Habitat Energy has been approved by Elexon as a Virtual Lead Party, allowing the business to participate in the Balancing Mechanism with supplier-registered assets.
The Balancing Mechanism is one of National Grid ESO's tools to balance electricity supply and demand second by second. It is done by accepting "bids" and "offers" from market participants to either decrease or increase generation / consumption.
A Virtual Lead Party (VLP) is a new role created by National Grid ESO and Elexon as a part of a broader initiative called Wider Access. The purpose of Wider Access is to develop a more flexible electricity system, by enabling customers and independent aggregators to participate in the Balancing Mechanism. Before the VLP role was created, the Balancing Mechanism was only available to energy suppliers and licensed generators; with VLP, it is now accessible to all sources of electrical flexibility.
Mike Ryan, Habitat Energy’s UK Commercial Director, said: “I’m thrilled that Habitat is able to offer the Virtual Lead Party route to the Balancing Mechanism to our clients. Whilst we have been able to access the wholesale market, ancillary services, and use the traditional route to the Balancing Mechanism for some time, the addition of the VLP route provides greater choice to our clients. Through access to every available revenue stream we are able to optimise the return their assets generate.”
The Balancing Mechanism has existed for almost 20 years to enable National Grid ESO to instruct parties up and down, or on and off, to meet the needs of the system. In that respect it is a market designed to provide the ESO with flexibility. As Great Britain’s energy system has moved to an increasingly low carbon one, traditional sources of flexibility have either closed or find it uneconomic to run as often as they once did. With this set to continue, there will be periods of time when nuclear, renewables and interconnectors are the only generation on the system. This is problematic as none of these are able to provide sufficient flexibility to the system. Nuclear generators are highly efficient at providing large volumes of baseload power but are either inflexible or able to provide a crude form of flexibility at very high prices. Renewables - namely solar and wind - can be turned down, but rarely up, which comes at high prices. Interconnectors operate to a slightly different framework, and should regardless be seen as enablers of flexibility rather than providers of flexibility themselves.
As a result of all of this, there is an increasing likelihood that the ESO will have limited options for flexibility in the BM. Wider Access and the VLP route are one step on the path to providing additional flexibility to the system. Not only does it allow for more sources of flexibility to access the BM, but it also breaks down the barriers to entry and levels the playing field for large and small parties alike.
Habitat Energy is among the first market participants to become a Virtual Lead Party. The role was created in December 2019, and went live in the BM with its first asset in April 2020.