This document discusses the need for flexibility in energy markets to accommodate more renewable energy sources. It notes three key requirements for energy systems: energy, capacity, and flexibility. In the past, large conventional plants provided all three, but renewables are increasing and legacy plants are closing. This reduces flexibility options and increases costs. The solution is to redesign markets to attract new flexibility providers and keep costs down. Specifically, the document advocates for standardizing products across technologies, increasing competition through open auctions, and creating transparent pricing to drive investment in flexible solutions and lower costs for the grid overall.

1. All Change for Flexibility
Markets
19-20 June 2017
Greg Payne
8th Smart Grids Cleanpower Conference
Cambridge, UK www.cir-strategy.com/
events

2. Three requirements of the energy system
Now, a larger number of technologies will provider energy, capacity and flexibility with a more even
share of the value between them.
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Having enough
kWh generated to
meet the total
demand
Energy
Having enough
dispatchable
plant built and
available in kW to
meet the peak
demand
Capacity
Having enough
ability to alter
generation output
and demand so
that the two are
always equal.
Flexibility
Previously, large conventional plant provided energy, capacity and
flexibility. The majority of the value lied with energy.

3. The basis of change for Flexibility Markets
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Carbon targets drive increase
in renewable generation.
Legacy plant is closing down,
or running at low load
factors. Meaning it isn’t
available for flexibility
services.
This increases cost of
procuring flex from
traditional sources
To meet system
requirements and keep costs
down, NG needs to diversify
where they procure flexibility
from and markets need to
attract new participants
The Problem:
flexibility products are
designed around legacy plant
and do not provide certainty
for prospective entrants
The Solution:
re-design market to
encourage new participants
and keep the cost down.

4. Old Market System vs. Possible New Market System
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Old
Different products for
different technologies.
Technologies do not
compete
Few providers
Low competition and
liquidity.
Many products.
Hard to stack
revenues
Individual tenders
Illiquid market, opaque
prices and selection
mechanisms.
Few choices for grid.
No secondary trading
DNOs passively
manage networks
New
Standardised products
(technology agnostic), with
penalty mechanisms
Level playing field,
increased competition.
Many providers
More competition and
liquidity.
Fewer Products (aligned
to system needs).
Market solutions (transparent
multi-stage auctions, minimal
tendered parameters)
Transparency encourages
investment
Transparent pricing
drives competition.
More choices for Grid,
and lower costs.
Secondary Trading
Greater flexibility for
providers.
DSOs facilitate
additional flexibility
Attributes Results Attributes Results

5. National Grid’s “System Needs and Product
Strategy” 1 Published 13 June 2017.
In their recent document NG highlighted the issues with
the Existing Market:
• Too many products
• Unclear requirements and interactions
• Unclear assessment criteria
• Overlapping markets
And set out a plan of improvements:
• Rationalisation
• Standardisation
• Improvement: single product versus standardised
products.
51: http://www2.nationalgrid.com/WorkArea/DownloadAsset.aspx?id=8589940795

6. Important Market Principles
We agree with National Grid on:
• The need to simplify and rationalise markets.
• Providing clear and consistent signals to support
investment decisions.
• Lower barriers for entry.
• Deliver the most economic outcome for consumers.
• Enabling optimisation of assets by offering multiple
services from them.
• Creating investible markets.
We also believe that these principles will deliver the
best outcome:
• Standardised products, which will…
• Create clear market prices by keeping tendered
parameters to a minimum.
• Use penalty regimes to enable participants to enter
technology that can provide at “sub-standard”
levels.
• Increase liquidity, and offer potential for secondary
trading.
We believe that clear market prices and liquidity
would lead to an investible market help provide the
most economic outcome for consumers.
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