DG As Ancillary Service

Ancillary Service
Provision from
Distributed Generation
CONTRACT NUMBER: DG/CG/00030/00/00
URN NUMBER: 04/1738

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ANCILLARY SERVICE
PROVISION FROM
DISTRIBUTED GENERATION
CONTRACT NUMBER
DG/CG/00030/00/00
URN NUMBER 04/1738
This work was commissioned and managed by the DTI's Distributed

Generation Programme in support of the Technical Steering Group (TSG) of
the Distributed Generation Co-ordinating Group (DGCG). The DGCG is
jointly chaired by DTI and Ofgem, and further information can be found at
www.distributed-generation.gov.uk
Contractor
Ilex Energy Consulting with the Manchester Centre for

Electrical Energy, UMIST
The work described in this report was carried out under

contract as part of the DTI Technology Programme: New
and Renewable Energy, which is managed by Future
Energy Solutions. The views and judgements expressed
in this report are those of the contractor and do not
necessarily reflect those of the DTI or Future Energy
Solutions.
First published 2004
 Crown Copyright 2004

Project Steering Group Summary
Introduction and Background: In support of DGCG TSG, Workstream 5, the

Department of Trade and Industry’s New and Renewable Energy Programme
commissioned Ilex Energy Consulting Ltd. to undertake an investigation and report
on the potential for an Ancillary Service market to be developed within the
distribution network. The work was to be carried out from a distributed generation
(DG) prospective. The final report is titled ‘Ancillary Service Provision from
Distributed Generation’.
The investigation was undertaken during the second and third quarter of 2004 and
was subject to review and commentary from the TSG WS5 P06 Project Manager
and the P06 Project Steering Group whilst in progress. The Project Steering Group
was made up of a diversity of people, including Distribution Network Operators
(DNO’s), NGT, generators and consultants.
The final report was submitted to Future Energy Solutions (FES) in September
2004. FES are the DTI’s New & Renewable Energy Programme’s managing
contractor.
Objectives: The aims and objectives of the study were to investigate the
potential for creating ancillary service markets at the distribution level in Great
Britain. Specifically the study sought to:
Investigate any existing arrangements for distribution level Ancillary

Service markets worldwide.
Review the high level options for the design of ancillary service markets and
identify any regulatory and legislative changes that might be required.
Examine the prospects and opportunities for the different forms of
distributed generation and assess whether the creation of different services
would incentivise generation to connect to the distribution network.
Investigate the commercial framework and technical procedures that might
be required.
Explore the infrastructure requirements.
Assess the impact on different market participants.
The scope of the project included a consideration of the opportunities for DG to

contribute to existing Transmission System Operator (TSO) ancillary services and
an investigation of the potential for DG to contribute to new DNO services that
could develop in the short to medium term.
Findings/Conclusion: This work area is relatively new and without a market

presently at the DNO level it can be difficult to form concrete conclusions.
Generally however, the report successfully developed on existing work carried out
in the area of distribution level ancillary services and highlighted a number of key
areas of interest. Some of these require further consideration as the subject area
moves forward. The report was comprehensive and the important conclusions
were:
o A value based assessment approach was used to determine the
attractiveness of each ancillary service. This concluded that the value of the
most feasible ancillary services will be relatively low and would represent
incremental revenue opportunities for DG. Investing in DG on the basis of
ancillary service income only, is therefore unlikely.
o Only TSO frequency response, TSO regulating and standing reserve and
DNO security of supply contributions represent realistic opportunities for
DG in the short to medium term. The extent of opportunities for DNO
security services will largely relate to load growth and asset replacement
profiles. TSO reactive power, DNO quality of supply and DNO voltage and
power flow managements services were deemed to have little potential
over the same period.
o CCGT and DFIG wind generators were the most promising technologies for
the provision of TSO frequency services, whereas CCGT’s, diesel standby
generators and perhaps micro CHP were best placed to provide reserve
services. DNO security of supply services could be provided to a varying
degree by most existing DG types.
o The majority of existing DG has not been installed with the necessary
infrastructure to provide ancillary services.
o To extend aggregation opportunities for DG to participate in the standing
reserve market (limited by cost of infrastructure), new low cost
communication and monitoring arrangements should be evaluated.
o The most appropriate commercial arrangements for response and reserve
services appear to be market-based mechanisms, potentially extending
some of the TSO’s current arrangements. For DNO security of supply
services, the most appropriate arrangement appears to be bilateral
contracts.
o Registered Power Zones (RPZs) could provide an initial platform for the
development of some ancillary service contracts.
o In the future, with increased levels of DG, the opportunities for ancillary
services should increase. However, as an active network develops, there is
also likely to be network constraints and delivery uncertainty of some
ancillary services may increase. This is a major concern for DNOs as they
are exposed to the risk of non-delivery. The impact could be financial,
regulatory or legal in nature and requires further exploration.
o The majority of network security is secured through capital expenditure at
present rather than operating expenditure. This relates to the current
regulatory framework and thus further work is necessary to establish a
funding mechanism for network security and support.
The study did not cover the longer term potential (beyond 2015) for ancillary
services that were deemed to have little or no potential in the short to medium
term. However, due to the relative low levels of DG penetration at present and the
absence of a distribution level ancillary service market (accepting that some
bilateral arrangements do exist and that DG can participate already at the
transmission level), it is accepted by the project manager that further work in this
area will probably not be feasible until DG penetration increases and the future
structure of the power system is better understood.
Next Steps: As already touched on, significant further work on the WS5 P06 area
is probably a little premature until DG penetration increases and the active nature
of the future power system becomes more established.
Bilateral Agreements are likely to continue to be used in any developing ancillary
service market in the short to medium term and if further studies are to be carried
out at this stage, the focus should be on developing commercial
frameworks/agreements. The Distribution Commercial Forum appears well placed
to develop the necessary commercial arrangements and RPZs could represent
ideal test-beds for such services.
Nigel Turvey
Project Manager, TSG WS5 P06
11th October 2004
ANCILLARY SERVICE PROVISION FROM DISTRIBUTED GENERATION
Disclaimer
While ILEX considers that the information and opinions given in this work
are sound, all parties must rely upon their own skill and judgement when
making use of it. ILEX does not make any representation or warranty,
expressed or implied, as to the accuracy or completeness of the information
contained in this report and assumes no responsibility for the accuracy or
completeness of such information. ILEX will not assume any liability to
anyone for any loss or damage arising out of the provision of this report.
CONTENTS
EXECUTIVE SUMMARY I
1. INTRODUCTION 1
2. BACKGROUND REVIEW 6
3. THE SCOPE FOR NEW ANCILLARY SERVICES AT THE

DISTRIBUTION LEVEL 23
4. EXPLORATION OF ANCILLARY SERVICES FROM

DISTRIBUTED GENERATION 32
5. PROSPECTS FOR DISTRIBUTED GENERATION 75
6. COMMERCIAL & TECHNICAL FRAMEWORK 104
7. IMPACT ASSESSMENT 128
8. CONCLUSIONS AND RECOMMENDATIONS 139
ANNEX A – TABLE 1 OF ER P2/5 144
ANNEX B – CONTRIBUTORS TO THE STUDY 146

TABLES
TABLE 1 − SUMMARY OF RENEWABLE TECHNOLOGY CAPABILITIES V

TABLE 2 − SUMMARY OF NON-RENEWABLE TECHNOLOGY CAPABILITIES V
TABLE 3 − SUMMARY OF THE MAIN ANCILLARY SERVICES PROCURED BY NGC IN
E&W 8
TABLE 4 − NGC PAYMENTS FOR STANDING RESERVE IN 2003/2004 14
TABLE 5 − ESTIMATED ADDITIONAL REQUIREMENTS FOR CONTINUOUS
FREQUENCY RESPONSE 29
TABLE 6 − COST AND MARKET-EXTRAPOLATION BASED ESTIMATES OF THE
VALUE ADDITIONAL CONTINUOUS RESPONSE 30
TABLE 7 − ADDITIONAL RESERVE REQUIRED FOR VARIOUS LEVELS OF WIND
PENETRATION 34
TABLE 8 − ESTIMATES OF NET VOLUME OF ADDITIONAL BID OFFER
ACCEPTANCES 34
TABLE 9 − MARKET VALUE OF ADDITIONAL RESERVE 35
TABLE 10 − DISTRIBUTION OF LOAD ACROSS VOLTAGE LEVELS 39
TABLE 11 − THE TOTAL DNO REACTIVE IMPORT [MVAR] FROM THE
TRANSMISSION NETWORK IN MVAR AT PEAK FOR DIFFERENT LEVEL
PENETRATION OF DG AND VARIOUS POWER FACTORS (P.F.) 40
TABLE 12 − MAXIMUM DISTANCES OF THE OHL AND UC CIRCUITS 61
TABLE 13 − ACTIVE POWER (AS A % OF THE CIRCUIT CAPACITY) THAT CAN BE
TRANSPORTED 61
TABLE 14 − ADDITIONAL PLANT CAPACITY REQUIRED TO TRANSPORT REACTIVE
POWER 62
TABLE 15 − RECOMMENDED VALUES FOR MINIMUM PERSISTENCE TIMES (TM)
FOR SWITCHING ACTIONS 68
TABLE 16 − SUMMARY OF RENEWABLE TECHNOLOGY CAPABILITIES 87
TABLE 17 − SUMMARY OF NON-RENEWABLE TECHNOLOGY CAPABILITIES 87
TABLE 18 - F FACTORS OF IDENTICAL NON-INTERMITTENT UNITS OF 86%
AVAILABILITY WITH THE PROBABILITIES OF DELIVERING THESE
CONTRIBUTIONS 104
TABLE 19 − COMPARISON OF COSTS OF DELIVERING ADDITIONAL SECURITY
CONTRIBUTIONS 112
FIGURES
FIGURE 1 − CONTINUOUS AND OCCASIONAL FREQUENCY RESPONSE SERVICES 8

