Local Flexibility Markets - The postcode lottery you did not know you won

If everyone on the same street started charging their electric cars at the same time, the local grid might not be able to handle it. The increasing uptake of Distributed Energy Resources (DERs) — such as electric vehicles, solar panels, and batteries — in homes and businesses is causing a strain on the local electricity grid. We don't have the resources to upgrade all the substations to be able to accommodate the new peak demand fast enough.

Local Flexibility Markets try to tackle the problem

Distribution System Operators (DSO) procure flexibility contracts to help manage local grid constraints. Typically households and businesses get paid for not using energy during peak times. These contracts can be secured for years in advance or for the next week.

Local Flex (DSO) Market Data

In June we were bidding for some of these contracts. I wanted to see what are the range of prices so I made a dashboard with available data. The data is far from perfect but it gives a sense of these available ranges.

See the dashboard here. DSO Bids Dashboard

Notes on Data

• Incomplete Data - I used the Piclo Flex UK Confirmed Bids dataset on June 16th. At that time, the Piclo data included bids for UKPN, SP Energy Networks, Northern Powergrid, and Electricity North West. However, it does not capture all the historical bids for those DSOs.
• Piclo only publishes bids processed through their platform. For example, Northern Powergrid procured some flexibility independently before using Piclo, so those are not included in the Piclo data I used.
• Piclo did not have data for Scottish and Southern Electricity Networks (SSEN) and National Grid Distribution (NGED) so I got the information from their respective websites.

• The data shows accepted bids. This is not the volume of flexibility that actually gets delivered. Many companies successfully secure bids but don't actually end up delivering the flexibility they bid for. This is set to change with the introduction of the Framework Agreements.

• Prices vary a LOT. In the data used here, we see a weighted average availability price of 129 ￡/MW/h and a utilisation price of 270 ￡/MWh. However, looking at UKPN's data the utilisation prices are significantly higher, 465 ￡/MWh.
• Based on this data National Grid Distribution (NGED) has significantly higher prices with weighted average utilisation reaching over ￡1500 ￡/MWh.
• Even looking at NGED flexibility tender for next week the price ceiling ranges from 2 ￡/MWh to 8211 ￡/MWh for different zones. However, I suspect they will not get any bids at 2 ￡/MWh.

• On page 3 of the Dashboard, you can see UKPN dispatch data. For some services there is no dispatch instruction, the agreed times for flexibility are agreed beforehand so there is no need to send out a signal. For other services, there is an instruction closer to the time to tell which assets to reduce demand. DSO can either send out a signal via email or API. Email is still used to communicate but API usage is growing (woho!)
• Currently, UKPN uses the ‘Local Flex Market’ as their default marketplace, which means the latest tender round was not published on Piclo. Similarly Electrcity North West switched to Electon as their procurement platform.

How much money does that translate to per customer?

• For each contract, the provider registers the baseline for their assets. With DSOs, a standard approach is the 'nominal baseline'. For example, an EV has an industry agreed baseline of 1.3kW.

• Talking the high-end prices of 1000 ￡/MWh, an EV can be paid to not consume electricity between 5-6 pm Monday to Friday. At the baseline of 1.3kW and price of 1000 ￡/Mh an EV would get paid ￡1.3 per day, and ￡30 per month. Service requirements can vary from 1 hour to 24 hours but most are about 4 hours. Hence an EV in a high price zone with 4-hour windows can make ￡90 per month, for not charging during certain times.
• Demand Flexibility Service (DFS) works differently and is based on the historical consumption therefore if their car does not charge between 5-6 pm normally there would be no baseline to claim against.

DSO Market Trends

Revenue Distribution: DSO (Distribution System Operator) markets can yield significant returns, if you have assets in constrained zones. For portfolios managing many assets, the challenge becomes how to distribute revenue between an EV that might generate ￡200 from flexibility services and another that only makes ￡20.

For domestic customers, most companies average out the revenue and pass it on equally. While this may be the best approach for customer satisfaction, it undermines the purpose of price signals. DSOs set higher prices in some zones to reflect the higher cost of upgrades, intending to incentivise more flexibility in those specific areas. However, if revenue is distributed evenly, the end customer does not perceive these price signals, and the network's effort to try to incentivise more participation in certain zones is essentially lost.

More Short-term Tenders: The majority of contracts are awarded months or even years in advance. For instance, we secured bids for this coming winter, as well as the following winter, and could have secured contracts for the winter after that. However, it is difficult to predict customer behaviour when dealing with electric vehicles and other DERs. Networks have responded, and there is a growing opportunity for short-term markets, either week-ahead or month-ahead.

Standardisation: Over the past year, there has been significant progress in aligning the approach to flexibility services across all six distribution network operators. All networks now use the same names and parameters for their different flexibility offerings. However, straightforward data access remains a challenge. Data is stored across multiple websites in various formats and levels of granularity, making it difficult to create an automated approach.but it is slowly improving.

Supplier vs. Aggregators/HEMS: Who owns the customer is the billion-pound question. Suppliers' advantage lies in their access to millions of customers, but most suppliers have not leveraged the technology to dynamically participate in these markets and engage their customers. Aggregators, on the other hand, can be more tech-savvy but lack the ease of access to customer data that suppliers have.

It's a nuanced tension, and I could write a whole article just on this point. However, the key takeaway is that it’s still early days, and I believe the race has barely even started.

So, have you won the postcode lottery?

Most likely, you will never know, as grid constraints are wrapped up in more friendly customer flexibility offerings. Even if you do, you are unlikely to receive the high prices mentioned above. However, the flexibility offerings are in their infancy. In the end, DSO markets will only represent a small portion of the various flexibility mechanisms offered to customers to bring them on the net-zero journey.