Flexibility Anarchy in the U.K.

Living under centuries of monarchical rule, there indeed is a bit of rebellion among UK citizens, and the call for anarchy in their 70s punk rock movement showed it. However, in other regards, they want to keep the rebellion at a minimum, like in the energy sector, where the United Kingdom is anything but anarchic. In fact the UK has long been a leader in the energy transition with impressive growth numbers, all due to a well-organized and progressive approach. The result? In the last 12 months, 40.6% of the electricity mix was produced from renewables, a significant increase from just 6.8% in 2010, paving the way for other countries to follow suit.

Ironically enough, the emergence of distributed energy resources (DERs) and renewable energy sources, along with the rapid growth of GreenTech, may also be described as "anarchic" in of itself, as the traditional energy landscape has been disrupted quite heavily - not only in the UK. But what are the secrets that made the UK the ultimate kings of this ‘anarchic’ energy transition? Read on to find out how they came into power and learn about the plans to remain in power for the foreseeable future by leveraging a great deal of flexibility.

 

God save National Grid

One key factor contributing to the UK's* overall success in the energy transition is the unique position of the grid operator in Great Britain. Unlike in many other mainland European countries, Great Britain’s National Grid (NG) is not directly connected to neighboring transmission system operators (TSOs). This isolation allows NG to implement changes quickly without requiring extensive coordination with other TSOs.

While NG does have connections with mainland Europe, these are through High Voltage Direct Current (HVDC) links, which allow for controlled power flow in either direction. This is in contrast to conventional 50 Hz AC connections, which cannot be controlled and result in power flowing wherever there is demand. The HVDC links give NG greater control over the flow of electricity, enhancing grid stability and reliability.

While NG's unique position has allowed for rapid changes in the energy sector, this isolation also means that Great Britain’s grid lacks the stabilizing inertia of the large spinning generators found in conventional thermal power plants across interconnected continental grids.

 

The Loss of Inertia

Over the past decade, Great Britain has rapidly transitioned away from fossil fuel-fired power plants towards renewable energy sources like wind and solar. While reducing carbon emissions, this shift has led to a significant drop in grid inertia.

Conventional thermal plants rely on massive spinning turbines and generators to produce alternating current (AC) electricity synchronized to the grid's 50 Hz frequency. This rotating inertia helps stabilize the grid's frequency when demand fluctuates. In contrast, wind turbines produce variable AC frequencies, while solar generates direct current (DC) electricity. This power must be conditioned by inverters to match the grid frequency but cannot inherently provide stabilizing inertia.

Facing this inertia shortfall and without neighboring grids to leverage, National Grid has innovated new market mechanisms for distributed energy resources like batteries, demand response, and smart grid technologies. These include markets for frequency response and reserve services like Dynamic Containment (DC), Dynamic Moderation (DM), Dynamic Regulation (DR), Balancing Mechanism (BM), Intraday (ID), and Day-Ahead (DA) and many more we cannot cover here.

By accessing fast-ramping resources from aggregated sources, NG can rapidly inject or remove power to maintain the crucial 50 Hz frequency as renewable generation fluctuates. While lacking the inherent stabilization of large continental networks, Great Britain’s isolated grid has spurred National Grid towards new smart grid management solutions for an inverter-dominated system.

 

Restoring Flexibility in Numbers

To maintain frequency stability while connecting a lot of renewable capacity, Great Britain has implemented a multi-pronged approach leveraging various flexible resources and market mechanisms. This includes tapping into the flexibility potential of demand response from residential, commercial, and industrial sectors, rapidly increasing deployment of grid-scale and behind-the-meter battery storage systems, and incentivizing dynamic pricing programs that encourage customers to shift their electricity usage patterns.

The numbers illustrate the significant strides made in restoring operational flexibility to the grid:

 

Demand response

Demand side response potential of 6-12 GW is predicted by 2040 from residential, commercial, and industrial sectors according to NG’s Future Energy Scenarios 2023 report.

