PUBLICACIÓN DE SEGUNDA VEZ DESARROLLO LA COSTA S. A

In this case an error in the demand forecast leads to a supplier needing to buy electricity from the market in order to meet its obligations as otherwise it would be short. However, instead of procuring this electricity in the market (at the system sell price), the generator also has the option to procure DSR.

The price the supplier would be willing to pay would be anything less than the system buy price at that point in time. The converse case is when a supplier would procure too much electricity in order to ensure that it is not exposed to the system sell price. Covering some of this obligation with DSR would reduce the burden on the supplier to over contract.

Table 23 – Scale of value of DSR (1 = highest value, 4 = lowest value)

Table 23 summarises these results; the TSO is able to put greater value on DSR in this scenario because of the higher costs avoided.

On the one hand, the TSO faces relatively high charges for contracting ancillary services and would be keen to use DSR to avoid such costs. On the other hand, suppliers will seek to avoid imbalance charges by taking the system buy price, and therefore only use DSR when it is favourable to do so compared to this price. Since the system buy price is much smaller than the cost of ancillary services, the TSO will place more value on DSR in these wind forecast error situations.9

4.9 Conclusions

DSR can be deployed at a national or local level to varying degrees by different

stakeholders/users to achieve different objectives for each of these stakeholders/users. Interactions between different users of DSR will increase as DSR is used as a means to manage the energy sector as it proceeds along the path of decarbonisation.

We have examined the interactions between different stakeholders and their use of DSR and have found these to be complex. For example suppliers are interested in energy (MWh) DSR services; whereas DNOs and the TSO are more interested in capacity (MW) DSR services which presents different value propositions and nature of use to DSR providers.

However, it is possible to pull three key messages from the results of the analysis presented in this chapter.

Firstly, the group of cases in scenario C showed that the order of price signals based on

the benefits to individual parties is as follows:. Supplier.

Transmission Operator where localized DSR is of sufficient scale to provide a physical benefit (e.g. if the national transmission issue needs to be resolved using significant local sourcing, say a 1GW demand reduction in Manchester, otherwise the effect is dissipated throughout the network due to the geographical relationship between centres of demand compared to generation).

9

One possible exception to this comes from considerations surrounding take-all wind

contracts. If wind generation is higher than forecast, the value may shift more towards a supplier not wanting to expose themselves to penalties in any take-all wind contracts held.

Scenario DNO TSO Supplier Modify demand to cope with volatile demand net

wind profile

Distribution network operator.

The supplier often has the most value as it gains on a frequent basis from wholesale price savings and from passing on the cost of incorporating wind generation onto its customers. The TSO follows as its investments are relatively large and infrequent, and it is under certain operational obligations which drive sometimes high value for DSR. The DNO is lowest in the value chain, given the locality and lower scale typically of its requirements for DSR; and thus associated asset costs and operational savings. The DNO probably won’t be able to give the signals that it needs to attract DSR providers from a straight DSR market. The exception to this is in the case of post-fault situations where spot value of DSR to the DNO would be very high, due to practicalities and security concerns.

Secondly, there is material potential for overspending when DSR is over contracted by

different actors, each pursuing what it perceives to be its own value. As a result each actor sends a price signal to the market for demand to respond, which means the same service is contracted (and paid for) twice (or even thrice) over. This was shown in Case B1, where the overlap between TSO and DNO demand profiles was characterised and Case B2 where the supplier, DSO and TSO profiles were compared. A further issue arises when the action to dispatch DSR so that one stakeholder can minimise its costs has a knock-on effect as the action unwinds across the network. We saw this example in Case A when DSR used to minimise demand at the national level caused demand on the distribution network to exceed the capacity limit. The relationship between using DSR from the TSO point of view compared to the DNO point of view is complicated due to the geographical split of generation and demand.

Thirdly, there is also the potential for DSR to be used for purposes that have are high

price but low volume activities e.g. in post fault situations. For example, DSR could be used to help with system operational issues such as reserve, coping with variable wind generation, generation trips or network faults. However, such activities are either relatively rare (such as network outages) versus required availability commitment; or require prolonged use of DSR (such as generation trips). In these cases it is likely that while some role may be available for DSR over short timescales, dependent on

commercial and physical commitments required; and the overall £ value of competing services from suppliers in the longer term, DSR providers may prefer other service options. Furthermore these operational situations require complete reliability of DSR provision when called upon to ensure suitable security of supply and to enable the TSO and DNO to realise the benefits of avoided asset investments and/or service costs.

In addition, it is worth highlighting that in many cases for both transmission and

distribution networks deployment of DSR will defer but not avoid asset investment (given dramatically increasing underlying electricity demand under decarbonisation of energy as for example assumed in DECC’s Pathway Scenario Alpha). Thus in many cases DSR can be used as an interim measure operationally to allow time for network investments to be made; but can only be sustained in situations where the scale of DSR required and thus reliance on sustained and reliable DSR provision is reasonable in its impact on DSR providing consumers (domestic, commercial or industrial) i.e. if impact on consumer activities is both viable and acceptable to them.

More generally, it is only reasonable to anticipate up to a certain scale of accessible DSR given the increasing impact on consumer activities and inconvenience as they face increase limitations/restrictions on their use of demand where higher levels and regularity of DSR capacity, availability and/or delivery are sought. Thus there will be competition for its use.

In addition, a few other key observations can be drawn from this work and the previous work undertaken for DECC:

1. As a result of the above key messages it seems important that some form of common platform(s) and process(es) are put in place to enable effective

coordination and efficient use of DSR and thereby ensuring minimal wastage and maximising cost effectiveness. Where this coordination between stakeholders works effectively then it will also enable stakeholders to understand how DSR is being deployed, to determine any potential impacts for them in either investment or operational terms and to respond accordingly.

2. For DSR services of highest value to networks, the requirements for reliability and the consequences of failure to deliver are such that commercial signals may well need to be reinforced or augmented by mandatory/enforced approaches which ensure the full benefits of DSR can be realised without risk to security of supply. 3. Finally, where there is insufficient cross-stakeholder coordination put in place and

the dispatch of DSR purely comes down to price signals, the DNO will suffer the most as:

a. DNO price signals will be swamped by those from other stakeholders; b. at the same time, the responsive demand lies on the distribution network;

and

c. thus it is the DNO that will face network capacity related problems when DSR is used to meet the objectives of other stakeholders.

ANNEX A – MODELLING DEMAND SIDE RESPONSE