January 5, 2024

Flexibility aggregators get access to the wholesale market

In October 2023, Ofgem gave the go ahead to allow independent aggregators to trade their flexibility in the wholesale market. This approval is facilitated by a change to the Balancing and Settlement Code (BSC) called P415 ‘Facilitating access to wholesale markets for flexibility dispatched by Virtual Lead Parties (VLPs)’. The change will take effect from 7 November 2024.

What's the current situation?

Currently, consumers of electricity who can be flexible about their consumption (increase or decrease their demand) cannot obtain the value from that flexibility within the wholesale market unless they enter into arrangements with their supplier to do so. This is because the BSC currently assigns all flexibility delivered by a consumer to their supplier. As a result, consumers can only access the wholesale market through their supplier. VLPs can currently support consumers to offer their flexibility in the Balancing Mechanism (BM) but not the wholesale  markets. 

The future situation

From November 2024 VLPs will be able to sell their flexibility, not only to the NGESO through the BM, but also to other consumers through the wholesale markets. Allowing VLPs to access the wholesale electricity markets will remove a barrier to consumers who want to offer flexibility. 

We spoke to Sarah Honan, (Flex Policy Lead at the Association of Decentralised Energy), who described this development as a “step-change” for the flexibility markets:

“This is a huge moment for VLPs and will massively increase consumer choice of who they can sell their flexibility to. This change has the potential to significantly increase the revenue of VLPs as well as increasing choice for energy buyers.”

 Sarah Honan, Flex Policy Lead, Association of Decentralised Energy

Unresolved questions

Sarah Honan of the ADE points out that there are some significant unresolved questions:

  • In a future where we are constantly flexing our demand, how do we construct adequate baselines to measure performance?
  • How do we create a level playing field for all types of flexibility service providers in demand turn up scenarios so as to make best use of excess renewable generation?

The ADE, along with industry, is working with OFGEM, DESNZ and the system operators to resolve these issues.

Overall the announcement is great news for Elyos Energy and other aggregators of flexibility as it will significantly increase the revenue potential.

What is a Virtual Lead Party (VLP)?

A Virtual Lead Party (VLP) is an independent aggregator that controls aggregate electricity demand and/or power generation for the purposes of selling Balancing Services to National Grid ESO. VLPs cannot also supply energy since this is the role of a Supplier. VLPs make money by selling their flexibility (turn up / turn down capacity) in the Balancing Mechanism. 

The Balancing Mechanism 

The Balancing Mechanism (BM) the National Grid ESO’s primary tool to balance supply and demand on grid. The BM is a continuously open online auction, with thousands of trades issued daily. Each trading period is 30 minutes long. For every half hour, the BM signals how much it will cost to provide power at that time.