FIGURE 2 − GENERIC DISTRIBUTION MODEL WITH DG CONNECTED AT 11KV AND
33KV 39
FIGURE 3 − EXAMPLE OF ER P2/5 COMPLIANCE WITHOUT GENERATION
CONTRIBUTIONS 43
FIGURE 4 − POSSIBLE SOLUTIONS TO A NETWORK SECURITY SHORTFALL
UNDER P2/5 & P2/6 44
FIGURE 5 − DISTRIBUTIONS OF CIS AND CMLS ACCORDING TO DISTRIBUTION
VOLTAGE LEVEL 47
FIGURE 6 − (A) TRADITIONAL NETWORK LAYOUT (B) POTENTIAL FOR DG TO
PROVIDE NETWORK SERVICES WILL DEPEND ON POINT OF
CONNECTION 48
FIGURE 7 − COMPARISON OF CML PERFORMANCE FOR TWO NETWORKS 49
FIGURE 8 − USE OF DG FOR VOLTAGE SUPPORT AT THE END OF THE FEEDER
DUE TO LOAD GROWTH 54
FIGURE 9 − USE OF VOLTAGE REGULATOR TO MITIGATE VOLTAGE VIOLATION
AT THE END OF THE FEEDER DUE TO LOAD GROWTH 55
FIGURE 10 − USE OF CAPACITIVE COMPENSATION TO SUPPORT VOLTAGE 55
FIGURE 11 − USE OF DG TO SUPPORT VOLTAGE AT PEAK TIMES 56
FIGURE 12 − OPTIONS FOR SOLVING VOLTAGE DIP PROBLEM AT POINT A
(ASSUMING OUTAGE SECTION BETWEEN SUBSTATION 1 AND A
FOLLOWED BY CLOSURE OF NORMALLY OPEN POINT) 57
FIGURE 13 − USE OF DG TO MITIGATE PARTIAL CIRCUIT OVERLOAD DUE TO
LOAD GROWTH 58
FIGURE 14 − USE OF DG TO MITIGATE CIRCUIT OVERLOAD FOLLOWING
CLOSURE OF NOP 59
FIGURE 15 − SCHEMATIC DIAGRAM OF THE POWER SYSTEM WITH VARIOUS
FORMS OF DG TECHNOLOGIES CONNECTED TO DISTRIBUTION
NETWORKS 63
FIGURE 16 − TYPICAL SCHEMATIC FOR A LARGE SCALE CHP INSTALLATION 74
FIGURE 17 − COMMUNICATION PROCESS FROM TSO TO MICRO CHP VIA THE
AGGREGATOR 80
FIGURE 18 − RESPONSE SCHEDULING OF GROUPS OF MICRO CHP UNITS 83
FIGURE 19 − CONTRACTING OPTIONS FOR AGGREGATION 100
FIGURE 20 − OPTIONS TO ADDRESS A 5MW SECURITY SHORTFALL AT A 33/11
KV, 20 MVA SUBSTATION 111
GLOSSARY OF TERMS
ADSL Asymmetric Digital Subscriber MV Medium Voltage
AVR Automatic Voltage Regulator MVA Mega Volt-Ampere
BETTA British Electricity Trading & MW Megawatt
Transmission Arrangements
BOA Bid/Offer Acceptance NETA New Electricity Trading
Arrangements
BM Balancing Mechanism NGC National Grid Company
BMU Balancing Mechanism Unit OCGT Open Cycle Gas Turbine
BSC Balancing & Settlement Code OFGEM Office of Gas & Electricity
Markets
CAPEX Capital Expenditure OHL Overhead Line
CCGT Combined Cycle Gas Turbine O&M Operation and Maintenance
CHP Combined Heat & Power OPEX Operational Expenditure
CI Customer Interruptions OS Overall Standards
CML Customer Minutes Lost PN Physical Notification
CUSC Connection & Use of System PSTN Public Switched Telephone
Code Network
DFIG Doubly Fed Induction PTO Public Telephone Operators
DG Distributed Generation PV Photo Voltaic
DGCG Distributed Generation Co- ROC Renewables Obligation
ordination Group Certificate
DNO Distribution Network Operator RPZ Registered Power Zone
DTI Department of Trade & SMS Short Message Service
DUoS Distribution Use of System SVC Static Voltage Compensator
GB Great Britain SYS Seven Year Statement
GS Guaranteed Standard TNUoS Transmission Network Use of
System
GSM Global System for Mobiles TSG DGCG Technical Steering
IIP Information & Incentives TSO Transmission System
KV Kilovolt UC Underground Cable
KW Kilowatt UMTS Universal Mobile
Telecommunications System
LAN Local Area Network UoSA Use of System Agreement
LV Low Voltage VAr Volt-Ampere reactive
EXECUTIVE SUMMARY
This report describes a joint study undertaken as part of the DTI’s

New and Renewable Energy Programme by ILEX Energy Consulting
and the University of Manchester Institute of Science and Technology
(UMIST) with contributions sourced from many interested
stakeholders.
The aims and objectives of the study were to investigate the potential
for creating ancillary service markets at the distribution level in Great
Britain (GB). Specifically, the study sought to:
• investigate any existing arrangements for distribution level
ancillary services markets worldwide;
• review the high level options for the design of ancillary service
markets;
• examine the prospects and opportunities for the different forms of
Distributed Generation (DG);
• investigate the commercial frameworks and technical procedures
that might be required;
• explore the infrastructure requirements; and
• assess the impact on different market participants.
The scope of this project was to:

• consider the opportunities for DG to contribute to existing
Transmission System Operator (TSO) ancillary services; and,
• investigate the potential for DG to contribute to new Distribution
Network Operator (DNO) services that could develop in the short
to medium term.
The study investigated the potential for distribution level ancillary

services to be provided by generators, in-line with the anticipated
increase in electricity generation from distributed resources.
Whilst renewable electricity generation connected to distribution

networks represents a key component of Government energy policy
and targets, this study has sought to evaluate the distribution
ancillary service market opportunities applicable to both renewable
and non-renewable forms of distributed generation.
A pre-requisite for the detailed development of operational and

commercial models was that any new services should be financially
material to the distributed generator whilst remaining economically
and operationally attractive to network operators. Consequently,
value based approaches were adopted for each ancillary service with
i
a view towards improving the attractiveness of distributed and

renewable generation projects.
The services for which potential arrangements have been explored

are:
• TSO Frequency Response;
• TSO Regulating and Standing Reserve;
• TSO Reactive Power;
• DNO Security of Supply contributions;
• DNO Quality of Supply Services; and
• DNO Voltage and Power Flow Management Services.
TSO Frequency Response

Frequency Response services are required by the TSO to maintain the
system frequency within statutory tolerances. Frequency control is
achieved through the real-time matching of supply to demand.
Distribution connected Combined Cycle Gas Turbine (CCGT) plant
already provide this service to TSOs.
A key feature of TSO frequency response provision is the requirement

for generators to be part-loaded. It is unlikely that TSO frequency
response services will be provided regularly by renewable
generation, as the opportunity cost of operating part-loaded will be
relatively high. This is because the compensation for part-loading
would not only need to recover the cost of reduced energy revenues
but also the costs associated with the loss of Renewables Obligation
Certificate (ROC)1 revenue. It is therefore unlikely that renewable
generation will be able to compete effectively in frequency response
markets.
Although mandatory frequency response capabilities may become a

technical requirement for large distribution connected wind farms,
thereby ‘resolving’ any infrastructure constraints, the extent to which
the TSO will utilise such capabilities is likely to be very limited.
The value of TSO Frequency Response is estimated to vary between

£0.40/kW per annum for wind generation and £2.50/kW per annum for
CCGT technology (excluding holding costs).
1
The Renewables Obligation Order 2002, Statutory Instrument No. 914, 2002
ii
TSO Regulating and Standing Reserve

Reserve energy is required to provide rapid access to generation, to
accommodate errors in demand forecasting, to provide contingency
arrangements for generation failures and to restore frequency
response capabilities.
The key differences between frequency response and reserve services

relate to delivery timescales. Typically, reserve services are manually
initiated and involve longer lead times. A consequence of simplified
service initiation procedures is a reduction in the sophistication of
control requirements, thus making reserve more attractive to smaller
providers.
It is unlikely that synchronised reserve will be provided by renewable

generation, as the compensation for part-load operation would also
need to recover the loss of ROC revenue. Non-renewable distributed
generation already provides standing reserve services to the TSO at a
value of approximately £7/kW per annum. Increased DG participation
could be facilitated by expanded aggregation services.
TSO Reactive Power

TSO reactive power can be sourced from distributed generators,
especially those connected at 132 kV, for transmission system voltage
regulation. Reactive power sourced at lower distribution voltages will
reduce the reactive power required from transmission-connected
generation (at peak loads).
DG connected at lower voltage levels can make a significant impact

on the amount of reactive power exchanged between TSO and DNO
systems. A simple generic model was developed to illustrate DNO
reactive power import reductions at different levels of DG
penetration. The value of DG derived reductions in DNO reactive
imports was estimated to be approximately £1.20/kW per annum. The
impact of DG on TSO reactive power market will be driven by many
different variables. More work would be required to determine the
impact of DG on DNO reactive requirements.
The impact of reactive power management on the transport

capabilities of distribution circuits was also investigated. DG
connected close to loads could extend the transport capabilities of
existing circuits. The value of this service would be limited by the low
cost of power factor compensation equipment. It is unlikely that this
would represent significant income for DG. High DG availabilities
would be needed for DNOs to consider such services.
iii
DNO Security of Supply Contributions

The proposed planning recommendation ER P2/6 could broaden
opportunities for DNOs to consider contributions to network security
from DG. However, as DNO networks should currently comply with
ER P2/5, the requirement for security contributions from DG may be
limited in the short-term. In the medium to long term, load growth
and asset replacements could increase opportunities for DG to
provide network support services.
The value of security provided by non-intermittent DG can be related

to the avoided or deferred costs of network reinforcement. DG can
also substitute for network automation facilities. This is particularly
relevant when considering security contribution of intermittent
generation such as wind.
A number of examples were used to illustrate the potential value of

network security services. For non-intermittent generators, values in
the range of £1/kW to £12/kW per annum were derived, depending
upon the complexity of the network solution avoided. It is anticipated
that most reinforcements would be at the lower end of this range.
Because of the drive to reduce Customer Interruptions (CI) and

Customer Minutes Lost (CML), DNOs have made considerable
investments in 11kV and 0.4kV networks. A result of this investment is
that distribution networks in GB are generally “over compliant” with
planning and security standards. For the foreseeable future, the scope
for DG to provide security services at these voltages could be limited.
DNO Quality of Supply Services

In the future, there could be opportunities for DG to improve service
quality on 11kV and 0.4 kV networks, given the contribution of such
networks to Quality of Supply statistics.
In order for DG to improve service quality on such networks, the

generation must also be connected at 11kV or 0.4kV, thus restricting
opportunities to relatively small sized generation. A key requirement
for DG, to reduce the impact of outages, is islanded operating
capability.
Analysis suggests that the annual benefit of islanding operation was

approximately £1.40/kW/annum and £19/kW/annum for residential
and commercial customers respectively. Due to the complexity of
islanding, it is unlikely that DG will be able to significantly reduce CIs
and CMLs in the short or medium term. It is hoped that this work will
provide input to another DTI project, currently evaluating the
feasibility of island operation.
iv
DNO Voltage and Power Flow Management services

Our analysis revealed that voltage control and flow management
problems are essentially network planning related issues as they
relate to supply restoration times following network failures (ER P2/5
or P2/6).
Because of the relatively low availability of DG compared to network

components and the UK’s deterministic voltage standards,
opportunities may be limited for DG to provide voltage support or
overload reduction. Generally, non-intermittent DG would be suitable
for such applications. Inverter connected renewable generation, such
as Doubly Fed Induction Generators (DFIG) or Photo Voltaics (PV),
represent an exception, as reactive power is generally independent of
active power output.
Opportunities to provide voltage and power flow management

services will improve with increased penetrations of DG due to the
higher collective availability. The value of these services was
estimated to be the order £1.50/kW/annum.
Ancillary Service Capabilities of Different Generation Technologies

The ancillary service capabilities of renewable and non-renewable
technologies are summarised in Table 1 and Table 2.
v
Table 1 − Summary of renewable technology capabilities

DG
DG Technology
TechnologyType
Type
Ancillary
Ancillary Wind
Wind Wind
Wind Land
LandFill
Fill
Biomass
Biomass Solar
SolarPV
PV Hydro
Hydro
Service
Service non-DFIG
non-DFIG DFIG*
DFIG* Gas
Gas
Size
Size <<50
50MW
MW >50
>50MW
MW 1–100MW
1–100MW 11––10MW
10MW <100
<100kW
kW >>1MW
1MW
Frequency
Frequency HF
HFonly
only HF
HFonly
only HF
HFonly
only
Reserve
Reserve Possible
Possible Possible
Possible Possible
Possible Possible
Possible Possible
Possible Possible
Possible
Reactive
Reactive
Network
Network Limited
Limited
Support
Support
Future
Future Future
Future Future
Future
Black
BlackStart
Start islanding?
islanding? islanding?
islanding?
* Wind Farms <50 MW may employ DFIG machines in future
Table 2 − Summary of non-renewable technology capabilities

