253. Can batteries solve Britain's summer power crunch?

Speaker A: Welcome to Talking New Energy, the podcast from LCP Delta, bringing you conversations with the people driving the energy transition. Each week we explore the ideas, technologies and market trends shaping what's next.

Speaker B: Hi everyone, I'm Shiv and I'm your host for today. On today's podcast, I'm the head of Power Trading at LCP Delta, which is quite a confusing title because we don't actually do any power trading. What that means is that I'm responsible for anything to do with short term markets. So that includes tracking assets, forecasting fundamentals or general trading analytics on a tool that we have called enact. I'm also the head of Technology and data for LCP Delta, so I think that both hats will be quite relevant. For today's call, I'm joined by Simon Ellis, who's the head of Short term trading at EDF uk. So I'll hand over to him for a quick intro.

Speaker C: Thanks very much Evidence, and thanks for uh, bringing me onto the podcast today. So yeah, as you mentioned, I work for EDF uk, but more specifically for EDF Energy. So a subset, we're part of the customers division which encompasses retail supply side and the wholesale side as well. And uh, my team specifically is looking at power and gas positions in the short term time horizon. So we do anything from optimizing any of the aforementioned demand side all the way to all of our generation assets too. And that also includes assets such as battery storage, of which we have the largest portfolio in GB, presently over 2 gigawatts live right now. My team is continuously pushing for new ways of trying to monetize these assets and ultimately if we do our jobs well, it should reduce the cost to the end consumer and the retail business too.

Speaker B: And I guess it's quite a topical week for having so many assets in your portfolio. I'm sure it's not been quiet and I'm sure that actually you taking the time for today's podcast when today is also looking like a potentially quite interesting market. So I appreciate you taking the time. We were discussing topics for this podcast and really what we wanted to focus on was the increased emergence of Algo Trading AI and how that fits in. I think we didn't really anticipate this week when we were coming up with those topics. We've actually had a lot happen in the market this week depending on when you're listening to this. I don't know where you are, Simon, but it is boiling hot where I am in London and obviously we've seen the impact on price in GB and in Europe this week we've had the offgem NISO reports and guidance come out around repetitive retrading on battery assets. So I'm sure that impacts you quite a bit as well. Had the ELDES announcement today and so much more. So I guess it makes sense to maybe start with that. Uh, but how have you found the week from a trading perspective, Simon?

Speaker C: Yeah, so that's a lot of interesting topics you mentioned. Maybe I'll start with an overview of this week. The term has been coined hiza flaute, which means heat and low wind. And that's opposed to the dunkerflauter which was quite common in the news during the winter period of last year. So the hits of flauta essentially we've had very low wind generation generally, but we've also had excessive heat and high pressure across northwestern Europe and in particular we've had very high humidity. And so the, what's called apparent temperature has been extremely high, particularly in France and now moving further east but also of course in the UK that's caused some challenges. And what we've really seen from a power system perspective is very much lower availability of generation assets. So all of the DCGT fleet or combined cycle gas turbine, if your listeners aren't so aware of that, those assets are very impacted by the ambient temperature and essentially have to reduce output. And that's also coincided with a normal uh, period of summer maintenance on a lot of those assets. That's reduced megawatts available to us to generate, to support the demand. We've also got a, ah, normal summer maintenance on nuclear assets and of course being EDF, we manage 6 gigawatts of nuclear assets at the moment in, in GB. But also in France a lot of the French nukes are cooled uh, by rivers and the river water is much more susceptible to increasing intent than the sea is. So you also see required reduction of generation on those assets too. And France is the lowest cost supplier to Europe generally due to the nuclear fleet dependent on what Germany's doing with renewables. We've also seen uh, very high demand for air con particularly and increasingly so as the last five years has been pretty consistent in terms of having a very high heat build. A lot of people now have bought air con, but we're also seeing a lot of businesses with a profile that requires air con two that's manifested itself in really a limitation, uh, of demand flexibility in periods of scarcity over the winter. We're now seeing increasingly large volumes of people being able to react to download demand but also across Europe now with such high aircon demand that we're not really seeing that manifest itself in enough volume to offset the overall increase. We've also seen, particularly for the uk, a net export to Europe through the interconnectors, which are uh, one of the most volatile aspects of trading the system now. And of course we've seen a massive increase in solar gen generally. But unfortunately you can't really use the solar generation over the evening peak when it gets dark. The only way that manifests itself is through the battery portfolio. Accordingly this week we've seen very heavy usage of batteries, a lot of batteries in wholesale heavy strategies to try and monetize some of the spreads set by the high pricing in the evening.