The Demand Flexibility Service (DFS), which pays residential and non-residential customers to reduce demand, was launched in the winter of 2022/23. Across 22 DFS events during winter 2022/23, the service provided 3,300 MWh of demand reduction. It procured 5.8 GW of DSF capacity for that winter. The DFS was relaunched for winter 2023/24, where the volume procured increased by 50% to 8.7 GW.

Great Britain is identified as one of the leaders in developing residential flexibility. Service providers use a range of residential assets to participate in ancillary services, DSO services, and wholesale market trials. The country is now ranked as one of the top five most mature ‘Demand Side Flexibility’ markets in Europe.

 

Battery storage

Battery storage capacity also increased steadily up to end of 2023, with a total of over 3.7 GW of storage, 25% of which is located behind the meter. New installations slowed significantly in Q1 2024, however, due to market saturation, yet an additional 80 GW of projects are in the pipeline. It remains to be seen how this will play out long term, as demand for electricity system flexibility increases and battery storage operators move into new business models.

 

Dynamic tariffs

Dynamic tariffs, which offer varying prices based on electricity demand, are still in the early stages. Roughly 8% of UK consumers have adopted variable tariffs, including 2 million customers on Octopus Energy’s “Agile Octopus” tariff - the only plan with daily changing prices. Still, with smart meter installation at 61% and growing and the increasing prevalence of EVs driving electricity demand ever upwards, the incentives for dynamic tariffs are stacking up. 

 

Spiraling Upwards with Flexibility

Tapping into this flexibility potential allowed Great Britain to implement regulatory and market structure changes early on.

For example, the UK's Contracts for Difference (CfD) scheme has been instrumental in driving the deployment of renewable energy projects. CfDs provide financial support to renewable energy projects, ensuring a stable income for developers while protecting consumers from paying higher costs. Since its introduction in 2014, the CfD scheme has supported over 16 GW of new renewable energy capacity. It's probably no coincidence that the UK has also been a pioneer in developing wind, with a total installed capacity of over 26 GW.

Advancing the energy market at this stage of the energy transition has also created significant opportunities for distributed energy resources (DERs) to contribute to grid stability and reduce costs for consumers. By providing financial incentives and establishing clear market rules, the UK can be proud of its healthy investment climate in the energy sector that encourages the adoption of DERs and leads to an overall more flexible and resilient energy system.

But while Great Britain’s progressive regulatory and market structures have created a fertile ground for DERs to flourish, there is still work to be done: To truly unlock DERs' potential, a system must be established that ensures that market participants are fairly rewarded for the services they provide.

 

Settling for More

While Great Britain’s advanced energy market has created significant opportunities for DERs, it is important to recognize that fair settlement mechanisms are needed for them to reach their full potential. Without proper financial incentives, accurate measurement, and verification of services delivered, DERs' growth may be disappointing.

But, not surprisingly, the UK government is already meeting this challenge head-on, with ongoing work to develop more sophisticated settlement processes that fairly distribute rewards based on the services provided. This includes initiatives to improve settlement accuracy and granularity. 

 

Long Live the King!

The UK's advanced energy market is a role model for other countries seeking to accelerate their energy transition. Being an ‘isolated’ energy market forced the country to take modernization steps early in the transition by implementing progressive regulatory frameworks and embracing the potential of DERs. This is how the GB power market in the UK has crowned itself king of the global shift towards a cleaner, more efficient energy system.

However, the work is far from over. As the UK pushes the boundaries of what is possible in the energy sector, robust financial incentives and settlement mechanisms must be established to ensure a fair distribution of rewards for services provided. By getting these foundational elements right, the UK can unlock the full potential of DERs and pave the way for a truly transformative energy future.

In the coming articles, we will delve deeper into the UK's approach to settlement and explore how other countries can learn from their experience. The energy transition is a complex and multifaceted challenge. Still, once we transition from a kind of anarchy to proper policies, technologies, and market structures, we can build a kingdom of cleaner, more resilient, and more equitable energy.
 

 

* National Grid is the grid operator of Great Britain. As a part of the UK, Northern Ireland has its grid operated by SONI, which is integrated with the grid of the Republic of Ireland operated by EirGrid.