Demand-side aggregators will be able to access wholesale electricity markets from November 2024. These new rules were announced to amend the Balancing and Settlement Code (BSC) with P415. Here’s what that means for Distribution System Operators (DSOs) and how that could impact DSO flexibility procurement.
What’s changing?
From November 2024, P415 will amend the Balancing and Settlement Code (BSC). This code governs how electricity supply and demand is balanced at a national level.
Demand-side aggregators (or Virtual Lead Parties (VLPs)) will be able to offer demand flexibility into both the Balancing Mechanism – as they can today – and the wholesale electricity market. With this change, customers’ flexibility can now be offered into the wholesale electricity market without the involvement of the supplier.
What are the benefits of this to demand aggregators?
This opens up more choice to aggregators in how they offer flexibility services.
Independent aggregators could already offer flexibility services on behalf of their customers into the Balancing Mechanism, DSO Flexibility Services, Demand Flexibility Service, and other services. With P415, independent aggregators will be able to offer flexibility services into the wholesale market too.
This all means greater incentives and more options for aggregators. They’ll be able to shop around to obtain the best price for their flexibility – and for their customers.
What does this mean for DSOs in the short term?
These new rules reinforce the movement of the market towards low carbon flexibility. This shift is inevitable as the government strives to decarbonise the UK’s power system by 2035.
As competition increases, DSOs need to make sure that their flexibility services continue to be attractive for demand-side aggregators. DSOs that don’t respond to the change could see a dip in the volume offered into those services in the short to medium term, as aggregators look to other markets and services.
What does this mean for DSOs in the long term?
Over the long term, P415 will help to accelerate rollout of low carbon technologies. This will ultimately give DSOs a greater potential pool of flexibility to draw from.
The knowledge that this change is coming simply puts the control back in the hands of DSOs. These operators therefore need to consider how they can continue to evolve their approach to flexibility services, to meet flexibility providers where they are.
This means offering inclusive and coordinated flexibility markets that can enable aggregators to maximise value across multiple markets and services.
Why will DSO Flexibility Services still be attractive for demand-side aggregators?
Longer-term contracts and reservation payments are common for today’s DSO Flexibility Services. However, demand-side aggregators managing variable loads tend to avoid those long-term commitments, with difficulties in forecasting that far ahead.
Instead, they prefer entering next-day forecasts and offers into day-ahead markets that only pay for the flexibility that’s used. This aligns with day-ahead wholesale electricity market timings, and leaves the aggregator’s options open. They aren’t locked into a DSO flexibility service too far ahead of when that energy is needed.
DSOs must therefore continue to evolve their flexible service design. That will allow them to cater for a range of use cases, and to maintain their attractiveness for a range of provider types. This includes decisions on market timing and payment structures – as well as lowering barriers for provider participation in local markets.
Want to learn more about this change? Read more at ofgem.com – or reach out to our team of experts.