DG
DG Technology
TechnologyType
Type
Diesel
Diesel&&
Ancillary
Ancillary CCGT
CCGT Large
LargeCHP
CHP Micro
MicroCHP
CHP OCGT
OCGT
Service
Service (Standby)
(Standby)
Size
Size >100
>100MW
MW 1-100
1-100MW
MW 11––55kW
kW <<50
50MW
MW
Frequency
Frequency Limited
Limited Limited
Limited
Possible:
Possible:High
High
Reserve
Reserve Possible
Possible penetrations
penetrations
Reactive
Reactive
Network
Network Possible:
Possible:High
High
Support
Support penetrations
penetrations
Future
Futureisland
island Future
Futureisland
island
Black
BlackStart
Start Possible
Possible opportunity?
opportunity? opportunity?
opportunity?
Whilst all of the above services were explored in detail, only TSO
Frequency Response, TSO Regulating and Standing reserve and DNO
Security of Supply contributions represent realistic opportunities for
distributed generators in the short or medium term.
Combined Cycle Gas Turbines (CCGT) and DFIG wind farms were the
most promising technologies for the provision of TSO Frequency
Response services whereas CCGTs, diesel standby generators and
perhaps micro CHP were best placed to provide reserve services.
It was found that, to varying degrees, DNO Security of Supply

services could be provided by most existing distributed generation
technologies.
As the majority of existing DG has been installed for electricity supply

purposes, very few generators are equipped with the infrastructure
necessary to provide ancillary services. Such infrastructure includes
governors, automatic voltage regulators, resynchronisation facilities,
appropriate protection, monitoring and communication facilities.
vi
Commercial, Technical and Policy Implications
The most appropriate commercial arrangements for response and

reserve services appear to be market-based mechanisms. Ideally the
TSO’s current arrangements could be extended. Expanded
aggregation arrangements, utilising lower cost infrastructure, would
facilitate increased participation from small generators.
The most appropriate commercial arrangements for DNO Security of

Supply services appear to be bilateral contracts due to the local and
site-specific nature of security requirements.
Opportunities for DG to provide ancillary services will undoubtedly

increase as DG penetrations and availabilities increase.
The analysis undertaken suggests that the value of the most feasible
ancillary services will be relatively low. Consequently, such services
will represent incremental revenue opportunities for DG. In general, it
would not be possible to develop business cases for investing in DG
solely on the basis of ancillary service income.
Niche opportunities will emerge for DG to provide ancillary services,

usually in circumstances where constraints restrict network
development, e.g. environmental, planning and terrain related
constraints.
In an era with significantly increased levels of DG operating on active

distribution networks, the opportunities for DG to provide ancillary
services may increase. However, on active networks there is an
increased likelihood that due to distribution network constraints,
certain modes of operation may not be permitted by the DNO.
Consequently there could be increased delivery uncertainty regarding
the provision of TSO ancillary services from distributed generators
connected to active networks.
In circumstances where a distributed generator receives conflicting

instructions regarding the provision of different ancillary services,
local services should take precedence over national services.
Higher penetrations of DG will increase DNO options regarding

network operation and development decisions, which could (in
certain situations) lead to lower overall costs.
Increased penetration of DG could also enhance competition in TSO

markets for frequency response and reserve. This could be
particularly relevant should demand for these services increase with
intermittent generation.
vii
As the output from distributed generation is largely purchased by

suppliers and settled through supplier demand accounts within
NETA, suppliers must ensure they are aware of generator operating
regimes and also whether generator operation is likely to be
influenced by ancillary service provision. Supplier concerns will relate
to imbalance exposures in the Balancing Mechanism (BM) and the
fulfilment of ROC targets. Suppliers will require notification of
ancillary service provision, in order to suitably revise demand
forecasts. Ancillary service instructions issued post Gate Closure will
inevitably impact upon a supplier’s imbalance exposure and
potentially reduce the value of the energy supplied.
The introduction of Registered Power Zones (RPZs), created to

encourage DNOs to develop and demonstrate new, more cost
effective ways of connecting and operating generation, could provide
an initial platform for the development of appropriate ancillary
services contracts. In order for new technical solutions to become
widely accepted, an appropriate contractual framework will need to
be established, and RPZs could be used to develop such
arrangements.
It is important to stress that provision of ancillary services from DG

should not jeopardise or degrade security of supply and may even
contribute to its enhancement in future.
It should be recognised that the provision of ancillary services from

DG should not impact negatively upon DG contributions towards
Government climate change targets.
In addition, the provision of ancillary services from distributed

generation could, in niche situations, avoid any negative impact of
network investment in environmentally sensitive areas.
Although this work explored ancillary services opportunities for DG in

the short to medium term, long-term approaches also need to be
investigated given the fundamental changes to the structure of power
systems that may emerge in future, particularly in the context of the
Technical Architecture initiative.
Recommendations
The extent of opportunities on DNO networks will largely relate to
load growth and asset replacement profiles. Whilst it has not been
possible to quantify the relative magnitudes of these opportunities
within this project, such information will be critical to evaluating
service materiality under alternative future development scenarios
and should be explored further.
viii
In order that a consistent and transparent set of arrangements can

emerge to facilitate increased network security contributions from
DG, it will be necessary to establish principles (and potentially
standardise commercial arrangements) for procurement processes
and valuation methodologies. Indeed, the Distribution Commercial
Forum might consider the development of a standardised ‘model
form’ contract suitable for localisation by individual DNOs.
A major concern of DNOs regarding the reliance on distributed

generators to provide network support services will relate to non-
delivery risk exposures. Such exposures could be financial, regulatory
or legal in nature. Consequently, the issues associated with service
non-delivery require further exploration.
Whist the current aggregation arrangements have been successful in

encouraging non-BM participants into the standing reserve market,
the costs of the associated infrastructure could deter wider
participation. In order to extend aggregation opportunities further,
new low-cost communication and monitoring arrangements should
be evaluated.
A potential problem for DNOs relates to the current regulatory

framework in terms of capital expenditure (CAPEX) and operational
expenditure (OPEX) funding distinctions. At present, network security
is procured through CAPEX, which does not currently accommodate
generation contributions. The current arrangements for OPEX are not
ideal as DNOs could be financially penalised for funding ancillary
services through this route. More work will be required to establish a
suitable funding mechanism for network security and support.
ix
1. INTRODUCTION
1.1 This report describes a joint study undertaken as part of the DTI’s
New and Renewable Energy Programme by ILEX Energy Consulting
and the University of Manchester Institute of Science and Technology
(UMIST) with contributions sourced from many interested
stakeholders including:
• DNOs
• TSO
• Renewable and non-renewable plant developers and operators
• Micro-CHP developers
• Academics
• Ofgem
Thanks are offered to all of the individuals, outlined in Annex B, who

provided input to this work.
1.2 The study investigated the potential for distribution level ancillary
services to be provided by generators, in-line with the anticipated
increase in electricity generation from distributed resources.
1.3 Whilst renewable electricity generation connected to distribution

networks represents a key component of Government energy policy
and targets, this study has sought to evaluate the distribution
ancillary service market opportunities applicable to both renewable
and non-renewable forms of DG.
Aims and Objectives

1.4 The aims and objectives of the study were to:
• Investigate the potential for creating ancillary service markets at
the distribution level in Great Britain (GB).
1.5 Specifically, the study sought to:

• investigate any existing arrangements for distribution level
Ancillary Services markets worldwide;
• review the high level options for the design of ancillary service
markets;
• examine the prospects and opportunities for the different forms of
distributed generation;
• investigate the commercial framework and technical procedures
that might be required;
1
• explore the infrastructure requirements; and

• assess the impact on different market participants.
With the overall intention of revealing the costs, benefits, challenges

and opportunities of establishing ancillary services market(s) at a
distribution level.
1.6 The scope of this project is to:

• consider the opportunities for DG to contribute to existing TSO
ancillary services; and
• investigate the potential for DG to contribute to new DNO services
that are likely to develop in the short to medium term.
1.7 In the context of the recent Technical Architecture initiative, it should

be noted that these opportunities and the technical/commercial
frameworks would change if there were fundamental changes to the
structure of power systems in the long term.
Methodology and approach

1.8 In the UK and in other international electricity markets, the term
‘Ancillary Services’ is widely used to describe many of the activities
required to maintain the stability of the transmission system. In
many liberalised energy markets, TSOs usually procure such services
from generators, although there is increasing scope for demand-side
participation. TSO procured ancillary services often include frequency
response, reactive power and a variety of energy reserve services.
1.9 From the outset, this study has adopted a broad definition for
ancillary services at a distribution level, which, whilst remaining
primarily generation focused, could encompass a wide range of new
and existing services. This approach deliberately avoided any
constraints arising from a strict interpretation of the term as applied
in the UK transmission context.
1.10 A pre-requisite for the detailed development of operational and

commercial models was that any new services should be financially
material to the distributed generator whilst remaining economically
and operationally attractive to network operators. Consequently,
value based approaches were adopted for each ancillary service with
a view towards improving the attractiveness of distributed and
renewable generation projects.
Consultation and collaboration

1.11 In undertaking this study, we have benefited from the assistance of a
large number of individuals from within the electricity supply
2
industry. We are also grateful for the assistance received in

undertaking this work, particularly from EDF Energy.
1.12 Throughout, the project consulted to the Technical Steering Group

(TSG) of the Distributed Generation Co-ordination Group (DGCG) via
a dedicated workstream comprising representatives from
Distributions Network Operators (DNOs), distributed generators,
Future Energy Solutions, the DTI and Ofgem.
1.13 The approach adopted reflects the consensus of workstream

members who were regularly updated regarding study findings and
direction, although the results presented in this report may not
necessarily reflect the opinions of individual workstream members or
the companies they represent.
Outline of the report

1.14 In Section 2 we present a background review describing the state of
development of distribution ancillary services in liberalised electricity
markets accommodating relatively high penetrations of distributed
generation. This section extensively reviews the ancillary services
managed at a transmission level by NGC in Great Britain.
1.15 Section 3 outlines the new ancillary service opportunities, which

could be provided from Distributed Generation (DG) to DNOs. This
Section also contrasts the common characteristics and key
differences between TSO and DNO ancillary services.
1.16 Section 4 provides a detailed description of the features,

characteristics, constraints and delivery issues associated with the
provision of a range of existing and new ancillary services from
distributed generation. Also within this section, the distinctions
between local and national services are explored.
1.17 Section 5 sets out the prospects for distributed generation in terms of
the capabilities of different technologies. It also contains a summary
of distributed generation capabilities in terms of technology type,
ratings, infrastructure requirements to provide ancillary services and
renewable considerations. An important output from this study
relates to the different technical capabilities of each type of
distributed generation.
1.18 In Section 6, the technical and commercial frameworks for the most
attractive distribution level ancillary services are expanded to
describe the commercial interfaces and trading options for the
different market participants. The section also discusses interactions
between transmission and distribution level ancillary services. This
section also provides a high level analysis of the interaction between
3
ancillary service provision and industry codes and agreements. The

section outlines the potential procurement mechanisms and
commercial arrangements for different services.
1.19 Section 7 describes the impacts on the different market participants in

terms of costs, benefits, operational complexity and regulatory issues
to provide an overall assessment of the feasibility and attractiveness
of each service to different providers. Key to this section are the
valuation examples.
1.20 Section 8 provides the conclusions and recommendations arising

from the study and also outlines relevant areas for further analysis.
4
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5
2. BACKGROUND REVIEW
2.1 Part of the remit of this study was to determine the extent to which
ancillary services are already being provided by distribution system
connected generation, both within Great Britain (GB) and
internationally. This requirement was addressed through:
• Liaison with DNOs forming part of wider international groups
operating distribution assets in Europe and North America, e.g.
EdF, E.ON, RWE, Western Power Distribution and Scottish Power.
• A review of the academic and commercial literature available
through a desk study concentrating on liberalised energy markets,
especially those with high penetrations of renewable and
distributed generation.
• Detailed analysis of the transmission-level ancillary services
market as managed and operated by the National Grid Company
in England and Wales.
GB Experience
2.2 Within GB it has been confirmed that there are already a number of
distributed generators providing ancillary services to the TSOs. These
services predominantly relate to frequency response from large-scale
conventional plant, such as 132 kV connected Combined Cycle Gas
Turbine (CCGT) generators, and Standing Reserve from standby
generators embedded within industrial customer premises.
2.3 Experience regarding the provision of ancillary services to DNOs, as

