When you ask what gets a flexibility service provider (FSP) to sign up to a market, the answer that often comes to mind is “revenue potential”. That’s part of it, but it’s not the whole answer. This became clear when SP Energy Networks’ flex team shared in our recent joint webinar why participation in their markets has grown the way it has.
Four things stood out from that session.
1. The importance of guaranteed income
“The month-ahead tendering process is quite good at encouraging more flexibility service providers to come into that market, because they have a guaranteed income and a guaranteed view of what they might be able to earn in the following month,” says Georgios Fournarakis, Lead Energy System Specialist at SP Energy Networks.
Value is a focal point when people talk about what attracts flexibility service providers. But George is talking about a different kind of price signal, based around levels of certainty. A provider that can forecast next month’s income can plan around it, which makes the opportunity more attractive.
SP Energy Networks and Electron publish pricing guides, budgets, and product information up front, so an FSP can see roughly what an opportunity is worth ahead of time.
The combination is working. Thirty-seven providers are contracted into the month-ahead market for deferred reinforcement, with 11 currently active so far.
2. Growth stems from trust and understanding
Off the back of this, Scott Taylor, Flexibility Performance Manager at SP Energy Networks, shared why the distribution system operator (DSO) has seen participation on the platform grow the way it has.
“Flexibility, in terms of the energy system, is still a bit of a baby, but it’s growing fast. There’s a lot of marketing being done and a lot of engagement, and I think that’s contributing massively,” says Scott.
A well designed participation process can help convince providers to participate, but the wish to participate is built through direct engagement. That means events, one-to-one conversations, explaining what flexibility can actually do for them and building trust in the process.
George put SP Energy Networks’ platform-wide registered asset base at around 110,000 a year ago, growing to over 200,000 now, an indication of how well that engagement is working.
3. Value has to flow both ways to enable reliability
Part of the DSO’s side of the flex equation is deferred reinforcement. “Ultimately flexibility is reducing the cost of upgrading the network in the old-fashioned way, and that enables us to pass those savings on to customers as well,” says Scott.
But that value isn’t captured unless a provider chooses to take part, and a provider only takes part if there’s monetary value in it for them too.
That’s part of the logic behind the growth flywheel we think about at Electron with each DSO we work with. The more value you put against flexibility, the more volume shows up. The more reliably that volume shows up, the more value a DSO is willing to commit next time round.
That only works, though, if you accept a DSO and a flex provider aren’t chasing the same thing. A provider wants to monetise an asset, while the DSO needs to keep a safe, reliable network running.
The market’s job is to make trading value easy between the two, when what’s valuable to each of them is different.
4. Proof that the growth is real
You can see that flywheel starting to turn at SPEN, which brings us back to revenue potential and other numbers.
The month-ahead markets for deferred reinforcement has approximately 5.7GW of capacity available across SP Energy Networks’ licence areas. It dispatched 3.2 gigawatt hours last year at an average utilisation price of £200 per megawatt hour – a total spend of £363,000.
George shared that the markets’ tendered volume sits at just over 13,000 megawatt hours last year, rising to over 22,000 megawatt hours this year, and to close to 80,000 megawatt hours expected by 2027-28, the final year of ED2. He estimated around £22 million of potential revenue for flexibility service providers over that period.
Flexibility markets are only getting bigger for providers willing to explore them.
