Transmission connected generators are required to provide Obligatory Reactive Power Service (ORPS) as an Ancillary Service to help maintain a reliable electricity system. The Connection and Use of System Code (CUSC) contains the methodology which calculates the default payment rate for ORPS providers. It remains unchanged since 2007 and is based on the Retail Price Index (RPI) and wholesale power prices, being designed to compensate providers for the costs of providing ORPS. The project’s aim is to re-design the methodology into an enduring solution, so that it compensates ORPS providers in a manner which is fair and reflective of the costs they incur due to the significant changes to the energy landscape and move to net zero.
Benefits
This project will develop a flexible methodology for addressing future energy scenarios. It will reflect the diverse and changing technological and commercial characteristics of the industry by fairly and accurately compensating ORPS providers. It will achieve this by understanding the costs incurred by different ORPS providers and compensating appropriately for different fuel types, while taking lessons learned from a mixture of Transmission System Operators (TSOs) with differing market arrangements. It is also anticipated to reduce the overall ORPS payments made to generators, reducing the amount collected through Balancing Services Use of System (BSUoS), resulting in a positive impact on the end consumer.
Learnings
Outcomes
The project indicated the following findings:
- The strengths and weaknesses of the existing regime
- The varying approaches adopted by other TSOs to compensating mandatory reactive power provision and their appropriateness to the GB system.
- Service providers’ views on the present methodology, and what a future methodology could/should look like.
- The synthesis of options for possible regimes for compensating mandatory reactive power, and each one’s appropriateness in relation to the project criteria and GB network.
- Projected reduction in ORPS spend for the two most appropriate regimes identified.
- Recommendation of the most appropriate new methodology, with implementation risks.
- Key feedback from industry on the proposed methodology.
- A final methodology to be proposed for incorporation into the CUSC
There is a now a recognition that the current methodology is no longer appropriate. A CUSC modification (CMP457) has been raised, which is an expression of intent by proposing to implement the new methodology. The change process is required to be followed due to regulatory obligations. At the time of writing this report, the modification is at medium status and will progress to workgroups once its status has been classified at high. Additionally, regular dialogue has started between NESO and DESNZ regarding enduring improvements to the LCOE data. All NESO teams have been identified which utilise the LCOE data to ensure continued dialogue and alignment with its use and improvement.
Lessons Learnt
Key lessons learned were:
- Reinforcement of the importance of early and frequent industry engagement.
- Ensuring all parties have a clear definition and understanding of the project requirements. As time was spent evaluating market-driven solutions, which were not aligned with the scope of a cost-reflective compensatory payment.
- An innovative and flexible methodology developed which more accurately reflects the CUSC charging principles and provider cost of provision, ensuring value for the consumer while NESO maintain a safe and stable network.
- The development of a future proofed methodology, i.e. one that incorporates new technologies, new research, and will continue to reflect the energy landscape as it continues to evolve.