opposed to the TSO, was found to be limited although niche
applications were identified on remote and islanded distribution
networks, e.g. the Channel Islands and the Isles of Scilly.
2.4 One issue complicating the role of distributed generation in relation

to the provision of ancillary services to TSOs, is the lack of a
consistent definition as to what constitutes transmission and
distribution connection voltages. In England and Wales, the
transmission system is generally regarded as operating at 275 kV and
400 kV whereas in Scotland, the transmission system is deemed to
operate at 132 kV and above.
2.5 Similarly, variations also exist between Grid Codes regarding the
obligations on generators to provide ancillary services. In GB, these
variations depend on the size of the generator relative to the overall
size of the transmission system, rather than connection voltage.
6
Under BETTA2, the GB TSO is seeking mandatory ancillary services

capabilities from:
• >100 MW generators in England and Wales;
• >30 MW generators in Scottish Power’s transmission system area;
and
• >5 MW generators in Scottish Hydro Electric’s transmission
system area.
2.6 One implication of these different generator size thresholds may be

that, in future, NGC will seek ancillary service capabilities from
distribution-connected generators.
2.7 A feature of TSO ancillary service provision in England and Wales has
been a gradual move away from centrally administered mandatory
solutions towards more flexible, commercial arrangements based
upon market mechanisms. Such approaches often utilise tender
processes, have less prescriptive technical requirements and
encourage wider participation from the demand-side and distributed
generation.
International Experience
2.8 In international liberalised energy markets, the provision of frequency
response and reserve services from distributed generators was found
to be commonplace. Typically generators rated in tens of Megawatts
(MW) would be required to provide such services by many European
TSOs.
2.9 In markets with high penetrations of renewable generators,

particularly those highly reliant upon intermittent energy resources, it
is increasingly common for TSOs to seek frequency response
capabilities from distributed generators. In Denmark, Germany and
Ireland, the respective TSOs have established Grid Code obligations
requiring wind farms to have frequency response capabilities to
ensure that system stability can be maintained. Similar requirements
are currently being negotiated in GB.
2.10 The provision of TSO related ancillary services from smaller scale
generation (<10 MW) was found to be less widespread with TSOs
seeming to prefer the procurement of such services from larger-scale
conventional generators.
2
British Electricity Trading and Transmission Arrangements
7
2.11 As in GB, the provision of ancillary service from distributed

generators to DNOs was less well developed than those for TSOs,
although many of the utilities approached expressed interest in the
findings of this study.
2.12 In North America, a number of supply quality related services have

evolved in the form of Premium Power Parks where sensitive
industrial loads can co-locate with distributed generators to reduce
customer exposures to supply interruptions and brown-outs. Such
initiatives have largely been a consequence of the less interconnected
nature of North American distribution systems, with longer circuit
lengths, which can result in a lower average quality of supply
compared to that experienced on many European networks.
Transmission level ancillary services in England & Wales

2.13 Since privatisation, the requirements for transmission level ancillary
services have continually been refined by NGC through regulatory
incentives and wider industry developments such as NETA. The main
ancillary services procured by NGC can be categorised as:
• Frequency Response;
• Reserve Energy;
• Reactive Power;
• Fast Start; and,
• Black Start;
2.14 In recent years, NGC has been increasingly encouraged to reduce the
costs of system operation through regulatory incentives. NGC’s
System Operator incentive scheme achieves such incentivisation by
establishing an annual target for the costs of system operation
(including ancillary services). Where the costs of system operation
are lower than the agreed target, NGC is allowed to retain a
proportion of the savings. Similarly, where the costs of system
operation exceed the target, NGC is exposed to a proportion of any
overspend. The target for the SO incentive scheme in 2004/2005 is
£415 million including losses.
2.15 A summary of the main ancillary services procured by NGC is

illustrated in Table 3.
Frequency Response
2.16 Frequency Response services are required by TSOs to maintain the
system frequency within statutory tolerances. Frequency control is
achieved through the real-time matching of supply to demand, i.e.
8
generation to consumption. Consequently, frequency regulation can

be achieved by either adjusting generator outputs or by demand
groups regulating their energy consumption patterns within short
timescales in response to changes in system frequency.
2.17 Frequency falls below 50 Hz when demand is greater than generation

and rises above 50 Hz when generation is greater than demand. For
the system to operate satisfactorily, the frequency must be
maintained continuously within narrow limits around 50Hz.
9
Table 3 − Summary of the main ancillary services procured by NGC in E&W
2.18 Frequency is managed by a combination of a) continuous and b)

occasional response services. These two services are illustrated in
Figure 1 and described further below.
Figure 1 − Continuous and occasional frequency response services
F re q u e n c y R e s p o n s e
F re q u e n c y C o n tro l
C o n tin u o u s S e r v ic e
5 0 .2
10 s 30 s 60 s T im e 1 0 m in s
Frequency (Hz)
5 0 .0
4 9 .8
P r im a r y S e c o n d a ry (to 3 0 m in s )
R e s e rv e
4 9 .5
4 9 .2 O c c a s io n a l S e r v ic e T r a n s m is s io n B u s in e s s
T r a n s m is s io n S e r v ic e s
Source: NGC Seven Year Statement
10
2.19 Continuous response is provided by generation equipped with

appropriate governing systems that control their outputs to neutralise
the frequency fluctuations that may arise from relatively modest
changes in demand and generation. Traditionally, large synchronised
generators instructed to operate in frequency-sensitive mode have
provided this service.
2.20 The objective of occasional response is to contain significant and

abnormal frequency excursions caused by sudden mismatches in the
generation/demand balance (e.g. loss of generation.) Large
synchronised generators also provide occasional response services
although demand reductions can also contribute when initiated
through frequency sensitive relays.
2.21 Although all large generators are required by the Grid Code to have
continuous and occasional frequency response capabilities, at any
instant, only a relatively small number of participants are actually
instructed by the TSO to operate in frequency sensitive mode.
2.22 Theoretically, as system frequency regulation involves real-time

energy balancing, the highly interconnected nature of the GB
transmission systems means that frequency response can be
regarded as national, non-locational service. This implies that so long
as transmission system integrity can be maintained and operational
constraints on networks can be minimised, the location of the
frequency response provider would be immaterial to TSOs. Indeed,
the non-locational nature of frequency response delivery can be
extended to include distribution connected generators and loads.
2.23 NGC procure frequency response services from both generators and
demand-side participants on a mandatory or a commercial basis.
Mandatory frequency response services

2.24 Mandatory frequency response services are only provided by
generators and are segregated into Primary, Secondary or High
categories. Each of these services differs in terms of the speed and
duration of the response required. The E&W Grid Code defines the
technical parameters for each mandatory service and also stipulates
that synchronous generators rated at over 100 MW must provide
such services. 10% of Primary and 10% of Secondary response
(machine ratings) must be provided at minimum stable generation.
These technical parameters also effectively specify the control
infrastructure requirements for generators.
11
2.25 Primary frequency response requires the most rapid generator

response, albeit over the shortest timescales. The key requirements
of Primary frequency response are that generators must be capable
of increasing their active power output within 10 seconds of
predefined system frequency excursions, and be capable of
maintaining this response for a further 20 seconds.
2.26 Secondary frequency response services, whilst requiring a slower

initial response must be maintained for longer periods of time. The
key requirements of the Secondary frequency response are that
generators must be capable of increasing their active power output
within 30 seconds of predefined system frequency excursions and be
able to maintain this response for a further 30 minutes.
2.27 A consequence of the short delivery timescales for both Primary and
Secondary response services is the requirement for sophisticated
dynamic control arrangements involving automatic generator
governor action.
2.28 Generators providing Primary and Secondary response must be

capable of maintaining their output and response characteristics
throughout system disturbances to avoid exacerbating problems on
the transmission system. These dynamic control and fault-ride-
through characteristics are also specified in the Grid Code and
negotiations are underway to extend these requirements to ‘large’
non-synchronous generators connected at both transmission and
distribution voltages.
2.29 A fundamental feature of both Primary and Secondary frequency

response services is the requirement for generators to have
‘headroom’ in place in order to increase output. By implication, the
generators providing such services will, to a lesser or greater extent,
be part-loaded. This will significantly impact upon the attractiveness
of such services to renewable generators and this issue is explored in
greater detail in section 4. Historically, the providers of Primary and
Secondary frequency response services tend to be the flexible, albeit
economically marginal, large-scale generating units.
2.30 High frequency response services are required in the event of high
system frequency scenarios, requiring generators to either reduce
output or to cease generating altogether. High frequency services are
also initiated through automatic generator governor action.
2.31 Payments for mandatory services are made according to Holding

(availability) and Response Energy Payments (delivered energy).
Holding Payments to generators are currently based upon cost
reflective £/MW/h payments. Response Energy Payments, flowing to
and from generators, are remunerated on a £/MWh basis according to
12
a monthly average of system buy and sell prices obtained from the
Balancing Mechanism (BM) under NETA.
2.32 It should be noted that payments for variations in generator output

whilst providing mandatory frequency response services do not
relate to Bids or Offers in the BM unless the TSO requires a generator
to de-load before undertaking frequency sensitive operation.
2.33 There are a number of options currently being discussed, (within the
Balancing Services Standing Group) which could apply market
mechanisms to the scheduling and remuneration of mandatory
frequency response services.
Commercial frequency response services

2.34 Both generators and demand-side participants can provide
commercial frequency response services beyond Grid Code
requirements.
2.35 NGC can contract for commercial frequency response on a firm or

optional basis. Firm arrangements commit the provider to deliver the
service upon NGC’s instruction within time periods defined within the
contract. Optional arrangements are more flexible in that the provider
has more discretion as to whether the service is delivered.
2.36 Again, commercial frequency response services are remunerated

according to Holding (availability) and Response Energy Payments
(delivered energy). The key difference between firm and optional
arrangements being that holding payments are restricted to those
periods that the provider makes the service available.
2.37 Commercial frequency response from demand-side participants are

usually sourced from large flexible industrial customer loads capable
of changing demand characteristics within short timescales. Such
demand-side services can be initiated automatically through the use
of low frequency relays, which automatically shed load in the event of
pre-determined low frequency excursions.
2.38 A more recent development has been the facilitation of smaller

demand-side participation through a single point of contact managed
by an aggregating agent, such as Gaz de France.
2.39 The value of the mandatory and commercial frequency response

markets for 2003/2004 was approximately £45m. Commercial
response services accounted for £26m of this total.
13
Reserve energy markets

