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Energy analysis: Energy company Limejump recently entered the Great Britain (GB) Balancing Mechanism (BM) market, which has traditionally only been accessible to larger generators, using a portfolio of different energy storage/generation/demand assets. Elisabeth Blunsdon, of counsel at Orrick, provides comment and analysis on this development.
First published in LexisPSL. Click here for a free trial. LexisPSL includes a Practice Note introducing the Balancing Mechanism, which may be of particular interest in the context of this article.
Why is the BM of value to generators and demand, and why historically has it only been available to larger, transmission connected generators?
The BM is an integral part of National Grid's toolkit when it comes to keeping the lights on in GB. It allows National Grid (as GB system operator) to procure electricity (or demand reduction) very close to real time so as to ensure that the system is physically balanced. Participants in the BM make bids (to buy energy) and offers (to sell energy) based on the volume of energy they are prepared provide or withhold in respect of a specified Balancing Mechanism Unit (BMU), and price. Bid/offers are then accepted on a least cost basis by National Grid. The detailed rules governing the BM are set out in the Balancing and Settlement Code (BSC), associated BSC procedures and the Grid Code. National Grid's actions in the BM are regulated to ensure the BM works as efficiently as possible.
A BMU is a trading unit under the BSC. One way to think of a BMU is as a node where electricity flows into and out of the system. When National Grid is managing the physical balance of the system, it looks at BMUs to understand what the flows are, and are predicted to be. Physically, BMUs are collections of plant and equipment, typically either a generating unit (where electricity is flowing into the system) or consumption meters (where electricity is flowing out of the system).
The value of the BM lies in the fact that the BM reflects (albeit not always perfectly) the value of flexibility. Prices in the BM can be very volatile, and there is a good deal of money to be made if you have a flexible generating unit (or flexible demand) and access to the BM.
However, traditionally only larger generators have participated in the BM because, to access the BM, an entity must be party to the BSC, and control a BMU. This obligation to accede to the BSC derives from the standard conditions of the GB generation licence. The operators of generating units with a capacity of less than 50 MW do not need to be licensed (they fall under a specific exemption under the Electricity Act 1989). As a result they do not generally accede to the BSC, and cannot therefore access the BM. Smaller generating units also tend to be connected to a distribution network rather than the higher voltage transmission system. Hitherto, as far as National Grid is concerned, individual generators on distribution networks are largely invisible - all that National Grid can see is the aggregated position at the grid supply points (GSP) where the distribution networks connect to the transmission system.
What types of technology have Limejump managed to include in the BM, and how has it achieved this? What are the key derogations that Limejump needed to access the BM?
Limejump launched its VPP product in August this year, with a mix of renewable generation, batteries and demand side reduction. These are typically the type of distribution-connected assets described above, with owners that are not parties to the BSC.
In terms of the industry rules, Limejump has created additional BM units under the BSC. Additional BMUs allow licensed suppliers to allocate metered assets within the distribution network to additional BM units at a GSP. The crucial element is being able to aggregate flows across BMUs. Data relating to additional BMUs is aggregated at a group GSP level under the BSC but, under the Grid Code, which sets out how physical data about BMUs is transferred to and processed by National Grid, such data is submitted at GSP level.
Limejump has obtained a temporary derogation from the Grid Code requirement that data is submitted at the GSP level, allowing it to submit data for aggregation data at GSP group level. This brings the Grid Code into line with the BSC and allows wider access to the BM, as GSP groups are wider than a single GSP. (There is of course a lot more to it in terms of IT and communications, but the scope of those arrangements and Limejump's platform are outside of the scope of this note.)
How does this link with National Grid's plans for wider access to the BM under the recently published roadmap?
Improving and widening access to the BM is an important issue in the GB market. Deployment of renewables (particularly intermittent technologies such as wind and solar) has increased the amount of distributed generation and made balancing increasingly challenging. At the same time, distributed generators and owners of batteries and other storage assets are trying to access new revenue streams against the backdrop of an increasingly tight power purchase agreement market. National Grid's 9 August 2018 Wider Access to the Balancing Mechanism Roadmap sets out the changes that are needed to the various industry codes and the operational and process changes that will be needed to implement those changes.
Alongside the developments in the UK, the EU TERRE initiative aims to implement a Europe-wide platform for the exchange of balancing services. As part of this process there is an existing modification to the Grid Code (GC0097) which received approval in August 2018. The amendments to the Grid Code contained in GC0097 are wide-ranging but do cover the derogations granted to Limejump. Hence, the Limejump derogations will remain in place until GC0097 is implemented.
Interviewed by Alex Heshmaty.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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