearer and more standardised approach for trading flexibility will require the market facilitator to work quickly to design an open, transparent, and flexible governance framework. We believe that best practice on industry governance can be adapted to provide a quicker transition. The use of familiar processes should also encourage increased participation and liquidity.

Elexon recognised for market design expertise

Elexon has more than 20 years’ experience in wholesale electricity market arrangements and has the credentials to take on the market facilitator role. We are widely recognised for our market design expertise and the inclusive, collaborative and transparent approach we take when working with the industry to deliver changes to the Balancing and Settlement Code. Ofgem recognises that similar, inclusive governance arrangements will be key to facilitating local flexibility.

We have led BSC reforms to help flexibility providers

We understand the needs of flexibility providers and have been at the forefront of reforms that support them. In 2019, Elexon opened up the BM to help independent aggregators, (known as Virtual Lead Parties) compete in offering balancing services by co-ordinating flexibility offers. Over the last five years, we have helped 15 such companies to enter the market.

Elexon is independent and neutral

Elexon is an independent company accountable to Ofgem, Government, and industry to act as an impartial delivery body. We have a reputation for excellent customer service and management of the BSC, and we play a critical role in ensuring that generators and capacity providers are paid as part of the Capacity Market and Contracts for Difference schemes. We are recognised for our capability to deliver major industry change by facilitating the industry-led programme to implement Market-wide Half Hourly Settlement (MHHS).

Our data expertise can support the market facilitator role

Elexon is already a key player in data provision as the custodian of the largest data sets available on the wholesale electricity market. We have access to every data point in the balancing market, and once MHHS is implemented we will be managing around 12 billion meter readings each year. We have demonstrated that we deliver at pace having introduced a Modification to the BSC and developed (in around one year) a new data integration platform to provide the infrastructure for sharing half hourly data.

We recognise the transformative potential of our data. If Elexon takes on the market facilitator role, we will make data openly available to buyers and sellers of flexibility so that the most efficient decisions are made on when and where flexibility is needed.

To meet Net Zero the market facilitator must play a big role in scaling up flexibility

The UK has challenging targets to meet, and the milestone of having a Net Zero electricity system in 2035 is just 11 years away. During that time, there will be radical changes in how we power vehicles, heat our homes and businesses and produce electricity. For those targets to be met, we need to unleash the potential for the market facilitator to scale up flexibility, so that it plays a big role in managing supply and demand.