2.40 Reserve energy is also required to provide rapid access to generation,
or demand reductions, to accommodate errors in demand
forecasting, to provide contingency arrangements for generation
failures and to restore frequency response capabilities.
2.41 The arrangements for energy reserves are similar to those for
frequency response in that the provision of reserve further ensures
that an energy balance can be achieved on the transmission system
and thus system frequency and stability can be maintained.
2.42 The key differences between frequency response and reserve services
relate to delivery timescales. Typically, reserve services are manually
initiated following TSO instructions and involve longer lead times. A
consequence of these simplified service initiation requirements is a
reduction in the sophistication of the associated control infrastructure
making this service more attractive to smaller players.
2.43 In England and Wales, NGC segregate reserve services into the
following different categorises:
• regulating reserve;
• standing reserve;
• warming and hot standby; and
• fast reserve.
Regulating reserve
2.44 Regulating reserve is a commercial service provided at the discretion
of the generator. Synchronised, part-loaded generators, capable of
changing output according to TSO requirements, provide regulating
reserve services. TSO instructions are usually issued in accordance
with the bid / offer ladders visible in the BM.
2.45 Revenues for regulating reserve are earned in accordance with BM

rules whereby the extent of the instructed deviation from a
generator’s Physical Notification (PN), when multiplied by the
corresponding price, submitted as bids and offers in the BM,
determine the level of payment to the service provider.
2.46 The BM enables NGC to readily schedule the different generators

offering regulating reserve services on a least cost basis.
2.47 Again, the providers of regulating reserve have historically tended to

be the flexible, albeit economically marginal, larger-scale generating
units.
14
Standing reserve
2.48 The key difference between regulating and standing reserve is that
the latter is sourced from non-synchronised generators capable of
starting, synchronising and providing the TSO’s instructed level of
output within 20 minutes.
2.49 In order to provide standing reserve services, the TSO requires the
reliable delivery of at least 3 MW of generation (or corresponding
load reduction) through a single point of contact. This requirement
does not preclude the aggregation of generation (or demand) by an
agent or directly by a customer.
2.50 Other technical requirements for standing reserve providers are that
the instructed level of service must be provided for at least 20
minutes, the recovery period must not be more than 20 hours and the
participant should be capable of providing the service at least 3 time
per week.
2.51 The requirement for standing reserve varies according to the time of
year, the day of the week and time of day. NGC divides the year into
five seasons, for both working and non-working days, and specifies
the periods within each day that standing reserve is required. These
periods are referred to as availability windows3.
2.52 NGC’s contracting for standing reserve services is an annual activity

subject to a competitive tendering process.
2.53 Standing reserve agreements are currently segregated according to

whether (or not) the service provider is a participant in the BM.
• For BM participants, standing reserve is remunerated according to
availability and utilisation. Direct availability payments are made
by NGC to the service provider although utilisation payments are
made via ‘Bid/Offer Acceptances’ (BOAs) in the BM.
• For non-BM participants, standing reserve is again remunerated
according to availability and utilisation although the service
providers can opt to deliver on a committed or a flexible basis. A
committed service provider undertakes to offer service availability
for all the required availability windows in each season and NGC
commits to accept and buy all services offered. A Flexible service
provider is not obliged to offer services in all Availability Windows
and National Grid is not obliged to accept and buy all the services
offered.
3
www.nationalgrid.com/uk/indinfo/balancing/pdfs/Standing_Reserve_Introduction.pdf
15
2.54 Availability payments are remunerated according to capacity and

time on a £/MW/h basis whereas utilisation payments relate to energy
on a £/MWh basis.
2.55 Historically, the market participants tendering to provide standing

reserve services have experienced high tender success rates (>85%).
This applies to BM and non-BM providers (both flexible and
committed).
2.56 For the 2004/2005 financial year, NGC has entered contracts to secure
nearly 2500 MW of standing reserve from both BM & non-BM
participants. Non-BM providers represent 764 MW of this total with
550 MW being provided on a flexible basis. A non-linear relationship
exists between site numbers and the amount of standing reserve
procured as over 40% of the contracted capability is sourced from
only 10% of the sites.
2.57 Whilst the non-BM providers represent approximately 30% of NGC’s

contracted MW capability, the BM providers typically provide the
majority of standing reserve. In terms of utilisation, only 15% of
NGC’s requirements are actually sourced from the non-BM
participants by volume.
2.58 Whilst the larger BM generators (>50 MW) provide the majority of
standing reserve at present, their corresponding site numbers are low
when compared with the smaller participants. It is estimated that over
80% of standing reserve energy is provided by less than less than
15% of the market participants.
2.59 This disparity between site numbers and service utilisation is perhaps
understandable in the context of an electricity system characterised
by large-scale generation. NGC’s requirements for standing reserve
will largely be driven by generation shortfalls caused by equipment
failures and these will often be measured in multiples of 100 MW.
Consequently, scheduling replacement generation from the larger
standing reserve providers appears pragmatic from a network co-
ordination perspective, assuming the prices of standing reserve to be
comparable between BM and non-BM participants.
2.60 In terms of market value, again the standing reserve market is heavily
biased towards the BM segment as illustrated in Table 4.
16
Table 4 − NGC Payments for Standing Reserve in 2003/20044
Balancing Mechanism Non-Balancing Mechanism

Participants Participants
Availability £M Utilisation £M Availability £M Utilisation £M
24 14 4 1.4
2.61 As can be seen, the value of the standing reserve market equated to
approximately £43 million in 2003/2004.
2.62 Operationally, NGC issued an average of approximately 250 standing

reserve instructions per month during 2003/2004 of which
approximately 25% were issued to non-BM providers. It is interesting
to note that the number and proportion of instructions issued to non-
BM participants rose throughout this financial year.
2.63 Scatter plots of prices tendered for standing reserve services for
2004/2005 showed wide variations for both availability and utilisation.
Availability prices ranged between £1.50 - £12.75/MW/h, with an
average price of approximately £3.50/MW/h. Similarly, wide ranges of
utilisation prices were also witnessed of between £20 - £370/MWh
with the largest grouping in the £70 - £150/MWh band.
2.64 The providers of standing reserve range from large to small

generators and demand customers able to offer demand reductions
in response to TSO instructions. The larger generators tend to be BM
participants whereas the smaller generators and demand customers
are usually connected within distribution systems and hence do not
have a direct BM interface.
2.65 Typically the technology types providing standing reserve tend to be

conventional, flexible but marginal steam plant, Open Cycle Gas
Turbines (OCGTs) and reciprocating internal combustion engines.
2.66 For industrial customers with on-site standby generation requiring

regular testing, the standing reserve market can represent an
attractive means of fulfilling this requirement whilst simultaneously
providing the owner with an additional revenue stream. In order to
participate, such customers need to make at least 3 MW of standby
generation available to NGC via a single point of contact providing
remote start capabilities.
4
National Grid Transco Procurement Guidelines Report, May 2004
17
2.67 The TSO advise that one complication of utilising ‘embedded’

standby generation for standing reserve is the possibility that the
same generation could also be contracted to provide Transmission
Network Use of System (TNUoS) avoidance services to suppliers and
customers. In such circumstances, there is an increased likelihood
that such generation could already be operating during the periods of
transmission system stress and so unable to offer additional reserve
services to TSO during critical periods. Such TNUoS avoidance
activities effectively undermine the attractiveness of standing reserve
contracts.
Warming and Hot Standby

2.68 Warming and Hot Standby services are required to ensure that there
is sufficient flexible steam plant available to maintain the desired
levels of system stability. Warming and Hot Standby involves
maintaining a steam generator’s state of readiness to rapidly deviate
from zero output and participate in the BM.
2.69 The value of the Warming and Hot Standby services are significant at
approximately £21 million per annum. Whilst Warming & Hot
Standby contracts position thermal generators to participate in the
Standing Reserve market, it should be noted that any BM bid
acceptances, requiring generator output to deviate from zero, cancel
any associated warming and hot standby payments. In such
situations, generators must recover their costs through the BM.
2.70 Due to the technology types employed and the typical operating
regimes of most forms of distributed generation, it is unlikely that
Warming and Hot Standby activities will be relevant or applicable to
distributed generators.
Fast reserve
2.71 Fast reserve is a fast acting, flexible service from providers capable of
increasing energy output or reducing energy consumption, following
receipt of electronic instructions from NGC.
2.72 The technical parameters for fast reserve are onerous in that power
delivery must start within 2 minutes of instruction at a ramp rate of at
least 25MW/minute, and the reserve energy should be sustainable for
a minimum of 15 minutes. In addition, fast reserve providers must be
able to supply at least 50 MW of reserve power.
2.73 The number of generators capable of meeting these technical

requirements is small, to the extent that the bulk of fast reserve is
consistently provided less than 10 generating units, e.g. large oil fired
generators and pump storage installations.
18
2.74 NGC procure fast reserve through a tender process and bilateral
contracts. In total, during the 2003/2004 financial year, NGC spent
approximately £21 million on fast reserve services.
2.75 The technical requirements of fast reserve largely preclude any

participation from distributed generation.
Reactive power
2.76 NGC is required to manage the voltage on the transmission system
within technical limits to ensure quality of supply. Due to the
impedance characteristics of the transmission system, the ability to
decouple and vary reactive power independently of active power,
provides a useful means of voltage regulation for the TSO.
2.77 Consequently NGC must ensure that sufficient variable reactive

power resources are available on a localised basis to meet the needs
of the system, including contingencies.
2.78 NGC procures reactive power through both market-based tender

processes and the default arrangements outlined in the Grid Code.
The Grid Code defines obligatory reactive power requirements for all
generators rated at over 100 MW and default arrangements procure
reactive power accordingly. The default arrangements remunerate
generators for reactive power according to utilisation on a £/MVArh
basis.
2.79 Obligatory reactive power services are also procured through the
market-based tender process, which enable generators to influence
the attractiveness of their reactive power capabilities. Within the
tender process, there is also scope for generators to offer enhanced
reactive power services, which go beyond the minimum
requirements of the Grid Code although generators seldom exercise
this option. Indeed during the last 5 tender rounds, there have been
no offers from generators to provide enhanced reactive services.
2.80 Generator remuneration for the market-based reactive power differs

from the default arrangements in that both availability (£/MVAr/h) and
utilisation (£/MVArh) payments are made.
2.81 In recent years, the value of the transmission level obligatory reactive
power markets has been evenly split between the market-based
approach and the default arrangements. In 2003/2004 NGC spent
£16.9 million on the market based procurement of reactive power and
£16.4 million on the default arrangements.
2.82 One issue influencing the size and value of the transmission-level
reactive power market is the use of NGC’s Static Voltage
19
Compensation (SVC) equipment. The installation of such equipment

is treated as capital expenditure and associated revenues are
recovered through TNUoS charges rather than featuring within the
system operator incentive arrangements. Through the installation
and utilisation of SVC equipment, NGC can meet local reactive power
requirements and thereby avoid the requirement to procure services
from generators.
2.83 Whilst theoretically, the market-based and default reactive power

arrangements are open to both BM and non-BM participants, all
tenders received in recent years have originated from BM participants
only. Therefore, the current commercial arrangements for TSO
reactive power can accommodate large-scale distributed generators.
Indeed, the Grid Code already ensures that such generators are
equipped with the necessary infrastructure to participate.
2.84 It is conceivable that TSO reactive power could be sourced from

distributed generators, especially those connected at 132 kV, which
would effectively be used for transmission system voltage regulation.
Reactive power sourced at lower distribution connection voltages will
effectively reduce reactive power from transmission-connected
generation.
Fast start
2.85 Fast start is the special service provided by OCGT plant to start
rapidly from a no-load condition and to deliver full rated power
automatically within 5-7 minutes of a TSO instruction. Fast Start
services are usually initiated by fully remote control infrastructure.
2.86 In recent years the requirements for fast start services have been
consistent and NGC is not currently seeking any additional fast start
capacity.
2.87 Fast start providers are remunerated according to capability

payments (£/h) and NGC typically spends approximately £3 million
per annum on such services.
2.88 The low materiality and the limited market potential for additional
fast start services is unlikely to be attractive to distributed generators.
Black start
2.89 In the event that all or part of the transmission system becomes de-
energised, NGC must have the capability to re-energise the
transmission network to restore supplies. The process of restoring
the power system is known as black start.
20
2.90 The providers of black start services tend to be the operators of OCGT
plant located at large conventional thermal generation sites. In a
black start scenario, the onsite OCGT plant is utilised in an islanded
mode to re-power main generator essential services, which then re-
energise the transmission system, i.e. the OCGT plant does not re-
energise the transmission system directly.
2.91 There are currently 18 power stations maintaining black start

capabilities although NGC is not currently seeking additional
providers for this service. Availability payments form the basis of
black start remuneration with NGC typically spending approximately
£10 million pounds per annum on such services.
2.92 The low materiality of TSO black start services and the distant nature
of much distributed generation to the transmission system (coupled
with relatively low electrical ratings) mean that the TSO unlikely to
seek black start services from distributed generation.
21
22
3. THE SCOPE FOR NEW ANCILLARY SERVICES AT THE

