What’s next for the Demand Flexibility Service?

The DFS has provided high-profile proof of the UK’s ability and willingness to respond to incentivised flexibility requests. It’s evolving, though, and the organisations best-suited to benefitting from it might be changing too. It’s also worth remembering that the DFS is just one of a number of DSR markets. It won’t enable National Grid Energy System Operator (NGESO) to balance the grid on its own.

So, what can we expect from flexibility in general, DSR and, more specifically, DFS, in the years to come?

Future energy scenarios

NGESO carries out ‘Future Energy Scenarios’ analysis and recently generated its best-case ’Holistic Transition’ pathway, which results in the UK reaching net zero in 2050. In this scenario, industrial and commercial (I&C) DSR could have increased by a factor of five times, and total system flexibility could have risen to 72GW by this date.

EV vehicle-to-grid (V2G) functionality and smart charging represent the pathway’s largest 2050 consumer flexibility technologies.

We can also expect to see NGESO requesting demand turn-up in the future. Incentivising large consumers to move their energy use to take advantage of surplus electricity is another way of increasing flexibility, offering cheaper or evening negatively priced power to consumers, and easing the strain on balancing the Grid.

What’s next for DFS?

In early summer 2024, NGESO shared its plans for DFS, to apply from winter 2024/25. Most importantly, these plans involved the continuation of a service which has generated approximately 7GWh of flexibility over the previous two winters.

Other changes NGESO revealed in its ‘initial design service proposal’ included:

Demotion from ‘go-to’ flexibility tool

NGESO has decided to shift DFS from an ‘enhanced action service’ to an ‘in-merit margin service’. This means the system operator will decide which flexibility market to call upon to help manage tight capacity periods based on cost factors at the given time. This might result in a reduction in the number of DFS events in which organisations can earn rewards for providing flexibility and is also likely to limit the value they can obtain through the service.

Continuation of ‘pay as bid’ structure

NGESO won’t pay out for flexibility at a flat rate under the DFS. Instead, each participant will need to bid against flexibility requests. Once they’ve delivered the flexibility, they’ll receive payment at the agreed rate.

Switch to ‘within day only’ flexibility requests

Previously, NGESO released a combination of ‘within day’ and ‘day ahead’ dispatch signals. But, from winter 2024/25, it’ll require all participants to commit to flexibility on the day of the request. This will make it more difficult for smaller or less flexible organisations to manually affect their consumption.

Removal of exclusivity

Over the previous two winters, opting in to DFS flexibility requests meant organisations had to forgo earning revenues in other markets. DFS was an exclusive service only for ‘new’ flexibility that wasn’t participating elsewhere. From this winter, it’ll be possible to ‘stack’ DFS revenues with the Capacity Market and DNO flexibility services. This has the potential to add value for many participants.

Expansion to year-round service

NGESO previously procured the service during the winters of 2022/23 and 2023/24, with turndown events taking place between November and March. When the 2024/25 DFS events launch, they won’t take an eight-month break from spring.

A mixed reaction

At Drax, we’re happy to learn that DFS will be continuing and no doubt delivering hundreds of megawatts of dispatchable power for the Grid.

Areas of concern

There are some aspects of the NGESO’s plans that we believe will negatively affect participants, though.

The switch to an in-merit model means there’s no guaranteed volume of dispatch and there won’t be test events like we’ve seen in the past. Reward prices are likely to drop as DFS competes with competing markets and this is likely to make the service less attractive to organisations.

The lack of ‘day ahead’ flexibility requests may come at a cost for certain domestic consumers and smaller-to-medium sized organisations.

Jake Miller, Electric Assets Lead at Drax , explains:

“The proposed DFS changes will impact consumers’ ability to manually turn down . This will automatically preclude certain customers from taking part. While we generally support the change to an in-merit margin service, we worry about the effect on the prices for this service. Of course, there isn’t a world where paying over the odds for flexibility just because it’s coming from the demand side is realistic. But it’s likely that this change will result the loss of hundreds of MWs of flexibility from manual turndown.”

Reasons to be positive

Although there are elements of NGESO’s plans we’d question, we’re happy to learn that the DFS will be continuing. There’s no doubt it can still deliver hundreds of megawatts of dispatchable power for the Grid.

The end of DFS exclusivity is also good news, as Jake points out:

“NGESO has responded to the most prominent concern that industry members had – namely that DFS wasn’t a service that was stackable with other flexibility schemes. The planned changes will add a lot of value for a lot of customers.”

As previously mentioned, we can also expect to see requests for demand turn up in the future. The DFS’s move to a year-round service will cover periods in the summer when supply exceeds demand. This will give DFS participants the opportunity to earn extra revenues during the summer months.

So, lots to look out for. We’re certainly keen to watch – and influence – the way DFS evolves over the coming years.

Please note that since 1 October 2024, NGESO is now the National Energy System Operator (NESO).