We have published our response to the Department for Energy Security and Net Zero (DESNZ) consultation on new technologies in the Capacity Market published by the department on 30 September 2024.
Elexon’s response
Thank you so much for extending the opportunity to feed in.
As the parent company of the Settlement Service Provider (EMRS), Elexon welcomes the continued commitment of DESNZ in reviewing Rule 2.4 for the inclusion of the most up to date technologies in the Capacity Market.
Whilst Elexon does not have a view of the new technology suggested, it is fully supportive of increasing the scope of the CM, as long as that is done with proportionate control and oversight to remove the barriers to entry and ultimately operability currently encountered.
Between Delivery Years 23/24 and 24/25 EMRS has noted a substantial increase in the volumes of Demand Side Response components entering the Capacity Market. One driving factor behind this is the development of new technology relating to the data retrieval from metered sites, as well as the success of NESOs Demand Flexibility Service.
We’re supportive of NESO’s proposals under the Demand Flexibility Service to promote co-ordination across both the Capacity Market. In order to make the most of this, the FSO supporting Flexible Metered Asset Registration Service should aid facilitation of revenue stacking within the Capacity Market, should the assets across the flexibility and Capacity Markets be common.
Elexon also note that Demand Side Response assets are potentially one of the fastest ways to net zero within the Capacity Market, with specific reference to domestic and battery DSR, which have very limited to zero fuel dependency on provision of capacity.
Elexon is expecting that the output of this consultation will go some way to show the types and volume of asset that could also play in Flexible Metered Asset Registration (FMAR) in future.
Capacity Providers in will be looking to this as a precursor to what could be registered within the flexibility markets (an vice versa). Any additional availability of revenue for Capacity Market Participants will help mitigate its enduring issue of liquidity.
Elexon would also like to draw attention to wider implications for the future of REMA – different technology within the Capacity and Flexibility Markets will be impacted differently by shortened Settlement Periods. It’s expected that additional storage type technology or technology capable of fast downturn could benefit more from shortened settlement periods compared to baseload technology.
For example, should the Capacity Market allow greater amounts of Domestic, consideration should be provided to the behaviours expected and that can be delivered by them.
Elexon currently has circa 200k Demand Side Response Components registered in the Capacity Market (both proven and unproven), these account for around 1.7GW of Auction Acquired Capacity for this Delivery Year. Prior to this Delivery Year, DSR components provided on average only 529MW of Auction acquired Capacity per Delivery Year.
The majority of the new components for the 2024/25 Delivery Year are domestic DSR. NESO’s advice to DESNZ indicates that total demand flex will grow from just over 2GW to 12GW to achieve Clean Power by 2030.
Given the current growth in flex both providing DSR and participating in the CM, NESO’s CP30 advice indicates considerable growth in this area, as does Elexon’s own experience.
Even as the DSR capacity obligation has increased significantly within this delivery year, it only accounts for circa 0.02% of the total acquired capacity obligation. This is very small, however, in the drive to clean power, the potential future availability of technology in this area (with focus on domestic and battery) has substantial room for further growth, as long as the incentives for capacity and flexibility providers are there, barriers to entry and subsequent efficient operability reduced.
With this in mind, and the advent of greater volumes of smaller components which are able to reach the minimum requirement under Regulation 2 and 5 (The Electricity Capacity Regulations 2014) – it is expected that the volumes of DSR entering the market will continue to increase.
Coupled with a potential increase in available capacity forecast through the flexible markets (inclusive of Capacity Market), Elexon recommend that the outcomes of this consultation form the basis of future opportunity to review and as well as the arrangements to provide assurance to the metered data thereof.
Barriers to operability within the Capacity Market that should be reviewed in line with this, include but are not limited to, the requirements for site visits to domestic DSR, versus the greater need for adequate provision of metered volume data.
The FMAR could go some way to helping facilitate the continued growth of DSR in the Capacity Market, as it will in the Flexible Demand Market by NESO. The likelihood is that many of the same assets will be eligible for both, and so consideration could be made within the Capacity Market Technology review for this.
It is Elexon’s experience that the current arrangements within the CM provide access to the market, but do not make provision for large volumes of sites in order to increase the capacity available here.
The current rules, provide a barrier to operability within the market once entered. The levels of assurance required for Battery, and Domestic outweigh the individual MW capacity of each component.
Therefore, Elexon recommends, that for any new technology Elexon provisions be made in the CM rules which adequately provide assurance at the aggregate level, rather than individual Component Level.
By introducing and linking (to some extent) the two flexibility markets – CM and Demand Flexibility Service with the FMAR, macro-oversight of the technology and data thereof could be provided.