Local Flexibility Markets: What are they and how can I join?

What are local flex markets and why are they needed?

“Flexibility” is the ability to shift electricity and supply so that supply always meets demand and across all levels of the grid. This is important because the electricity grid tolerates only a slight mismatch between supply and demand before collapsing and causing an outage.‍

Two main trends put increasing strain on the UK electricity grid and ultimately drive the need for more flexibility:

1. Rise of intermittent renewables: Solar and wind power can’t just be turned on or off but follow the rhythm of the sun and wind– that is, they are “intermittent”. As the UK increasingly relies on such intermittent power sources, it becomes more difficult to match supply and demand reliably. Flexibility markets help balance this issue.‍
2. Managing peak demand: Many people in the UK are switching to EVs and replacing their gas boilers with heat pumps. Equally, many industrial processes that were formerly driven by fossil fuels are being electrified. While these are important changes to reduce UK CO2 emissions, they put increasing strain on the grid. For reference, the peak electricity demand for a home with an EV and a heat pump is about 3-5 times higher than for a traditional UK home.

Grid operators have two options to cope with these increased demands on the grid. Option 1 is to increase infrastructure investment. This means not only putting in place new transmission lines but also digging up streets to install thicker cables and replacing transformers. Option 2 is to incentivise consumers and producers in the grid to shift their consumption and production in a way that reduces the load on the grid. This approach is commonly referred to as procuring ‘flexibility’.

Between the two options, flexibility is usually the more efficient choice. First, it would be a huge challenge for grid operators to manage and finance the required reinforcement of the grid without flexibility. We are talking here about tens of billions – annually. Second, it is oftentimes more economically efficient to procure flexibility than reinforce infrastructure. The reason is that, by definition, the grid does not actually operate at “peak load” most of the time. The better option is therefore to “shift the loads” by utilising flexibility.

“Local” flexibility is one version of flexibility. Essentially, flexibility exists on two levels: At the level of the transmission grid (think power lines next to highways), and the distribution level (think about the transformer stations on your street). The grid must be balanced at both levels, and ‘local flexibility’ specifically addresses the distribution level.

How do local flex markets work?

There are 4 steps involved in the operation of local flex markets.

1. Distribution grid operators (DNOs) determine their local flexibility needs and then tender out contracts for their flexibility

2. So-called “aggregators”, who aggregate a large number of consumer assets into “portfolios” bid on these contracts and DNOs award contracts to the lowest bidder

3. Aggregators engage residential and business customers to use their assets to provide flexibility, in return for a share of flex revenues

4. DNOs inform aggregators when flexibility is needed and pay them for providing flexibility in return

This means, as a homeowner you can’t directly participate in them but you need to go via an aggregator. Capture Energy is one of those aggregators and can enable you to participate.

How much can you make in local flex?

The most common type of flex contract consists of two types of payments:

• Availability payments are made to participants for being ready to provide flexibility, even if they are not called upon.

• Utilisation payments are made when the participant is called upon to provide flexibility.

Average 2024 local flex revenues were about ~£50,000 per MW (£50 per kW) of flexibility per year. This translates into significant potential returns for UK homeowners, with up to £500 for a large battery, like a Tesla Powerwall 3.

There is some maths involved in calculating local flex revenues. However, aggregators usually take care of that:

Let’s look at UK Power Networks which delivers power to North London and East Anglia. In the past, this DNO has offered up to £600 per MWh, although this varies by location and period of the day.

Let’s say UKPN is procuring flexibility for 2MW between the hours of 17:30 and 19:30 during the entire month of November, with a scheduled availability price of £127 per MWh and a utilisation price of £400 per MWh. In this example, we will calculate the revenue for the owner of a 10 kWh battery, where UK Power Networks utilises electricity from the battery for 1 hour every day within this time window. You would calculate your revenue as follows:

‍10kW ÷ 1000 -> to get units in MW‍
‍× (£127 ⁄ MWh × 2h + £400 ⁄ MWh × 1h) -> to account for availability and utilisation payments‍
‍× 30 days
‍‍= £196.26

Note: A season usually spans 60-90 days. In this example, the 10 kWh asset could expect to make up to £588.78 in each season.

Importantly, participating in local flex events does not come at the expense of other services. With revenue stacking opportunities, homeowners can earn money from multiple streams including other flexibility services, increasing their total revenue. Making the shift towards local flex markets will simply add an extra source of income, ultimately decreasing the payback period of your renewable asset, as shown in the graph below:

How can I get started?

Fill out the form below if you are interested in participating in local flexibility markets through Capture. We will then continuously screen for opportunities in your postcode and notify you once we have secured contracts for you.