Today UK Power Networks (UKPN), one of the distribution network operators, issued an invitation for expressions of interest for the provision of flexibility services to help balance their distribution network. Flexibility services in this context means the delivery of more or less demand at short notice via a combination of storage, demand side turn up/turn down and rapid response generation. On one hand, not particularly newsworthy, on the other, effectively firing the starting gun for a new wave of opportunity for investors and innovators in the UK energy market.
Why such a significant moment?
- Firstly, the invitation represents the start of a new market for flexible assets. To date, the only real show in town has been National Grid with their flexibility products, targeted to support balancing of the national network. The level of investor and business interest in the flexibility market has grown exponentially in the last 18 months, but with finite scope offered by National Grid, the bubble is in danger of bursting. UKPN, may be the first, but with the transition of Distribution Network Operators (DNOs) to Distribution System Operators (DSOs)- they will certainly not be the last.
- Secondly, the nature of the invitation- It is geographically specific down to defined postcodes. Flexibility has to be connected to the local distribution network in tightly defined areas. It therefore provides the clearest signals yet of where to look for or build flexibility. You just need to look at the maps in the document to spot opportunity- whether the Royal Free Hospital in the Hampstead (Lithos) region or the swathes of land around Brandon, Suffolk- it is easy to identify. Imagine this view extrapolated across all DSOs and suddenly the investment landscape has a much clearer focus and horizon.
- Thirdly, it is not too much of a leap of imagination to get to a localised supply and demand model. I’ve written before about the concept of the localised ‘micro’ vertically integrated utility. If there are clear requirements for local, flexible, demand and supply, it is not too much of a leap to imagine the joining up of consumers, generators and flexibility in a localised model. Rather than the continual growth of ‘national’ new entrants, the local model suddenly comes to the fore. The rate of growth of ‘new entrant’ suppliers cannot continue at the pace that we have seen over the last 12-18 months, where there is limited differentiation in business model. However, for innovators there is now the opportunity for a genuinely different integrated supply model.
The question now is where is the emerging market value? Is it better to focus on National Grid’s evolving products, which at least have some benchmark valuations, or UKPN’s new offer, or the next capacity market? The answer is all three. With a rapidly developing market, there is opportunity and risk aplenty for those prepared to participate and engage with an increasingly complex landscape- but as always, the devil is in the detail- caveat emptor!
Jo Butlin works as an energy consultant helping businesses and investors navigate the complexities of the UK energy market. For help and advice please contact firstname.lastname@example.org