Speaker B: I think it's really interesting actually on the solar point there as well. Obviously we can't use the solar energy over the peak, but I think even during the day we're starting to see that as uh, that solar capacity ramps up in gb. I think what a lot of forecasts for solar don't anticipate is the fact that actually even though it is really sunny, solar efficiency does drop. Once you start to approach these sorts of periods, we tend to maybe over forecast how much solar we expect to see even during the middle of the day, which I think has been a little bit of a contributor as well.

Speaker C: Yeah, and solar forecasting is a very challenging topic because you have to not only understand what installed generation capacity there is, but uh, clouds in particular obviously move and that can cause very sharp local drops in solar generation. So that does make forecasting quite difficult. We've seen quite a few providers move to different approaches now, whether using machine learning to predict clouds or even using ground cameras to try and estimate when the more local impact will occur. Solar forecasting has really come on a long way and a lot of market participants have access to a lot of different potential forecasts now. And deciding which one to use is one of the main challenges we've had certainly other providers too.

Speaker B: I wanted to pick up on a point you mentioned there, which was obviously you kind of tend to see a normal period of outage for ccts in the summer. Traditionally that would have made a lot of sense as we move to a system where the scarcity events in summer aren't unusual occurrence, but more of a regular occurrence. Do you think we might need to rethink that slightly? Thinking about that from the perspective of. I had a call with a reporter earlier in the week and it started with, I bet you didn't expect a call from me on high prices in the summer and I was actually thinking to myself, I probably would bet on that going forwards.

Speaker C: It's definitely a consideration. There's a couple of things to try and work out here. So firstly, where can you hedge your assets in the money? And for ccgt that's getting to be an increasingly short time horizon. You're probably talking only three, maybe four months of the year where you are consistently in the money on the forwards. Markets for ccgt, even months like March now, which is the end of the winter period, from a uh, power trading perspective, is becoming questionable. Probably a lot of profiles, even the more efficient CCGT is out of the money for longer runs over that period and you're really getting very compressed. So CCGT is a really interesting topic and the displacement of it with all of the battery and flexibility assets that we're seeing, but ultimately we can't support the grid without them. Those assets have to be there for security of supply and that's going to present challenges in terms of where capacity market pricing is going to have to go. Do we need some kind of separate security mechanism in the future? And it's a really key question to address for any prolonged period of renewables under generation.

Speaker B: Probably that's equally where we've seen this week. Batteries have been really helpful over those peaks. Where traditionally you might have seen a lot more CCT use to kind of meet that shortfall of energy in the balancing mechanism, we've instead see a lot of that volume be provided, as you mentioned, by interconnection. I think we've had some really expensive interconnector trades over the last week, maybe slightly countering the restrictions that were placed on incentive trades a few weeks ago by the non GBTSOs. But we've also seen, as you mentioned, best being really heavily utilized in the bm. Um, really close to you at the moment, especially as you're thinking about how you optimize that portfolio going forwards. And I guess the other side of it is we've also seen, as you mentioned, consumer flexibility stepping in through the DFS service and again that consumer flexibility has been at some quite attractive prices for the consumer, which I think is necessary to convince the consumer that it's worth turning off your aircon. The point when you want to turn off your aircon, at least.

Speaker C: Absolutely. Flexibility is the key topic at the moment. There's so many facets to it as well, and in many ways the barriers to entry are really high. So one thing we have done this year is try and bring our supply and wholesale businesses together so that we can try and simplify our product offering for our customers and offer one point of contact for all of your flexibility requirements as well as your traditional energy supply requirements. On the control perspective, I mean, best is absolutely crucial to our strategy and short term trading. We're really looking into a number of different avenues to try and help monetize us further and ultimately make our customers more money as these assets. AI is a big topic for us at the moment and more specifically, machine learning is an area where we've been really leveraging to help with our decision making around where we deploy best assets. On the automation side, there's a lot of different facets that you can automate across the entire flexibility optimization process. And that's anything from trading it to scheduling it and optimizing and dispatching it, as well as submitting prices to the balancing mechanism, submitting assets to the ancillary services and so on. The automation element's really important for us and we initially invested a lot of time trying to build up the front of meter side of the business, so these grid scale battery assets and the gas peakers as well. But in the last couple of years we've also really started to build up our behind the meter offering and we're now doing a lot of really interesting stuff there. That area is really complicated, particularly because of the settlement side. That is an area where we can help people. We have a lot of expertise across the whole flexibility optimization chain. But behind the meter, I think the main challenges there are, as you say, the incentivization element. How do you persuade that end consumer to do something different? Ultimately, I think convenience is probably the answer there. Other people are price driven, but if you can make it convenient for someone to do something, they're more likely to do it regardless, even if perhaps the benefit would be less. What we'd be really looking into is automation. You've got a lot more battery, uh, build out now in homes. You've obviously got new solar coming on. Is there something we can do to control the output of that? Particularly when for example, there's negative prices as well, which is detrimental to the grid. And ideally you can start paying end consumers to not generate solar at times, or you can incentivize them to basically use the battery to put all the energy in there, then deploy it over the evening peak and really flatten out those curves. So yes, convenience is what we are basically trying to push towards and simplification overall to make it work better.

