National Grid to "pilot" payments for heavy energy users that cut peak-time use from this winter

The National Grid plans to pilot a demand side balancing reserve (DSBR) service from this winter, which would operate for short periods when demand is at its highest between 4pm and 8pm on winter weekdays. An expanded DSBR service, complemented by a series of contracts for back-up energy supply from plants that would otherwise be closed or mothballed, could then operate in winter 2015/16, according to an announcement from National Grid.

A tender for up to 330MW of DSBR will begin this month, while tenders for a total of up to 1,800MW of both DSBR and additional supplemental balancing reserve (SBR) contracts for winter 2015/16 would run in autumn 2014 and early 2015, according to the announcement. Energy market regulator Ofgem approved the use of the new tools last year.

"It's our job as electricity system operator to make sure we've got all the right tools at our disposal to balance supply and demand on the electricity network, 24 hours a day, 365 days a year," said Peter Bingham of National Grid.

"For winter 2014/15 we are inviting providers of demand side response services to offer a small volume of demand reduction capacity to pilot the new DSBR service. For winter 2015/16, we will tender for both services. This offers generators an incentive to make their power stations available in winter where they might otherwise be unavailable," he said.

The new DSBR service would operate alongside other demand-reduction programmes run by National Grid. It would offer a combination of upfront payments and after-the-event payments to large energy consumers that are able to reduce demand, or switch to back-up generation, when required; as well as to operators of small embedded generation that can commit to providing power when needed. According to the system operator, it would only be used as a "last resort" to balance the system should there be insufficient generating capacity in the market.

SBR would also operate as a last resort. Generators that successfully tender to provide a share of the required supply would contract with National Grid to provide that amount of energy when called upon to do so. The service is targeted at power stations that would be closed or otherwise unavailable when the service is running. Plant would need to be available on winter weekdays between 6am and 8pm in order to participate.

Around one fifth of the UK's existing power generating capacity is due to come off-line over the next decade due to aging power plants and more stringent environmental standards, while an increasing amount of the country's power will be generated from intermittent sources such as wind. The government's electricity market reform (EMR) programme includes a capacity market, through which regular payments would be made to energy generators that successfully bid to provide a share of back-up power. However, this will not be up and running until 2018/19 and remains subject to EU approval.

Using methodology approved by Ofgem, National Grid has estimated that back-up power through a combination of DSBR and SBR of 1,3000MW could be needed in 2016/17; and 800MW in 2017/18. However, it said that it would only extend the programmes beyond 2016 with Ofgem's approval, and if "an ongoing need for these services is identified".