Author: Nick Huntbatch, Chief Product Officer at Electron
How should you select and deploy a new flexibility market platform to help encourage more volume and value into your flexibility markets? Getting this right is the key to enabling an energy transition where everyone can benefit from changing the way they engage with the energy system. In this blog, I outline some of the features that you should consider when making your selection for a platform that scales.
The challenge and opportunity in flexibility
As discussed in multiple forums over the last ten years, the electricity system must become much more flexible if we are to meet Net Zero targets. In Great Britain, the National Grid Electricity System Operator (the ESO) predicts as part of its Future Energy Scenarios that: “Demand Side Response from residential, industrial and commercial consumers reaches over 13 GW in Consumer Transformation [scenario] in 2050.”
Lacking flexible volume in the system to date has financial and political repercussions, with managing constraints costing the ESO £1.5 billion in the 23/24 financial year.
Markets are a key tool in the procurement of that flexibility. In our recent blog on the volume-value thesis, we explored the positive feedback loop at play. As we bring more volume into markets, more value can be attributed to that volume, which in turn encourages more volume.
Flexibility markets will gain momentum and grow exponentially as a function of this “market size = volume x value” equation. Getting started with a market platform built to scale today puts you on the front foot so you edge further ahead on savings – and there are certain platform attributes that can help set you up for success.
Make it easy for a diverse range of flexibility providers to access markets
First, how do you make this exponential growth happen with a market platform? How do you get more flexibility into markets in the first place – and who is providing that flexibility?
Flexibility Service Provider (FSP) is a catch-all to refer to any organisation that can provide flexibility with the resources they engage with or operate.
We could be talking about:
- Onshore wind farms with existing PPAs
- Grid-scale batteries whose whole business model is built around providing flexibility
- Domestic aggregators and suppliers whose available flexible volume can change week-by-week, day-by-day – and so on
These have different requirements and use case details. We need to understand them all to encourage them to bring more volume to markets.
Yet there are some basics that everyone will want from a platform to help them participate, so I’ll start a list of the features you can consider when choosing your market platform:
- Intuitive UI/UX
- A well-documented API
But it’s not just about the platform. It’s also about the markets that run on that platform, and how we join everything up.
Understand the FSP and network use cases you need to address
The distribution network is key to decarbonising society for Net Zero targets. Significant numbers of Low Carbon Technologies (LCTs) and Distributed Energy Resources (DERs) are being connected at distribution – both generation (onshore wind and solar parks), and load from the electrification of transport and heating.
Power flows are therefore becoming more complex, promoting a shift from “network operation” to “system operation”.
Example use cases
Let’s say you are an FSP. You potentially have a large amount of distributed flexible load that could help run the distribution system, assisting with balancing and locational grid constraints.
So, what does a domestic aggregator, onshore wind generator, aggregator, or grid-scale battery need to make flexibility markets attractive?
We also must consider your needs as the buyer of flexibility: the system operator or utility. An inner-city part of the distribution network has different characteristics to a remote rural part of the network.
In urban areas these might include:
- Volatile and unpredictable demand from significant electronification of transport (for example large numbers of EV charging stations both public and private)
- Substation transformers where it is not possible to perform significant upgrades (because they are sited under Oxford Street for example), etc.
The focus might then be on managing consumer herding with EV charging, given that innovative Time of Use (ToU) tariffs from suppliers which could incentivise this behaviour.
In more isolated rural areas, the network may be more susceptible to sudden outages from storm damage, and the type of connectee is very different.
Another challenge might be a lack of flexible capacity connected to the network, limiting options to deal with post-fault situations.
Pick a platform that supports multiple markets meeting various system needs
A lot of these considerations come down to market design – where platforms can offer different benefits.
Near real-time markets
For example, the low voltage (LV) domestic aggregator will prefer markets that run closer to real time, perhaps at day ahead. This is because they can forecast the behaviour of their end users at that time horizon and can have a much clearer idea of the amount of flexibility they can offer, versus commitments made months ahead of delivery.
For system operators, day-ahead markets can help both run the system and engage a potentially large and growing pool of flexibility.
In general, these types of market running closer to real-time benefit from a payment structure where payments are made solely for energy dispatched.
This is for two reasons.
- Firstly, at Day Ahead, the system operator is more likely to have fairly good forecasts of system need, and therefore doesn’t generally need to reserve capacity over longer windows
- Secondly, for certain cohorts of FSPs, markets where there is a reservation or availability payment that locks them in is a less attractive option as it prevents them from participating elsewhere
Long-term price signals
On the other hand, in a more rural part of the network, you may need to increase the number of DERs and LCTs connecting in your region.