Speaker B: I guess you mentioned that transition in your thought process around Frontometer to those behind the meter assets. As we see new bits of policy come out which essentially are opening up markets that were previously only available to front the meter assets to behind the meter assets. Do you think we'll see a convergence in the way that a company like EDF is optimizing both kinds of assets? Obviously there's hugely different considerations on both. Or are you thinking about these as almost two distinct problems at the moment that require two distinct systems?

Speaker C: I think the overall concept is very similar between the two. Essentially you've got a set of price signals to respond to and in many ways the optimization of them isn't that dissimilar. I think where you get the main differences are uh, in their routes to market that are available to both elements. So the in front of meter assets have quite a number of markets they can participate in that NISO offer any one of the dynamic services, for example like dynamic response or moderation or containment. There's also some of the newer services like quick reserve or bouncing reserve. And just I think yesterday we went live with a particular mod called GC0166 which enables the NISO control room now for the first time to see how much energy volume is available in assets to dispatch. Whereas historically they could only really see the rates at uh, which the energy could dispatch. And that's likely to see increased utilization of these assets. And it also offers aggregation opportunities for smaller assets to respond. I think what makes the smaller assets more difficult is basically the settlement side of things. Until effectively the half hourly metering is fully deployed, it's very difficult to understand exactly what a consumer would have taken and what they actually have taken from the grid. All those processes are uh, just kind of archaic really and in need of a lot of modernization to enable that flex to work better. But we are making a lot of progress in that area and we've done ourselves. We've got a uh, successful product offering now with podcast which EDF required previously. So we're using essentially EVs as a battery to optimize and then that allows us to pass through that benefit to the end customer for effectively allowing us to use their asset to help out the grid. It's this area that will need to continue to expand across the grid over uh, time if we are to realize the net zero ambitions that we currently have in place.

Speaker B: GB was the first market to introduce of wholesale market access for disaggregated flexibility in Europe. And I think this has been a topic that's been in Europe for a Long time now with a lot of companies looking to do this. You mentioned the settlement process isn't ideal. And I think there's a lot of improvement we can make there. But I guess in some ways we've got to fail before we're able to actually make progress here. I won't rattle off all the acronyms mainly because I probably can't remember all of them, P415 and all of those change sets and MOD proposals. But Flexibles now has access to the balancing mechanism as well. So quite a lot has changed in the space of a small number of months. And you find that it's quite difficult to keep track of all of that and to ensure that your systems keep up with it. Or is it kind of almost you're just kind of waiting for the system to advance because your technology is already there.

