• Charlotte Johnson

Energy and flexibility in 2021: A year in review


The pandemic may yet again have dominated the headlines in 2021 but it’s also been a year to remember for the UK energy industry; from the highs of seeing Glasgow play host to the most high-profile climate change conference in the world, to the lows of soaring wholesale prices seeing a mass exodus of energy suppliers.


As for the flexibility market, its importance for the transitioning energy system has never been clearer, with the growing fleet of renewable generators and the evolution of new products by National Grid, opening up yet more opportunities.


Here, we’ve taken a look back at some of the standout developments from the last 12 months and what the implications, challenges and opportunities may be for asset owners and flexibility.


23 countries pledged to phase out coal at COP26

In November, and with the eyes of the world watching, the UK hosted the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow. The COP26 summit brought together representatives from across the globe, to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.

Highlights of the conference included world leaders making a pledge to end deforestation by 2030 with a budget of £14b and more than 80 countries, led by the US and EU, agreeing to cut methane emissions by at least 30 percent by 2030. At least 23 countries also made a commitment to phasing out coal power, although the world’s biggest polluters were excluded from this (China, US, India and Australia).


The government published its net zero strategy

With the UK committed to achieving net zero greenhouse gas emissions by 2050, in 2021 the government published several key papers outlining plans for how the UK will reach its target. This included the much anticipated Net Zero Strategy, which sets out policies and proposals for decarbonising all sectors of the UK economy, along with a UK Hydrogen Strategy, Heat and Buildings Strategy, Smart System and Flexibility Plan and Energy Digitalisation Strategy.


All of these documents highlight a heightened requirement for flexibility and the urgency of early action needed across the system.


Wind power reached record levels

Despite the ongoing challenges of the pandemic, the UK’s fleet of renewable electricity generators continued to expand in 2021, forming more than a third of the country’s energy mix. It was a record breaking year for wind, which went on to deliver 62.5% of electricity demand in May - its largest ever share. With the government targeting 40GW of power from offshore wind by 2030 (compared to the current installed 24GW) this trend is expected to continue.


Investor confidence saw storage pipeline swell

The battery storage development pipeline also rose to 21.3GW (double the projected 12 GW required for some of the Future Energy Scenarios 2021 set out by National Grid) across 800 projects, with over 150 being co-located with solar.


This was likely linked to current investor confidence regarding the value of wholesale and balancing markets. For example, a battery in 2020 employing a trading strategy across only the day-ahead, intra-day and NIV (Net Imbalance Volume) chasing could have made up to £50,000/MW compared to a battery this year that would make closer to £120,000/MW.


The grid was its ‘greenest’ ever

The rise in renewable generation saw a reduction in the carbon intensity of the grid. As a result, on 5 April, GB electricity was its ‘greenest’ ever, with only 39 gCO2 / kWh. In comparison, the level was 336 gCO2 / kWh in 2015. If decarbonisation of the generation mix continues at the same rate, then the 2030 goal to 50 g/CO2 / kWh could well be possible. However, progress is expected to slow down as the final parts of the system are decarbonised.


Dynamic Containment flourished

Towards the end of 2020, National Grid introduced its Dynamic Containment (DC) product, the first of a new suite of faster acting frequency response products designed to help rapidly deal with any imbalances and maintain grid frequency. 2021 saw DC participation triple and procurement also moved closer to real-time, making it even more attractive for batteries who only needed to commit to four hour contracts and so could optimise more easily across other markets.


As renewables form an increasingly large part of the energy mix, the UK’s electricity system is experiencing lower inertia. That’s because unlike traditional power stations which would take time to power down, a solar or wind generator will instantly stop when the sun isn’t shining and the wind isn’t blowing. With ancillary services, such as DC, helping to combat this issue, they have become an increasingly important market for asset managers.


High prices highlighted the need for flexibility at scale

Demand for energy rebounded in 2021 but lower wind levels meant renewables struggled to keep up. Wholesale prices also rose dramatically, increasing by 200% from around £55 / MWh this time last year, with this system tightness resulting in exceptionally high prices.


In September, low margins were caused by falling wind output (just under 2GW) and planned and unplanned outages at major thermal and nuclear power stations. CCGTs and coal compensated for the shortfall which led to exceptionally high day-ahead and system prices – highlighting the need for cheaper sources of flexibility at scale, such as storage, and demand response.


Over the last three months, the total BSUoS cost reached £1.25 billion, more than double the £524 million figure for the same period in the previous year.


Energy suppliers were under pressure

As for energy suppliers, it has been one of the most difficult periods in history – something that many could not withstand. The impact of rising wholesale prices has pushed almost 30 energy companies out of business to date, leaving over two million customers dependent on the safety net provided by the market regulator, Ofgem, to maintain their supplies and protect their credit balances.


Summary

2021 has been one of the most challenging years on record for many within the energy industry but it also thrust the UK onto the global stage, with COP26 and climate change again dominating the political agenda.


The importance of flexibility and digitalisation for the decarbonisation of the UK’s energy system was never clearer – something that was reflected in the government’s highly anticipated net zero strategy and National Grid’s Future Energy Scenarios.


Moving forwards, renewable generation is set to continue to increase and with heat and transport being electrified, there will be an even greater need for flexibility on the grid – both to balance the system in real-time and to keep the system safe when there is limited inertia. It is likely this will be delivered by both shorter and longer duration technologies.


As for KrakenFlex, we are primed and ready to support our customers to make the most of every opportunity, while supporting the UK to achieve its net zero ambitions.


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