This will both help with decarbonisation goals and increase the amount of flexibility that you can use in post-fault situations.
In this scenario, a longer-term stable price signal has benefits, as it signals to those potentially looking to deploy flexibility resources that there is a dependable revenue stream.
The benefit of multiple markets across multiple timescales
In reality, it’s not one or the other. It’s a combination of near real-time and longer-term requirements across the network.
ElectronConnect is a multi-market platform, where we can configure a range of flexibility market designs. They each aim to solve different use cases and be attractive to different cohorts of flexible resource – so let’s add it to the list:
- Intuitive UI/UX
- A well-documented API
- Multiple configurable market design options
Coordinate markets to enable revenue stacking
We must then coordinate between those different market arrangements to arrive at the optimal market-based outcome, and to allow your FSPs to access all appropriate revenue streams.
This can be done where the markets are run on the same platform, or the information regarding who is trading in markets on other platforms is made available.
Matching mechanisms
To begin with, in a situation where there are multiple markets running, we cannot rely on manually selecting assets within each. There must be an automated mechanism for building merit order lists.
This should include aspects such as derating factors, and carbon intensity. So, we can add that to your list:
- Intuitive UI/UX
- A well-documented API
- Multiple configurable market design options
- Matching mechanisms
Beyond this requirement, there are two basic aspects to coordination: market timing (market design again) and rules for conflict avoidance.
Reducing conflicts
The timing of gate closures must be aligned so participants can participate in multiple markets at different times e.g. across both distribution and transmission level markets.
In general, conflict avoidance aims to avoid situations where requests for flexibility might have counteracting outcomes. For example, if a request at a transmission node has an opposite direction to one in the same time window at a distribution node below.
In Britain, the Energy Networks Association is going through a lengthy process of defining all the possible scenarios where conflict could occur, and subsequently defining a set of rules that decide the outcome where there is a conflict.
This includes other non-market routes for the system operators to access flexibility, like Active Network Management (or ANM).
Ultimately a clear set of conflict avoidance, or primacy, rules will be one part of allowing those who provide flexibility to increase revenues by vertical value stacking, where they can provide flexibility into more than one market simultaneously.
We will need a mechanism to implement and test these rules on a market platform:
- Intuitive UI/UX
- A well-documented API
- Multiple configurable market design options
- Matching mechanisms
- Rules-based coordination
Integrate your systems to provide more routes to market for FSPs
The final platform characteristic for you to consider is one that in many ways has the most impact and is the biggest step forward from what is done today.
When I talk about systems integrations, I’m talking about the direct transfer of data between multiple software platforms that support flexibility markets.
First, let’s look at an example of how system operators can use platform integrations to bring flex markets closer to system needs.
We have integrated our platform, ElectronConnect, with Electricity North West Limited’s ANM system as part of the BiTraDER innovation project. The network data transferred between the two supports the running of flexibility trading on the market platform.
BiTraDER is specifically about curtailment obligations trading. However, the use of ANM data can support other flexibility market use cases, such as locational constraint management. The system operator can therefore define flexibility requirements in markets that reflect forecasted system need – useful in more liquid, near real-time markets.
On the other hand, National Grid’s Market Gateway is a central point where the flexibility needs of the DSO are surfaced to FSPs. The key concept here is to allow FSPs to reach those opportunities, from whatever platform or entry point they choose.
To that end, the Market Gateway integrates with multiple market platforms – such as ElectronConnect – to create many routes for FSPs to provide flexibility to National Grid DSO.
This is the last item to add to your check-list for now: making sure you choose a platform that can link directly to relevant supporting systems:
- Intuitive UI/UX
- A well-documented API
- Multiple configurable market design options
- Matching mechanisms
- Rules-based coordination
- System integrations for a joined-up approach
Conclusion
In this blog, I have reviewed some of the key aspects that you may wish to consider when choosing a flexibility market platform – and what to look out for to scale flexibility.
In particular, I have considered how these aspects can help you get more volume into the markets, so you can kickstart that positive feedback loop of volume -> value -> volume.
There are other important areas of course that we have not (yet) discussed. One that comes to mind is data insights and information transparency. This is about how the trading of flexibility becomes more transparent; who is providing flexibility, where it is being provided, and most importantly the associated price.
This is important for building liquidity, as we need to ensure there is trust and transparency for all participants. Ensuring we capture and surface the information related to trading “on platform” is an important aspect of this – yet that is a topic to cover in a future blog.
