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2nd October 2019 – Update for stakeholders

Market-Based Curtailment Management: Initial Market Design Options Considered

Contents• Introduction to Flexible DG

• FDG Zones

• Project Scope

• Market Design Criteria

• Market Design Options

• Next steps

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Introduction• UK Power Networks is using flexible distributed generation (FDG)

connections to enable quicker and cheaper customer connections in areas with limited network capacity.

• We are developing a market mechanism to enable more efficient management of network constraints by accessing a larger pool of DER.

• This is now a business-as-usual offering across our network which has so far saved customers £70m in connection costs.

Flexible DG Zones• The core ANM system will be in place in all

three license areas of Eastern Power Networks (EPN), London Power Networks (LPN) and South Eastern Power Networks (SPN) by the end of 2019.

• The system is designed with multiple functionalities in mind, including facilitating Flexible Distributed Generation connections.

Project Scope: Energy Exchange• The Energy Exchange project will evaluate existing curtailment levels of our

FDG customers

• We will work with academia, customers and other stakeholders to set market design principles and criteria.

• The project will consider a number of market designs, and select a winner. A detailed market design will be developed, simulations will be carried out and, if value can be demonstrated, a live trial may be conducted.

• For more information: https://www.smarternetworks.org/project/nia_UKPN0052

Market Design CriteriaBelow are the key market design criteria that help shape the market options:• Cost borne by beneficiaries – Cost of curtailment needs to be borne by those DERs opting for

flexible connections, rather than being socialised across the wider DNO customer base - this might change in the future

• Technology agnostic – Where possible, the market design should be technology agnostic, opening the market to alternatives to curtailment, thereby increasing competition and driving technical and economic efficiency.

• Improvement for participants – The market design needs to present an opportunity for all potential market participants to improve their situation relative to the non-market-based connection agreement, particularly if participation is voluntary

• Efficient curtailment – The market should incentivise the participation of low cost and optimally sited generators allowing constraints to be relieved in the most efficient manner

• Fair – It should discourage behaviour that would be seen as “gaming” the system, particularly if it results in some network users paying more than they would under current arrangements

Market Design Options• We are currently exploring five different market design options

• At this stage, we are seeking feedback from stakeholders on:• Principles that are important to stakeholders• Specific initial market design options• Appetite for further involvement in workshops

• We are seeking feedback from customers with existing FDG connections as well as traditional connections

Option 1: DSO-DER curtailment tradingHow is it initially set-up?• Users with flexible connection are assumed to share in curtailment on a pro-rata or LIFO basis• DSO hosts a platform which allows participants to post offers to be curtailed• Definition of a constrained area for who pays• Funded by participating DER with flexible connections

How does the mechanism operate during a transaction?• DSO is counterparty to all trades, but actions funded by local FDG users• DSO platform generates offer stacks based on participants curtailment offer prices and DSO

calculated sensitivity factors• Platform determines cheapest actions to meet curtailment requirement• Where there are insufficient curtailment offers the remaining curtailment is applied according to the

default rules based approach

Option 2: DER-DER curtailment tradingHow is it initially set-up?• Users with flexible connection are assumed to share in curtailment on a pro-rata or LIFO basis• DSO or a third party hosts a platform which allows participants to post bid and offers to be curtailed• Definition of a constrained area

How does the mechanism operate during a transaction?• DSO signals curtailment required• Platform generates bid and offer stacks from participant bid/offer prices and DSO supplied

sensitivity factors and identifies a volume of efficient curtailment actions• Where there are insufficient matched curtailment bids and offers the remaining curtailment is

applied according to the default rules based approach• DER with accepted offers are paid for curtailment they provided at the clearing price

Option 3: Auctioning and trading capacity rightsHow is it initially set-up?• Define a constrained geographical area• Determine available capacity in that area• DSO hosts platform allowing DER to submit bids for capacity rights and associated prices

How does the mechanism operate during a transaction?• Ahead of delivery participants submit bids for capacity during certain times and associated prices• DSO clears auction for particular timeframes and allocates capacity rights

How are actions settled between parties?• Participants pay for capacity they have purchased and have right to use given capacity at given times• Possible secondary market for bilateral trades between parties to refine capacity rights closer to real time

Alternatively the trial could start with a first come first served approach and focus on enabling secondary trading

Option 4: Local Energy MarketHow is it initially set-up?• Under current market arrangements, would likely require a supplier to ‘host’ the local market i.e.

having ultimate balance responsibility.• Supplier needs to be able to buy ‘constrained zone capacity’ rights and be responsible for

maintaining flows within limits

How does the mechanism operate during a transaction?• During unconstrained operation local generation and demand can trade, sleeved by the supplier;

since participants are able to access the NBP wholesale price via the supplier this is likely also to set the local energy price.

• During constrained periods, not all supply/demand can be met and the local energy price will be set by the interaction of the local supply/demand stack; in periods of export constraint this will mean local energy prices below the NBP price, in periods of import constraint above the NBP price.

• Supplier facilitates trades between parties at the local power price

Option 5: LIFO Position TradingHow is it initially set-up?• Users with flexible connection are curtailed according to LIFO principles• Geographical constraint areas defined

How does the mechanism operate during a transaction?• DSO provides forward estimates on level of curtailment according to a capacity stack• Participants agree capacity switch in the LIFO merit order on a bilateral basis• New positions communicated to DSO and curtailment applied according to new order• Switch and price agreed bilaterally• Limited to capacity of highest ranked participant

Next stepsFor stakeholders• We welcome your feedback as mentioned above• Please send any comments to: Rona.Mitchell@ukpowernetworks.co.uk

Project updates• We will provide regular updates over the course of the next months regarding the progress of the

project

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Thank You