As we move towards decarbonisation in GB we have to think of new and innovative ways to meet the demand for power. The increased reliance on renewable energy means that the system has to be more flexible to account for times when the wind is not blowing or the sun is not shining.
In January 2015 Ofgem launched the Flexibility Programme which aims to develop a strategy to enable and enhance the efficient use of flexibility sources in the GB electricity system. National Grid then announced a major push towards flexibility in June 2015 and has launched the Power Responsive Platform to raise awareness of Demand Side Response (DSR), one flexibility method that allows consumers to sign up to special tariffs and schemes that reward them for changing how and when they use electricity.
One year on and The Energyst is reporting that the percentage of organisations providing balancing services is still likely to be low single digit. Ofgem has recently carried out a survey analysing barriers to and potential for industrial and commercial DSR. Ofgem found that, whilst there appears to be a vast amount of untapped flexibility potential, there are various barriers to realising that potential, including ‘regulatory barriers.’
Against that background, it is significant that on 14 November ACER released an updated version (19th) of the Questions and Answers Document on REMIT. One notable clarification contained in that document is that “...the Agency considers that the contract for provision of demand response services qualifies as a wholesale energy product in terms of article 2(4)(a) of REMIT and it has to be reported. Pursuant to article 3(1)(a)(ii) of Commission Implementing Regulation (EU) No 1348/2014, contracts involving a customer providing demand response services to a supplier and/or an aggregator should be reported on a continuous basis.”
What is the practical consequence of this for market participants? Is REMIT another barrier to DSR?
ACER’s determination that DSR contracts have to be reported certainly doesn’t provide any incentive to become involved in what already appears to be a pretty complex system, but is it an insurmountable hurdle for energy suppliers? On a cost/benefit analysis, is the reporting of these contracts so onerous as to render the prospect of becoming involved in DSR unviable? Probably not. In practice, reporting has been up and running for a while now and, whilst there was a flurry of activity and excitement around implementing systems and the mechanics of reporting at the ‘go live’ events (registration, standard reporting and then non-standard reporting) it does seem that, in the main, the hard work has been done. Where it might cause a problem is the effect on competition for aggregators where organisations identifying this as a growth area, as a result of the prominence given to DSR by Ofgem and Grid, are required to invest heavily to become REMIT compliant before being able to compete.
Perhaps the more pressing cause for concern, however, is for the customer. If a large consumer enters into a DSR contract does ACER’s analysis mean that it will be treated as a generator for the purposes of REMIT? Will it have to register as a market participant? Is it capable of manipulating the market? Does the knowledge that that it won’t be able to comply with the DSR agreement, for whatever reason, constitute ‘inside information’ that should be published? The answer to these questions will depend on a number of factors specific to that contract. But the notion that a customer may be bound to comply with the detailed obligations (and subject to the potentially draconian penalties) of a complex regulation such as REMIT does suggest that parties should factor REMIT compliance into their DSR contracting strategy.