DISTRIBUTION LEVEL
3.1 In line with the anticipated increase in distributed generation, both in

terms of the number of generators and energy output, it appears
reasonable to assume that the scope for existing ancillary services
from distributed generators could also increase.
3.2 Similarly, moving from an era with relatively few distributed

generators to one with significantly higher densities could also
increase the opportunities for new ancillary services to be provided to
DNOs. The variety of generator sizes and technologies could present
opportunities for distributors to rethink their approach to certain
aspects of network management.
Passive and Active distribution network management

3.3 Historically DNOs have planned and managed their distribution
networks on a passive basis. These passively managed networks are
usually planned to accommodate single direction power flows, from
the transmission system to demand customers, over a range of
different supply voltages.
3.4 The primary assets (transformers, switchgear, overhead lines and

cables) on passive networks are specified to accommodate all
anticipated operating conditions, ensuring the technical parameters
of supply (e.g. voltage, thermal rating and fault level) are maintained
within statutory and safe tolerances, without the requirement for
proactive network monitoring and reconfiguration.
3.5 Although the initial capital expenditure requirements for passive

approaches can be high, the benefits include robust distribution
systems in terms of fault level and uncomplicated, hence low cost,
network operation.
3.6 In the event that network usage deviates from the initial planning
assumptions, passive networks can prove inflexible to new operating
regimes, often requiring significant redesigns and upgrades.
3.7 As much of the envisaged renewable and CHP generation will require
connection to distribution systems, there is a concern that the costs
of reconfiguration and reinforcement of passive networks could
present a barrier to the deployment of distributed generation,
especially in situations where power flows are reversed.
23
3.8 Consequently, many DNOs are pursing increasingly active

approaches to network management to maximise the amounts of
generation that can be connected to their systems without the need
for costly asset replacements. Active approaches to network
management typically require real-time network monitoring with pro-
active (automated) network reconfiguration arrangements and
sophisticated voltage control.
Planning Standards and Network Security

3.9 Prior to privatisation, the Electricity Council was responsible for
setting and maintaining a range of common technical and economic
guidance documents, including Engineering Recommendation P2/5.
ER P2/5 was intended to be used as a guide to system planning and
design. The fundamental principle outlined within ER P2/5 is that
there should be sufficient connections and capacity in the system
such that, in outage situations, customers continue to receive a
supply or have it restored within an acceptable time period.
3.10 Historically, the structure of electricity distribution networks was

driven by an overall design philosophy developed to support large-
scale generation technologies. The level of security in distribution
networks is defined in terms of the time taken to restore power
supplies following a predefined set of outages. Consistent with this
concept, security levels on distribution systems are graded according
to the total amount of power that can be lost. In general, networks
have been specified according to a principle that the greater the
amount of power which can be lost, the shorter the recommended
restoration time. This philosophy is formalised in the ER P2/5.
3.11 ER P2/5 contains two important tables. Table 1 of ER P2/5 states the
minimum demand that must be met after certain specified circuit
outages. This level is dependent on the Group Demand or Class of
Supply. The amount of demand that can be supplied depends upon
the available circuit capacities and critically, the contributions from
local distributed generators. Table 2 in ER P2/5 specifies the
contribution that can be attributed to generation connected to a
particular load group.
3.12 Unfortunately, as ER P2/5 was developed in the era of centralised

generation planning, it does not currently recognise many of the
modern forms of distributed generation currently being connected
into distribution networks in the pursuit of Government climate
change targets. Consequently, it is not possible to recognise the
security contributions of many new forms of distributed generation. It
is anticipated that ER P2/5 will be superseded by ER P2/6 in the near
future which will facilitate the inclusion of security contributions from
distributed generation during network planning.
24
3.13 It should be noted that ER P2/5 is a design standard as opposed to an

operational standard. The significance of this distinction is important.
A design standard simply implies that, if the design conforms to a
specified set of conditions, the designer will have complied with the
planning requirement. This does not guarantee that conditions will
not arise during network operation which could result in loss of
supplies, i.e. planning standards cannot guarantee that operational
standards can be satisfied at all times.
3.14 Although situations may arise in which the required level of network
security is insufficient, this does not automatically imply that the
design standard has been violated. Security shortfalls may occur in
situations where insufficient generation is available during a
particular network outage, e.g. generator output was less than
assumed during the design phase. Similarly, security shortfalls could
also be attributed to insufficient network capacity being available due
to unforeseen circuit outages. It therefore follows that whilst a design
standard can minimise operational standard violations, it cannot
eliminate them.
3.15 The primary purpose of ER P2/5 is to provide planning guidance and

a minimum set of network security requirements. ER P2/5 states that
the capacity of a network to meet a group demand should be
assessed as the aggregate of:
• the appropriate cyclic rating of the remaining transmission or
distribution circuits which normally supply a group demand,
following outage of the most critical circuit(s);
• PLUS any transfer capacity which can be made available from
alternative sources; and
• PLUS, for demand groups containing generation, the effective
contribution of the generation to network capacity as specified in
updated Table 2 of ER P2/5.
3.16 ER P2/5 does not differentiate between different sources of network

security, e.g. distribution circuits and generation sources. Indeed, ER
P2/5 facilitates direct comparisons between these different
approaches to network security. ER P2/5 enables network planners to
quickly evaluate whether networks comply with the minimum
planning standards.
3.17 In an era of significantly increased levels of distributed generation,

with a suitably updated planning standard recognising a wide range
of distributed generation technologies, there will be significant
opportunities for generators to provide security contributions to
network planners.
25
Network Operational Standards

3.18 Since privatisation, a number of operational standards have been
developed by successive regulatory authorities, which safeguard
supply quality. These operational standards include the Guaranteed
Standards and Overall Standards of Performance. Guaranteed
Standards set service levels that must be met in individual cases. If
the DNO fails to provide the level of service specified, it must make a
penalty payment to the customer affected upon request.
3.19 At present, the main security related Guaranteed Standard (GS)

focuses upon supply restoration times. To ensure that inconvenience
to customers is kept to a minimum, this GS requires DNOs to restore
supplies within 18 hours of becoming aware of a fault on their
system. Additional performance measures have been developed as
part of the Information and Incentives Project (IIP).
3.20 Overall Standards (OS) address other aspects of service quality where
it is not appropriate to give individual guarantees, but where
customers have a right to expect predetermined minimum levels of
service from DNOs. No penalty payments are made if these levels are
not achieved and it has been proposed that OS should be removed or
replaced.
3.21 Whilst planning standards such as ER P2/5 must be satisfied at the

design stage, the ability to satisfy the relevant GS and OS only
becomes apparent after system operation has commenced, when
sufficient data has become available for analysis.
3.22 There has been a shift of focus in the regulation of distribution

networks, from asset based to performance-oriented regulation. The
Information and Incentive Project (IIP) was established to strengthen
incentives and increase the quality of outputs. As the IIP is based on
financial penalties and rewards, the overall distribution revenue is a
function not only of the operating and capital costs incurred by the
network owner in providing the service, but also depends on the
quality of service to the customer. The indices used to measure
supply quality are the number of interruptions per 100 connected
customers per year (CIs), the number of customer minutes lost per
connected customer per year (CMLs) and details of the worst served
customers.
Localised network support through generator voltage and power flow

management
3.23 Historically, voltage regulation on passively managed distribution
networks has been achieved through the robust specification of
primary network infrastructure, on-line transformer tap changing
26
equipment and fixed tap distribution transformers. Also DNOs have

ensured that network components are operated within thermal limits.
3.24 The robust specification of passive networks effectively minimises

voltage variations across a wide range of operating conditions, e.g.
from no load to full load. Also, as most passive networks have only
been required to accommodate power flows in a single direction, the
primary concern of DNOs has been to manage voltage drops. One
consequence of managing voltage drops and thermal ratings has
been that many voltage control arrangements have asymmetric
tapping ranges.
3.25 The magnitude of voltage variations can also depend upon localised
network characteristics. For example, voltage variations on highly
interconnected, cable based urban networks are typically small
whereas the corresponding variations on rural, radial Overhead Line
(OHL) circuits can be much more significant.
3.26 Maintaining voltages and thermal ratings within tolerances represent

absolute technical obligations for DNOs. The implications to a DNO of
voltages being outside statutory limits are severe as damage to
customer equipment can occur. Similarly, prolonged operation of
equipment beyond thermal ratings can lead to component failures on
DNO networks. Consequently, short and long-term derogations are
not appropriate for such out-of-tolerance conditions. If voltages are
found to be outside statutory limits, DNOs must remedy such
situations immediately or interrupt supplies to customers.
3.27 The Electricity Safety, Quality and Continuity Regulations5 of 2002

state that, unless otherwise agreed in writing, the permitted
variations in voltages on distribution networks are as follows:
• In the case of a low voltage supply, a variation not exceeding 10
per cent above or 6 per cent below the declared voltage at the
declared frequency.
• In the case of a high voltage supply operating at a voltage below
132,000 volts, a variation not exceeding 6 per cent above or below
the declared voltage at the declared frequency.
• In the case of a high voltage supply operating at a voltage of
132,000 volts or above, a variation not exceeding 10 per cent
above or below the declared voltage at the declared frequency.
3.28 The trend towards increasingly actively managed distribution

networks in conjunction with increased penetrations of distributed
5
The Electricity Safety, Quality and Continuity Regulations 2002
27
generation could give rise to wider ranges of power flows (including

reversals) and hence wider voltage variations. Such variations could
be outside the operating ranges of existing voltage regulating
equipment, thus requiring DNOs to evaluate revised voltage control
arrangements.
3.29 The network areas where DNOs will have the greatest exposure to
fluctuating supply voltages caused by distributed generation is on
rural 11 kV circuits. This can be attributed to lower fault levels, long
OHL circuits and limited voltage regulation infrastructure.
3.30 In an era of significantly higher levels of distributed generation, there

will be increased scope for distribution network voltages to be
controlled through the regulation of generator outputs. Such
approaches would be similar to the technique adopted for voltage
control on transmission networks, although DNOs would probably
need to regulate both active and reactive power flows in order to
achieve the desired voltage changes.
3.31 Another opportunity for DNOs to utilise generator power flow

management will be in network outage situations where circuit
overloads can be mitigated through generator output in order that
supplies to customers can be maintained.
3.32 Where generation based solutions can be adopted for voltage control
or overload avoidance, the benefits to DNOs could be measured in
terms of avoided network reinforcement costs. Similarly, such
techniques could also benefit generators in terms of reduced costs of
connection.
3.33 One possible concern regarding the use of generation based

solutions for distribution network voltage control relates to the
availability and reliability of generation equipment. Difficulties would
arise in a scenario where a DNO requires a specific level of output
although the generator is unavailable. As voltage represents an
absolute technical requirement in terms of supply quality, DNOs
would be incentivised to seek contingency arrangements should a
particular generator fail, i.e. the attractiveness of such voltage control
schemes will increase in line with the number of generators in a
particular network locality.
3.34 Undoubtedly, those generators with the highest availabilities, the

broadest and most flexible output ranges for both active and reactive
power will represent the most attractive service providers of voltage
management network overload services to DNOs in the future.
3.35 In special circumstances DG could occasionally provide short

