Regen director, Johnny Gowdy, discusses the results of the recent flexibility auctions.
The results of the first rounds of auctions to provide flexible capacity to support the electricity distribution network have proven the concept that flexibility can provide solutions that delay the need for network upgrades.
As expected however, the biggest winners of the early tenders appear to be fossil fuel generators using small scale gas reciprocating engines and even diesel generators. We don’t know the exact technology split for each network operator but anecdotal evidence, and a little intelligent guesswork, suggests that most winning bids have been from existing asset owners using fossil fuel technology. By contrast it seems that only a few tenders have been won by new entrants bringing forward new smart technology such as energy storage and demand side management.
This outcome is understandable given the short length and low value of the contracts on offer, which were bound to favour incumbent technologies. It is, however, disappointing given the amount of effort the networks have expended to publicise the flex tenders and the encouragement that has been given to community energy groups, storage providers and other smart technology solutions to compete.
While Ofgem and the networks will point to the commercial success of the auctions, and the resulting cost savings for the consumer, the question remains whether the current approach can be tweaked to support new technologies that would be consistent with the UK’s net zero target and the government’s clean, smart and flexible industrial strategy.
As the UK transitions to net zero emissions, the full decarbonisation of power will be an essential enabler. High carbon emissions from diesel and gas reciprocating engines are simply not compatible with net zero.
There is also the risk that political and public support for the networks will be eroded if there is a suspicion that the solution to support demand growth from electric vehicles and the electrification of heat is to rely on high emission back-up generators. There is already a concern, in the current price control period, that delaying investment in reinforcement has boosted network returns.
Until a full assessment of the tender results is done it is difficult to understand the market factors at work, and to what extent the dominance of fossil fuel generators can be mitigated. A good starting point, therefore, would be for Ofgem and the networks to publish the full tender results including the technologies that have bid and won.
Placing limits on fossil fuels may be one answer. The government is currently consulting on applying carbon emission limits for assets bidding into the capacity market, logically the same approach should be applied to all balancing services and flexibility tenders. Clean air pollution controls and planning restrictions could also be used to limit or exclude the worst emitting diesel generators.
Another approach would be to look for ways to positively enable new technologies to compete in the market. This could be part of a wider strategy to make decarbonisation objectives and outputs an explicit requirement of the network price control methodology and development of new flexibility markets.
Either way it is difficult to imagine the worst carbon emitters forming the basis of our smart and flexible energy system of the future.