Speaker C: There's a huge amount of change in the flex space on the regulatory side as well. And trying to influence to some extent, doing that in a, uh, logical way is really important to us as well. For example, there's the bouncing mechanism call for reform. At the moment it was a call for input which has basically moved on a stage. And there were several key proposals made from that. All of those will influence how the system works and how value can be effectively shared more equitably among it. And one of the main drivers there is essentially to make niso's role easier. You mentioned the aggregation. One of the big things we've seen is non BMUs or non balancing mechanism units. So these are units which are not participating in the bouncing mechanism. If they get large enough, they do alter the system frequency. So one of the challenges the control room has is, is balancing that system frequency. But if you've got very immediate short term dispatching assets, doing something different to what you were trying to do, then it uh, can effectively act as a second tso. And I think that's what has driven a lot of the reform requests that NISO have been making. Uh, essentially they want more control over more of the assets in the short term so that they are more effective at uh, balancing the system and they don't have to duplicate cost. So one of the key reforms mentioned, which we do support is the reduction in the size of the BM threshold. There is a balance to be had here. It's currently 50 megawatts. It's not saying that you can't register an asset smaller than that as a BM M, but it will become mandatory and the first stage proposes to change it down to 30 megawatts. I think you'll get a diminishing return as, uh, you go lower. This gives more likelihood of NISO being able to make use of those assets and gives more opportunity for people. I think that's one of the things we have noted is that obviously the market was very historically conventional generation based. A lot of the actions taken were essentially designed to make it relatively easy. If you wanted an extra 400 megawatts, you could call a single power station unit, whereas now you could provide that 400 megawatts through eight or 10 or 15 batteries instead. In many ways, we've kind of been waiting for NISO to catch up in their ability to dispatch them. And one of the big things they've done in the last couple of years is introduce the open balancing platform, or obp. They do demo this at their summer events. So if you do want to catch them, it is possible to get some video demonstrations of how it works. This is a piece of software they use to take a lot of action simultaneously to achieve their goals. So whereas before they would have relied on the one or two, they can effectively draw a new frequency curve that they want to try and adhere to and it will automatically calculate a dispatch solution for that and then it will send lots of potentially very tiny instructions to achieve the goal. That reform has really started to open the market out to anyone who can be flexible and to bring those smaller assets into play. And that means that they don't have to rely on as large sources of generation at times. They can be a lot more flexible. They can save money for the consumer. And in particular, the reform to do the bulk dispatch as part of AVP enabled that that has been resulting in low skip rates, which is a big issue industry concern. So more economical assets are getting called more of the time. And as we start scaling down and getting more and more smaller assets in today, you should start to see even potentially batteries in people's homes be able to be used to balance the national transmission system at, uh, scale. That's all very exciting. It's something that we've really tried to heavily invest in to get ahead of the curve there.

Speaker B: We won't delve into skip rates too much on this call, but I, uh, think that change you mentioned that's come in this week, GC0166P499, however you refer to it, I think we're going to soon see the impact it has on how well batteries are dispatched in the balancing mechanism. And as you say, I think essentially NISO's new systems that they've built are kind of hamstrung by the lack of visibility they've had off the assets they're trying to dispatch. And I think this change will really solve that problem.

Speaker C: They've made some very positive changes in recent times. The grid code itself was written for a very legacy set of assets. And even when wind started to become a big generation aspect of the system, it didn't really fit in with grid code too well. And one of the challenges they had was essentially having an inaccurate estimate of the forward generation. And so recently they did a lot of work around what's called the final PN or FPN accuracy to try and get more certainty over what's coming in. And that allows them to plan better. And if you can plan better, you can take more economically beneficial actions, which is something we simply have to do to cope with some of the transmission constraints that exist on the grid today.

Speaker B: All these changes coming in aren't um, without their controversy either, I think that's fair to say. Just last week we had a bit of policy put out by OFGEM around the repetitive retrading of battery assets. And then this week we saw niso's short term interventions to that. I guess for those of you who don't know, essentially the repetitive retrading guidance is trying to prevent a certain situation which happens when assets who are behind transmission constraints essentially repeatedly sell their power into the wholesale market while expecting to be curtailed in the bm, which means they don't actually discharge that power, they get to keep it and then resell it in the next period. And the idea there being that uh, leads to increased balancing costs and potentially OFFGEM are thinking about how the kind of licensing conditions that are imposed on assets, tclc should also apply to storage assets. Again that's one of those situations which I think you can see it from both sides. Reduction in cost is obviously great for the system. I think OFGEM estimated that over the last year it's N99 million pound increase in balancing costs due to repetitive retrading. On the other hand, that only really equates to about a pound per uh, household per uh, year. There's two sides to this. The other side of that is do you really want to be, I guess, targeting the sort of flexibility that you want to be building more upon the system. But on the other hand, do you really want to have this inefficient market behavior? There's a lot of changes. It's really hard to keep track of all of them. I Imagine it's quite impactful to companies like yourselves. But I think the direction of travel is really positive.

