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What's in store for the winter ahead?

Ben Spry

Ben Spry runs npower Business Solutions’ Optimisation Desk, managing the energy procurement of some of the UK’s largest businesses.

Ben Spry runs the npower Business Solutions Optimisation Desk, managing the energy risk management of some of the UK's largest businesses. What's in store for the winter ahead?

When National Grid's Winter Review and Consultation landed on my desk last week, I found it refreshing reading amidst all this summer heat.

With energy costs and security of supply the most important concerns for customers, I was also keen to see what National Grid is predicting for the winter season ahead.

Demand lower than predicted during 2016/17 season

But starting with the season behind us, it was interesting to see that despite the weather being colder than previous winters, demand was 1.1GW lower than the 52GW National Grid had predicted.

This was mostly attributed to a drop in weather-corrected demand and an increase in non-weather-related embedded generation.

Generation availability was also higher than anticipated, with far lower 'breakdown' rates than assumed. For example, gas plant only experienced a 6% breakdown rate compared to the 11% forecast. This could be due to better asset maintenance – or it could be lucky coincidence.

Either way, customers avoided the sharp end of a colder winter, despite reduced power imports from France due to unexpected nuclear outages across the channel.

While this did cause short-term price volatility – and potentially painted a picture of things to come – overall, the availability of conventional gas assets and a higher wind output over the winter peaks ensured a certain amount of price stability, especially from January onwards.

System margins to look at wider generation

Historically, system margins have been expressed as a proportion of transmission system demand (i.e. from main power stations). But now, system margins are also being expressed on an 'underlying demand basis' to take into account the growing volume of distribution-connected generation (i.e. smaller embedded generators).

For winter 2017/18, the predicted margin is expected to be 6.2% to 8.2% on an underlying demand basis – or 7.2% to 9.9% on a transmission demand basis.

This seems like quite a comfortable cushion for the season ahead. However, there are some uncertainties surrounding available generation.

Coal taking a back seat

This will be the first season that the Capacity Market auction delivers. From a capacity perspective, this creates more certainty – but this is in the context of very low running profits for coal generators and a very low capacity payment secured.

So although many coal units secured a Capacity Market contract, there does not appear to be much incentive for coal capacity to be active in the energy market.

But we may still need coal to run on colder/stiller days and therefore the wholesale market will need to incentivise the running of these plants via higher market prices.

Watch this space if we do get a cold start to winter and any nuclear or gas generators fail to come back online on time, following planned or unplanned outages over the summer.

Number of DSR days grows

The role of customer demand management is another interesting feature in the National Grid Winter Review.

Firstly, while levels of demand-side response (DSR) peaked at 2GW last winter – which was similar to the levels recorded in winter 2015/16 – the number of days increased, from 36 in 2015/16 to 48 last winter.

This is mostly due to more Triad warnings being issued, as these peak demand periods become more difficult to predict. (That said, our Triad Warning Service issued far fewer warnings and correctly predicted all three peaks.)

You can download National Grid's Winter Review and Consultation here. In the Consultation section at the end, you'll find a number of questions you may like to respond to.

Opportunities for businesses

It's clear that DSR is a growing area of opportunity for large consumers – either as a means to offset rising non-commodity charges by reducing demand at peak times, and/or as a means to earn revenue by exporting power generated via onsite assets.

To provide greater clarity to the market on the demand-side initiatives on offer, National Grid also released a consultation last week on its future balancing services (where it procures short-term reserve and frequency products).

It's aiming to remove barriers to participation and is proposing to launch some new reserve products by 2018/19, and new frequency response products by March 2018, to meet the rapidly evolving system needs.

As interest grows, our Energy HQ team is certainly getting lots more DSR-related enquires.

For the second winter running, we will be utilising our state-of-the-art aggregation platform to enable customers to maximise the return on demand management or asset dispatch. For example, by participating in National Grid schemes such as STOR and frequency response, and also by taking advantage of short-term price opportunities in the wholesale market.

So there's never been a better time to review the opportunities that DSR could provide for your business.

For a no-obligation discussion with our DSR experts, get in touch with your Client Lead (existing customers) or email us via nBS@npower.com. This could form part of a wider review with our Energy HQ team, that would look at opportunities against your forecasted costs and other key factors for a truly integrated strategy.

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