duration ancillary services to support networks in situations where
28
maintenance, refurbishment or replacement activities impose

network constraints. Some of these services are already provided by
transportable standby generation, typically mobile diesel generators.
This form of services is not however considered to be of primary
concern of this project and is hence not elaborated further.
Common characteristics and key differences between

distribution and transmission sourced ancillary services
3.36 Having reviewed the ancillary services provided at a transmission
level and the new services, which could be provided at a distribution
level, it is worth contrasting the similarities and differences between
these potential new markets for distributed generation.
3.37 In terms of market structure, the transmission level arrangements

benefit from a single party being responsible for co-ordinating
services on a national basis. This ensures that localised variations are
limited regarding commercial arrangements and technical standards,
thus enabling generators to contract on a consistent basis.
3.38 The development of mandatory grid codes at the transmission level

also serves to clarify the responsibilities and obligations of different
parties with respect to service provision. Whilst Grid Code
requirements are prescriptive, they ensure the provision of
infrastructure, which facilitates the provision of some ancillary
services. Whilst the Distribution Code is a national document, it does
not yet contain any detailed requirements regarding the provision of
distribution level ancillary services.
3.39 Obviously, with 14 DNOs managed by 7 different companies, there is

scope for divergence regarding the service definitions and
requirements relevant to distributed generators. From a commercial
perspective, this could represent a sub-optimal outcome for
distributed generators operating nationally, as a variety of different
contractual structures may need to be accommodated. Such
divergence could impose increased costs on generators, and to the
industry as a whole, whilst simultaneously undermining
transparency. A downside of too much standardisation could be
reduced incentives to develop innovative service offerings.
3.40 The procurement of frequency response and reserve by the TSO is

simplified by the non-locational nature of these services, which
broadens the choice of service providers and facilitates the
development of market based commercial arrangements. By contrast,
TSO reactive power services, distribution network security,
distribution voltage support and quality of supply related services are
29
all highly locational in nature which impacts upon potential

commercial arrangements as discussed in Section 6.
3.41 The sizes and types of generators providing services to the TSO differ
considerably from those predicted for distributed generation.
Typically, transmission connected generation is rated in hundreds of
megawatts, based upon well-proven Rankin, combined cycle or
hydro-electric technology and is connected to either 275 or 400 kV
networks (132 kV in Scotland). The TSO arrangements are further
simplified by the widespread usage of synchronous electrical
generators. In terms of operational interfaces, the TSO needs only to
communicate with a maximum of approximately 400 generators, the
vast majority of which have a 24 hour manned presence.
3.42 By comparison, distributed generation employs many different

technologies and fuels utilising a variety of synchronous and non-
synchronous electrical generators. As the size variations between the
different forms of distributed generation are considerable (<10 kW &
>100 MW), this also results in a wider range of connection voltages
(0.4 kV – 132 kV). The technical capabilities of the different types of
distributed generation also vary considerably so generic standards
for service provision would be more difficult to develop.
3.43 Whilst present numbers of distributed generators are relatively low,

significant increases will be required to achieve Government targets
for renewable and CHP generation (potentially many thousand
generators per DNO). Most distributed generators do not have a 24
hour manned presence and the associated monitoring,
communication and control infrastructure is often basic. Features
such as remote start-up, automatic voltage regulation, fault ride
through, parallel running, governor control, islanded operation and
real time metering have historically not been features of distributed
generation design although many of these are key to the provision of
ancillary services.
3.44 In future, the situation regarding the technical requirements

applicable to large distributed generators may change as the TSO
seeks to place similar obligations on these distributed generators as
already apply to transmission connected generation.
3.45 The expectation that distribution networks will become increasing

actively managed will create technical and operational challenges for
DNOs more accustomed to managing passive networks. Such
considerations do not apply to the TSO as the transmission system
has evolved into an active network and is resourced and structured
accordingly.
30
31
4. EXPLORATION OF ANCILLARY SERVICES FROM

DISTRIBUTED GENERATION
4.1 This section explores the features of the most significant ancillary
services, which may be provided by the different forms of distributed
generation.
4.2 The services for which potential arrangements have been explored
are:
• DNO Quality of Supply Services; and
• DNO Voltage and Power Flow Management Services.
4.3 The more specialist TSO services outlined in section 2, including

Warming & Hot Standby, Fast Reserve, Fast Start and Black Start,
have been excluded due to low materiality, limited market potential
and/or inapplicability to distributed generation.
Features of the ancillary services required by service recipients

4.4 When assessing the potential for each of the selected ancillary
services to be provided by distributed generators, it is important to
consider the following generic requirements of each service:
• Running status;
• Start-up times;
• Availability;
• Intermittency;
• Scale of opportunity; and
• Valuation methodology.
TSO Frequency Response Services

4.5 As already discussed, frequency is regulated nationally, on a real-
time basis and within tight tolerances by NGC as TSO. Frequency
response can be provided by large-scale generators (predominantly
transmission connected) and demand-side participants.
32
4.6 An essential feature of frequency response services from generators

is the requirement for part-load operation, which ensures that rapid
changes (especially increases) in generator output are achievable.
The requirement to regulate generator outputs within short
timescales necessitates sophisticated control infrastructure. This
control infrastructure is a mandatory Grid Code requirement for all
generators rated at more than 100 MW, including distributed
generators.
4.7 Whilst frequency response services from distributed generation are

comparatively rare, there are a limited number of highly flexible
CCGT generators capable of providing these services by regulating
the output of the gas turbine. The size of these modules is typically
300 – 400 MW, which necessitates connection to 132 kV networks.
4.8 Some commercial frequency response services are also procured

from distribution-connected customers. Such services tend to be
facilitated through the use of Low Frequency relays, which can be
arranged to automatically trip flexible industrial demand, according
to predefined frequency excursions, within very short timescales.
4.9 One possibility for increased DG participation in future frequency

response markets could be to utilise similar low frequency relay
technology to initiate increased generator output rather than demand
reduction.
4.10 Whilst the delivery of frequency response services from contracted

generators is important to NGC, the national nature of the service
coupled with many potential service providers, means the TSO can
normally secure contingency arrangements from a variety of
generators at short notice. Repeated service non-delivery could either
place generators in breach of Grid Code obligations or bilateral
contractual arrangements. NGC reserve the right to interrupt
payments to service providers in the event of consistent poor service
delivery. NGC also has access to sophisticated monitoring
infrastructure to confirm services have been provided and also
initiates tests to confirm providers are maintaining their service
capability.
Impact of intermittent generation on frequency control

4.11 With the anticipated rise in the levels of intermittent renewable
energy (e.g. wind), the GB power system will potentially be required
to accommodate larger imbalances between generation and demand,
thus increasing the demand for balancing services. This will
33
inevitably increase the volume of continuous frequency response

services required6.
Impact of wind generation on the need for continuous services

4.12 The effect of rapid variations in the output of individual wind
generators will be relatively minor, as the level of correlation between
the fluctuating outputs of individual wind farms will be very small in
the time horizons considered (several seconds to a minute).
4.13 However, as the volume of intermittent generation increases, the

error in the forecast of its aggregate output will also increase. This
will result in an overall increase in the forecast error of the
demand/generation balance, which will place an additional duty on
the remaining generating plant to provide additional capabilities to
contain system frequency within allowable limits. Estimates of
additional continuous service requirements with respect to wind
power penetration are as presented in Table 5. These have been
derived according to the same methodology as adopted in SCAR7.
Table 5 − Estimated additional requirements for continuous frequency

response8
Installed Wind Capacity 0 5 10 15 20

(GW)
Additional continuous 0 45 160 320 500

response requirement
(MW)
Estimates of future value of continuous response services

4.14 Assuming that all generating plant is Grid Code compliant and hence
adequately equipped to provide continuous frequency regulation, the
direct costs of its provision are driven by fuel cost, the efficiency of
plant when operated at part load and the O&M cost arising from
6
The requirement for occasional response services could also expand if intermittent
generators are derogated from compliance with Grid Code requirements regarding fault-
ride-through capabilities.
7
ILEX/UMIST, System Costs of Additional Renewables, a report to the DTI, October
2002
8
Estimates derived as part of this project
34
additional wear and tear. Thermal units operate less efficiently when
part-loaded, with an average efficiency loss of about 20%.
4.15 Assuming an average energy cost of £20/MWh, estimates for the

additional fuel costs associated with holding this dynamic response
are presented in Table 6. An additional assumption was that the
delivery of 1 MW of dynamic response would require generators to
be de-loaded by approximately 1.5 MW.
4.16 Estimates of the value of additional continuous service requirements

are also made on the basis of present expenditure associated with the
service. The current value of the market associated with frequency
control is estimated at about £50m per year. Making the simplifying
assumption that the increased volume of service would be provided
at the current average price, the additional value of the services with
respect to various levels of penetration of wind generation is very
close to the cost based figures.
35
Table 6 − Cost and market-extrapolation based estimates of the value

additional continuous response9
Installed wind capacity 0 5 10 15 20

(GW)
Cost based estimate 0 3 10 21 33

(£M/annum)
Market-extrapolation 0 3 12 24 39
based estimates
(£M/annum)
Impact of wind generation on occasional response services

4.17 The amount of occasional frequency response required is primarily
driven by the size of the largest in-feed to the system (1320 MW,
Sizewell B). Another determining factor is system inertia, which
establishes the initial rate of change of frequency following a
disturbance, e.g. following a major loss of generation. The
requirement for fast acting response during high loading conditions
is therefore less than that needed for light loading situations.
However, no requirements are being imposed regarding minimum
levels of inertia for individual plant.
4.18 Wind generation is at present based on induction machine

technology. This is different to conventional synchronous generation
and, at present, is not able to readily provide similar levels of support
to system operation and stability10. Current Grid Code proposals from
the GB transmission system operators will require new wind plant to
provide system support services.
4.19 The need for additional occasional response will be driven by the
degree of robustness of wind generation to withstand disturbances,
their exact location on the system, demand and wind conditions and
the ability of the control systems of wind generators to make their
inertia available to the system. Should the new Grid Code proposals
regarding fault-ride-through be adopted, it is unlikely that there will
9
Estimates derived as part of this project.
10
It is a Grid Code requirement that generation will operate in a stable manner during and
after faults on the transmission network (fault-ride-through capability).
36
be a significant increase in the need for occasional frequency

response.
4.20 The requirement for continuous frequency regulation will increase

from the current average level of 600MW with wind penetration due
to wind forecasting errors. The requirement for occasional frequency
response could increase from the current level of 1320MW, if some
wind generation receives derogations from Grid Code requirements
regarding fault-ride-through capability.
Opportunities for DG
4.21 As discussed above, frequency regulation services are currently
provided by large generators equipped with appropriate governing
systems and customers capable of rapid demand reductions
triggered by low frequency relays. The system operator instructs
individual generators to operate in frequency sensitive mode. If a
generator, operating at full load, is instructed to run in frequency
sensitive mode, the system operator would also need to position the
unit for the delivery of the response service by accepting
corresponding bids in BM in order to de-load the generator.
4.22 DG could in principle contribute to frequency regulation services,

although in order to provide low frequency services, DG plant would
be required to operate in frequency sensitive mode and also run part-
loaded. DG technologies that could potentially provide continuous
service include CCGT, biomass, CHP, doubly fed induction wind
generators (if appropriate modifications could be made to control
algorithms and infrastructure). The capabilities of each technology
are further discussed in section 5.
4.23 From our analysis we conclude it is unlikely that these services would
be supplied regularly by renewable generation, as the opportunity
cost of operating part-loaded would be relatively high due to the
requirement to recover lost ROC revenue.
4.24 It is conceivable that in low load situations, wind farm outputs could
be required and compensated (via the BM), to de-load for system
stability purposes. In such situations, wind farms could then provide
low frequency regulating services.
4.25 Similarly, in addition to such low frequency response services,