Speaker C: I think it's positive. One of the main challenges that exists is certainty of things like, uh, legislation of what investment returns might be, et cetera. If you want people to invest in managing the UK electricity system, they need to have an idea of what costs or penalties they could be exposed to, what kind of investment case there is there. And they have to get funding for all these projects. So whoever is funding also has to have that confidence in the return. I think repetitive retrading is an unfortunate impact of the way the market is designed. So if you have, for example, a battery asset that is behind the constraint, just trying to do a standard commercial optimization of a charge and seller discharge could force you into that repetitive retrading behavior, even if it wasn't something you're intending. And we wanted more clarity, certainly, as I imagine many industry participants did, on what the offgen view on that was. I guess for those less familiar with the regulations, there's several relevant areas such as remit competition law and the transition constraints license condition document. But there were a lot of unanswered questions from that. And as always, there's a big gray zone around what constitutes an excessive benefit from something which is hard to quantify. So last week OFGEM issued a further guidance document on repetitive retrading. Broadly, it said that, uh, it was a consequence of market design. However, you cannot be obtaining a excessive benefit from repetitively retrading and you have to factor in expected benefit of, for example, being bid off when trying to discharge into your bid pricing, which isn't

Speaker B: necessarily an easy thing to do. Essentially, again, it comes down to that really good forecasting, really good systems point. And if you're thinking about what you're going to be doing in a few hours time, you have a good view on where the constraints will be in the market. Figuring out the question of where would price have been without said constraints. So I guess a lot of the system work you're probably doing there becomes really crucial for this.

Speaker C: Yeah, and that's a really hard, huh, challenge to solve, partly because we simply don't have all the data available. For example, if you see there's a high degree of Scottish wind expected to be prevalent in the uk, you know that the western link and the existing links from Scotland heading north south have a certain capacity available to them, then you broadly are aware that there will be constraints generation there, that wind will have to be bid off, that batteries won't be allowed to discharge, but you don't know precisely when. And um, obviously we don't have the detailed network view like NISO do. It's quite tricky to manage those. But we're also seeing constraints in many areas of the grid now. So I think the Scottish one is quite widely understood. But there's a constraint on the English and uh, Welsh side too. And actually overall we've probably seen more batteries get off a volume than bid over the last few months, reflecting some of those constraints. Unfortunately, this is a reflection of a lack of historic planning and where generation assets such as wind were ultimately allowed to be built. And that's one thing that NISO are trying to tackle along with DESNAS and OfGem on the SSEP. And I always forget what that stands for, but essentially it's a central planning function to try and prevent you from building assets where you don't have enough transmission capacity to move the energy around. And unfortunately, with the way the country's structured, uh, a lot of the demand is based in the south and a lot of the generation is based up north and that's a result of historic subsidies where the wind is as well. And essentially, ideally you want as many megawatts of generation as possible to get as much subsidy benefit. So you're going to go and build it where the wind is. But the population is not distributed in that way, it's distributed quite differently. Ideally we'd have had a much bigger build out of this transmission infrastructure to facilitate that and hopefully in future we can prevent exacerbating that anymore and we can incentivize building projects which may be less efficient, but they might be more locationally useful. That will be a key reform impact. And just to kind of highlight some of the impact this stuff's had on the grid, I think, you know, approaching 50% of the consumer bill is non energy cost. It's a very significant part and clearly a key area to reform.

Speaker B: No, definitely. I think there's a couple of things we know for certain. Right. Which is it's quite hard to build a new transmission in this country. A lot of these changes we've spoken about today around RRT or as you mentioned, some of those reform national pricing points that NISA are doing are really about trying to tackle the problems that come with having quite a highly constrained system. So I think really important that we can just focus on that.

Speaker C: It's an area that we are very actively engaging on on behalf of our customers. We've got a lot of subject matter expertise in terms of how the reform might impact the grid, what kind of outcomes it will drive for consumers, and something that our customers talk to us a lot about already. So, yeah, very topical and really important that we get it right in the future and not continue to follow the historic path.

Speaker B: I think we've managed to cover a huge number of topics in the last 30 minutes or however long this recording has been so far. Maybe the overarching message is that there is just a huge amount going on, obviously this week in particular. Potentially. Simon will be quite busy this evening as well.

Speaker C: More National Grid. Not me, more National Grid.

Speaker B: But then there's also a lot going on in policy, et cetera. So I think the next few years are going to be really interesting to be keeping an eye on. And I'm sure, as you say, with Edif having such a large portfolio, you're going to be having quite a key role in that. Thank you so much for, for joining me today, Simon. Have a good rest of your weekend. And hopefully you're managing to keep cool despite these kind um, of melting temperatures.

Speaker C: Yeah, I'm sure it'll be fine. It cools down tomorrow generally, so that should be a lot more pleasant for everybody, I hope.

Speaker B: Perfect. Thanks, everyone.

Speaker C: Thank you very much.

Speaker A: Shiv, thanks for joining us for this episode of Talking New Energy. To explore the latest insights from our experts, simply search LCP Delta. Have a guest or topic you'd like us to cover? We'd love to hear from you. Please join us next week for another episode.