Date: June 25, 2019
Author: Stefanos Anagnostopoulos

Constraint Management: a new revenue opportunity for businesses

The UK’s first coal-free fortnight is a sign of the country’s continued transition towards a low-carbon economy. On-site generation, energy storage, demand flexibility, and electric vehicles are changing how consumers interact with the electricity network – creating new challenges and opportunities – for how it is run.

Distribution Network Operators (DNOs) sit at the heart of this transition. They are responsible for operating the local energy network and delivering electricity securely and reliably to our businesses and homes.  

Traditionally DNOs have managed demand for capacity on the network through expensive reinforcement measures – essentially more copper in the ground – that are passed through to consumers. But now they have other options.  

As network customers alter their consumption behaviour to reduce costs and carbon emissions, DNOs are transitioning into Distribution System Operators (DSOs), creating a smarter, more flexible network suited to the growth of local energy. The industry body that represents DNOs, the Energy Network Association (ENA), states that DSOs will be:

“A neutral facilitator of an open and accessible market that will enable competitive access to markets and the optimal use of Distributed Energy Resources on distribution networks to deliver security, sustainability, and affordability in the support of whole system optimisation.”

What is Constraint Management?

Over recent years the GB electricity system has seen an increase in intermittent renewable generation which requires additional flexibility to manage the system. Traditionally this flexibility has been provided by fossil-fuelled power stations. However, as they continue to close and electricity generation becomes more distributed this “flexibility gap” needs to be addressed from the demand-side.

In the same way that Demand Side Response has helped National Grid to manage GB supply and demand, Constraint Management can perform a similar function at the local distribution network level.

All six UK DNOs are tendering for this service across their respective networks, offering distributed generators or consumers a chance to earn extra revenue through demand-side balancing solutions.  

Overview of DNO constraint management services
Overview of DNO services. The programme names are industry standard however, the requirements are similar for each DNO. The payments are indicative based on published prices and in-house analysis.

Market Overview

Western Power Distribution (WPD) and UK Power Networks (UKPN) began procuring capacity for Winter 2019//20 earlier this year and in May 2019, WPD commenced its first summer scheme. WPD has awarded contracts across 7 Constraint Management Zones (CMZ) with a total capacity of 21.5 MW.

UKPN undertook their prequalification and tendering process via the energy market platform PicloFLex. They have awarded 18.2 MW across 8 CMZ for winter 2019/20. The remaining 4 DNOs have all announced their appetite to procure flexibility for the winter of 2019/20 via PicloFlex but haven’t confirmed when this will start. PicloFlex is operated by Piclo and offers an online independent market place where DNOs can advertise and procure flexible services from aggregators and directly from large energy users.

DNO constraint management capacity requirements for future years
Summary of DNO capacity requirement for future years

A New Revenue Opportunity

For end users the ability to participate is defined geographically according to the requirements of their local DNO. At KiWi Power we have worked closely with our clients to identify those with assets in relevant CMZs and understand how participation can benefit them. As a result, we are one of the first DSR aggregators in the UK to deliver client revenues from active Constraint Management services.

Formerly, KiWi Power has been one of the only aggregators to participate in Constraint Management trials with UKPN and WPD such as Low Carbon London (LCL), Active Network Management (ANM) and Project FALCON (Flexible Approaches for Low Carbon Optimised Networks).

Since May 2019 we have been providing capacity within WPD’s Plymouth and South Hams CMZ, and Centrica’s LEM Cornwall programme, responding regularly to reduce strain on the network at times of peak demand and delivering a rapid response to unforeseen network issues.

Businesses benefit from payments for availability and utilisation, with revenues ranging from around £300/MWh for peak load management (Demand Turn-up or Down) to £600/MWh for a ‘Restore’ service responding to unplanned fault conditions.

Asset response to WPD constraint management event
Asset response to a WPD event in the Plymouth area. During this event KiWi Power’s customer generated approximately £1,000 from utilisation alone.

Local energy future

Constraint Management may be in its infancy but the need for smart, local flexibility is only going to grow as DNOs adapt to changing network demands. In June 2019, the Energy Networks Association (ENA) published six steps for delivering flexibility services.

David Smith, ENA CEO commented, “Expanding Local energy markets will bring big economic and environmental benefits, and continue to deliver the world-class energy system we rely on every day”.

Flexible services have the potential to be worth £8 billion per year to consumers by 2030 and participating will bring economic and sustainability benefits as the UK sets a path to net zero carbon emissions by 2050.

James Johnston Co-founder & CEO of Piclo commented “Distribution networks will play a crucial role in the timely decarbonisation of the UK economy. Their commitment to procure flexibility from aggregators like KiWi Power to manage local constraints is a clear signal that local flexibility markets are here to stay. Over time, DNOs will open up markets even further – to allow for and incentivise capacity trading between flex participants themselves – ultimately unlocking £billions of savings for bill-payers and GWs of new renewable capacity through better utilisation of the grid.’

To discuss how KiWi Power can help you earn new revenues from Constraint Management and how this can complement participation in other DSR programmes please get in touch.

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