The Department of Business, Energy and Industrial Strategy (BEIS) recently published an evaluation report on Phase 1 of the Transitional Arrangements (TA) for Demand-Side Response (DSR) and Small-Scale Generation, prepared by CAG Consultants in partnership with Databuild and Verco.  The TA forms part of the Capacity Market for electricity in Great Britain (GB), and aims to increase the provision of flexible capacity that can help to balance supply and demand in the electricity grid.  Phase 1 of the evaluation covered the first TA auction in spring 2016.  Phase 2, which will report in the autumn, will examine delivery of obligations under the first TA, while later phases of the evaluation will consider the second TA auction which took place in 2017.

Phase 1 findings suggest that the first TA increased the volumes and competitiveness of DSR in the main Capacity Market, by allowing the development of DSR in a relatively low-risk environment.  We found that the first TA made a limited contribution to security of supply in 2016/17 as most of the DSR put forward was already available for use through other balancing services offered by National Grid, such as Short-Term Operating Reserve (STOR), or through TRIAD avoidance. From interviews, we also found that there was a widespread consensus that the proportion of turn-down DSR brought forward by the first TA was low.  These findings will be further refined during Phase 2.

The evaluation explored why these outcomes have occurred. For example, participation was partly driven by the TA offering another source of revenue that, in some cases, supported new capacity in the GB market or retained capacity that was at risk of closure. Of particular note was the arrival of new DSR aggregators into GB’s flexible market who had experience overseas, attracted by the TA’s favourable environment.   But some organisations viewed the TA as incompatible with, and less lucrative, than other schemes that non-participants were involved in, such as the frequency and balancing services offered by National Grid.  And some saw the TA too time-consuming and complex, especially to those with limited management time or complex technology, such as CHP. However, this complexity was not a complete barrier, as in some cases DSR providers still offered capacity through an aggregator, rather than directly.

The Phase 1 evaluation findings have already been fed back into BEIS decisions around future policy. For example, evidence from the evaluation provided robust, external support to the changes for the second TA that restricted participation to turn-down DSR only. In addition, it was found that awareness of the CM and the TA was restricted to those already involved in electricity markets and with pre-existing relationships with National Grid or BEIS. Thus, future auctions need to be promoted amongst those with the ability to provide DSR but whose strategic objectives do not necessarily involve the engagement with energy markets.

The next Phase of the evaluation will report in autumn 2017.  We would welcome contact from any organisations participating in the TA via an aggregator who would be willing to be interviewed on a fully anonymous basis for later phases of the research.  Please email CAG’s Project Manager, Mary Anderson, on if you are interested to share your experiences and contribute to BEIS’s learning about DSR.

Jun 27, 2017