UK energy regulator Ofgem is considering whether Elexon or the Future System Operator should be appointed as market facilitator for power flexibility markets, a development seen as essential for integrating renewables, reducing network spend and accelerating decarbonization.
Not registered?
Receive daily email alerts, subscriber notes & personalize your experience.
Register NowThe problem for the UK is that in many cases flexibility does not pay, Peter Stanley, Elexon CEO, told S&P Global Commodity Insights in a Jan. 22 interview.
"To optimize returns on domestic consumer actions, flex providers need to understand how they can stack revenue -- in local constraint markets -- in balancing and wholesale markets," he said.
Elexon has talked to flexibility providers in Europe that under current UK arrangements can only build scale in frequency response at the wholesale level.
"It's too complicated to navigate at the local level, which is why a market facilitator is needed," Stanley said.
The role includes standardization of products and processes across multiple markets. It will improve transparency on where services are needed and which providers have been contracted. Crucially, it will also provide primacy rules to reduce technical conflict between Electricity System Operator and Distribution Network Operator actions.
In short, the facilitator is there to help aggregators develop business models and build liquidity, Stanley said.
Last year, 2.4 GW was contracted locally in flexibility markets by DNOs – up around 530 MW year on year but still short of the 4.7 GW tendered.
"We're going to need closer to 30 GW by 2030, so there is a significant drive to engage all types of flexibility, particularly domestic consumers with EVs and heat pumps," Stanley said.
For this to happen, however, incentives needed to improve.
National Grid's Demand Flexibility Service provided a better example, with domestic participants earning an average of GBP4.00/kWh ($5.08/kWh) in winter 2022/23, according to supplier/aggregator Octopus.
This is compared with an average block 5 evening peak power price of GBP2.27/kWh for the period, Platts data shows.
"There is a real need to build on the success of DFS, as it has really engaged consumers to participate in flexibility," Stanley said.
Whole system view
Ofgem is due to appoint a facilitator this spring, with a view to having updated flexibility markets up and running by late 2025 or early 2026.
In early 2023, the regulator was only considering the Future System Operator for the role, but industry voices called for consideration of Elexon, triggering the current consultation.
The FSO is being founded on National Grid's Electricity System Operator, with its new roles and capabilities taking effect from this year under the Energy Act 2023.
While Elexon will work closely with the FSO to ensure the flexibility reforms work, whoever is the facilitator, "we do think there is a benefit in having Elexon to manage balancing, wholesale and flexibility markets from a whole-system viewpoint," Stanley said.
"A lot of interactions around demand have consequences for other aspects of the market. We have access to all half hourly meter data, that puts us in a strong position. We're a small organization that can prioritize this role, and we've put forward governance arrangements to get out of the blocks quickly," he said.
The FSO, meanwhile, is a major supplier of flexibility services, raising questions of neutrality that will need to be addressed.
"Neutrality is not just a nice-to-have, it's essential. We listen to all voices regardless of size or market share. We're not on the buy side or the sell side," Stanley said.
Digital expertise
Elexon could also point to a track record of handling and making available large amounts of data.
It operates a huge wholesale market dataset, available to over 10,000 users worldwide with participants dependent on the data for price signaling.
And from late 2026, it will be processing 12-billion-meter readings a year once the Market-wide Half-Hourly Settlement goes live.
"We'll be storing and making that MHHS data available via a new data platform. Marry that digital expertise with the market facilitator role and you have a powerful instrument to get flex markets up and running," Stanley said.
FSO makes case
In May 2023, National Grid ESO made remarkably similar claims to Elexon's, saying it believed the FSO "is the only entity able to undertake" the proposed role of flexibility market facilitator.
"Not only will it have a unique voice, independence and expertise within the sector, but the new whole system mandate for the organization will help drive the best and most efficient solutions to be delivered for consumers overall."
The ESO had years of experience designing and operating flexibility markets "that are coherent with one another as well as with wider markets."
This, coupled with the FSO's new 'whole energy system' responsibilities, made it a natural fit for the role of market facilitator.
The FSO was also uniquely placed to deliver a common digital infrastructure to support distributed flexibility.
"We are also already developing a digital ecosystem for all ESO markets that provides a common platform for registration, prequalification, onboarding, contract management and data collection. We would propose to build on this to support the facilitation of distributed flexibility," it said.
On Jan. 22, the operator told S&P Global its position was unchanged and it had nothing to add.