renewable generation could provide high frequency response
services. However, the value of such services is relatively low and is
unlikely to be sufficiently attractive to renewable generation.
4.26 In future, assuming appropriate modifications to wind turbine control

systems, doubly fed induction generators could also contribute
37
inertia effects which would reduce the rate of frequency fall following
losses of generation. Although there are benefits from providing
inertia, the mechanisms for rewarding generators are not yet
established.
4.27 It is also important to recognise that frequency response services are

currently provided by a relatively small number of generators.
Clearly, if the number of participants increases significantly, the
complexity and cost of operation and monitoring of this market will
increase similarly therefore devaluing the disaggregated service.
4.28 The most straightforward means of expanding frequency response

markets to include greater numbers of distributed generators will be
to extend the existing arrangements for commercial frequency
response services. However, such opportunities for distributed
generation may be constrained by two considerations:
• infrastructure requirements; and
• size of generator.
4.29 The infrastructure required by the TSO for generators to provide low
frequency response services are mandated for ‘large’ generators by
the Grid Code. Historically, distributed generation has not been fitted
with such infrastructure although retrofit might be possible in some
cases. The rationale to retrofit such infrastructure to distributed
generation would depend on the cost of the equipment and the
likelihood of the service being attractive to the TSO.
4.30 From a TSO perspective, generator size is important to ensure the

stability of the system can be maintained. Operationally, NGC will
seek meaningful response contributions relative to the overall size of
the transmission system. The individual contributions of small
generators may not be particularly useful to the TSO unless such
contributions could be aggregated through a single point of contact,
thereby increasing the scale of response whilst simultaneously
minimising operational complexity.
4.31 The combination of these infrastructure and generator size

considerations imply that frequency response services will be
attractive to the larger, non-renewable (yet still synchronised)
generators unless an innovative, low-cost means of scheduling
automated mass responses from highly flexible small plant can be
developed. If such a scenario does arise, it is likely that the scope for
aggregation services will increase.
4.32 Although mandatory frequency response capabilities may become a

technical requirement for large distribution connected wind farms,
38
thereby ‘resolving’ any infrastructure constraints, the extent to which

the TSO will utilise such capabilities is unclear.
TSO regulating and standing reserve markets

4.33 As outlined in section 2, reserve services are managed centrally by
the TSO to balance electricity generation and demand nationally.
Reserve is sourced from both synchronised and standing providers.
4.34 The monitoring and control requirements for the provision of reserve
services are less onerous than those required for frequency response
owing to the longer timescales for service delivery. The delivery of
reserve is initiated by TSO instruction rather than through continuous
dynamic control loops.
4.35 The majority of synchronised regulating reserve providers are

generators with individual Balancing Mechanism Units (BMUs),
which are readily able to participate in the NETA balancing
mechanism. Similar to low frequency response services, a key
requirement for regulating reserve providers is to operate in a part-
loaded mode, which can result in thermal efficiency losses of about
20%.
4.36 Standing reserve is currently provided by a wide range of different

generating technologies connected at both transmission and
distribution voltages. Providers of standing reserve services do not
necessarily require a dedicated BMU, which facilitates participation
by smaller distributed generators either through a supplier BMU or
contracts directly between the TSO and the provider.
4.37 Whilst NGC requires a minimum contribution of 3 MW for standing

reserve services, participation by even smaller distributed generators
is also facilitated through aggregation. As long as sufficient
generation can be aggregated through a single point of contact to
exceed the 3 MW threshold, multiple small distributed generators can
contribute reserve energy. Indeed the TSO can accommodate
aggregation from either 3rd parties (e.g. suppliers, dedicated
aggregators or DNOs) or customers directly.
4.38 The allocation of reserve between synchronised and standing plant is

a trade-off between the cost of efficiency losses of part-loaded
synchronised plant (plant with relatively low marginal costs but
running at all times) and the cost of operating less efficient standing
plant (plant with relatively high marginal cost but running only
occasionally).
39
4.39 Regulating reserve services from distributed generation are more

common than frequency response services with a number of CCGT
generators participating. As mentioned previously, the size of such
plant necessitates connection to 132 kV networks. It is envisaged that
large distributed providers will continue to participate in both the
regulating and standing reserve markets.
4.40 Similar to frequency response, although the reliable delivery of

reserve services from generators is important to the TSO, the national
nature of such services coupled with a choice of service providers,
means the TSO can usually secure sufficient reserve from other
providers in the event of the failure of one generator. Again, repeated
non-delivery could place generators in breach of contractual
obligations and NGC accordingly reserve the right to interrupt
payments to unreliable service providers. NGC also has access to
sophisticated monitoring infrastructure to confirm services have been
provided and also initiates tests to confirm providers are maintaining
their service capability.
4.41 When assessing the future role of distributed generation with respect
to the provision of reserve services, it is important to consider how
TSO requirements for such services will change in the future.
4.42 A critical factor influencing the size of the reserve markets in future
will be the level and penetration of intermittent generation. The
magnitude of output fluctuations from intermittent sources will
depend, not only on the level of penetration, but also upon the time
horizon considered. Statistical analysis of wind output fluctuations
over various time horizons can be performed to characterise the
uncertainty of wind output.
4.43 When analysing the need for additional reserve (considering all forms
of reserve together), a time horizon of up to 3 - 4 hours is typically
considered. This is driven by the assumption that time horizons of
more than 3 - 4 hours will involve the start-up of additional units,
which should be within the dynamic capabilities of conventional gas
fired technologies.
4.44 In order to manage uncertainty in the present system over time

horizons of 3 - 4 hours, the TSO holds approximately 2,400MW of
various types of reserve11. By quantifying the wind forecasting error,
as a function of wind power installed (assuming no correlation
between the two), total reserve requirements can be estimated.
11
SCAR, ILEX/UMIST, October 2002
40
4.45 Table 7 presents the amount of reserve required to accommodate

changes in output at various levels of wind penetration, using a four-
hour time horizon.
Table 7 − Additional reserve required for various levels of wind

penetration12
Installed wind 0 5 10 15 20
capacity (GW)
Additional reserve 0 500 1600 3000 4400

requirement (MW)
4.46 The penetration of wind power will increase overall imbalances in the
market as the forecast errors increase. Given one hour Gate Closure,
the volume of additional BM offers for various penetrations of wind
generation are given in Table 8.
Table 8 − Estimates of net volume of additional bid offer acceptances13
capacity (GW)
Estimated volume 0 125 375 750 1175

of extra BM offers
(GWh)
Estimated value of additional reserve

4.47 Estimates of the value associated with future additional reserve
requirements can be made on the basis of present levels of
expenditure on reserve services. The present annual costs of these
two forms of reserve are in the order of £60 million per annum14.
Table 9 presents estimates for the additional market value of reserve
assuming that these are procured at the same price as the current
average market price.
12
13
14
Procurement Guidelines Report for 1 May 2002 to 30 April 2003, National Grid, 30 May
2003.
41
Table 9 − Market value of additional reserve
capacity (GW)
Additional value of 0 11 37 67 101

reserve
(£M/annum)
4.48 Furthermore, it is expected that flexible plant will benefit from the
increased value in the BM or short-term power exchanges, caused by
the fluctuations in wind output creating the imbalance volumes
illustrated in Table .
Opportunities for DG
4.49 DG could in principle contribute to reserve services. A number of DG
technologies could provide synchronised reserve including part-
loaded CCGTs, biomass and wind generation, while standing reserve
could be provided by diesel engines, OCGTs, and in some
circumstances CHP including micro schemes (provided that suitable
communication and control infrastructure were available). Indeed, if
CHP schemes were to provide standing reserve, ‘heat-dump’ facilities
may also be required. The capabilities of each technology are further
discussed in section 5.
4.50 It is however unlikely that synchronised reserve would be supplied

regularly by renewable generation, as the compensation from
providing the services would need to recover the loss in ROC and
energy revenues due to part-load operation. It is therefore unlikely
that DG technologies relevant to achieving Government targets
would be able to effectively compete in this market.
4.51 If in infrequent situations with excess wind power being available

during low load conditions, wind generation may need to be de-
loaded, and the wind farms might then provide reserve services as
for low frequency response services.
4.52 A number of distribution connected industrial and commercial

customers have installed standby generation to increase reliability of
supplies to high-value loads. Some of this plant is already
participating in the TSO’s standing reserve market.
4.53 The most straightforward means of expanding reserve markets to

include greater numbers of distributed generators will be to extend
42
the TSO’s existing arrangements for reserve and to encourage

suppliers and 3rd parties to refine and develop aggregation services.
4.54 NGC’s Seven Year Statement (SYS) presents useful information

regarding the providers of TSO services. It contains indicative
estimates of future capacity margins up to 2010/2011 against a
number of backgrounds. For margins calculated using customer-
based demands, the ‘SYS background’ shows margins in excess of
20% for all years, whilst margins presented the ‘Existing and Under
Construction’ background indicate significantly lower values in later
years (12.8% in 2009 and 9.5% in 2010)15. In the latter case, capacity
margins would be significantly lower than the 24% considered as
secure by the CEGB.
4.55 If generation margins reduce significantly below 20% in the short to

medium term, and the volume of ancillary services offered by
conventional generation reduce, this may present an opportunities
for DG to provide increased amounts of TSO ancillary services,
potentially at higher prices. More work will however be required to
quantify the impact of the potential reduction in central generation
margins and the related opportunities that may emerge for DG.
TSO Reactive Power

4.56 In any ac power system the voltage and current may not be in phase
and hence reactive power will flow. Reactive power may be
considered as being absorbed by inductive components (e.g.
transformers, distribution overhead lines, induction motors) and
generated by over-excited synchronous machines and capacitors.
4.57 Transporting significant amounts of reactive power over

predominantly inductive circuits will cause relatively large voltage
drops. Therefore, given the electrical characteristics of transmission
circuits, and in order to keep voltage fluctuation within allowable
limits, reactive power demanded by loads will need to be supplied
from local sources.
4.58 Management of reactive power flows is critical to maintain adequate

voltage profiles on the system. The main sources of regulating
reactive power are large conventional generators, in addition to
compensation devices that include SVCs and switched reactors and
capacitors.
15
It should be noted however that the generation backgrounds take no account of future
plant closures, over and above the Nuclear Magnox sites
43
4.59 Management of network voltage profile is complicated by the

transmission system consuming or generating significant amounts of
reactive power, depending on circuit parameters. Given that voltage
variations in transmission system are relatively small (say ±10%),
reactive power generated by a transmission line, due to shunt
capacitance effect, is almost constant. However, the amount of
reactive power that the line will absorb, due to series reactance, will
vary significantly with loading condition. Hence, during light loading
condition long transmission lines may generate significant amount of
reactive power. In order to ensure that the network voltages do not
exceed the allowable limit, this (unwanted) reactive power will need
to be absorbed by generators and compensators. Conversely, during
heavy loading conditions, transmission lines will absorb reactive
power that would need to be supplied by (local) generators and
compensation facilities to ensure that voltages across the network do
not fall below allowable limit.
4.60 Furthermore, under normal operating conditions, generators and

other reactive compensation devices are not normally run at their
maximum capability. There will be a need for a margin of reactive
reserve to be held. These reactive reserves are maintained primarily
to provide additional reactive power support in the event of an
outage. For instance, with the loss of a transmission circuit, the
network configuration changes can increase system impedance,
which in turn increases reactive demand due to increased reactive
losses. This increase is supplied form reactive reserves. System
operation must therefore, ensure that sufficient reactive reserve is
held for all credible contingencies. As indicated above, due to
localised requirement of reactive support, these reserves must be
appropriately distributed across the network.
4.61 In addition to the vital contribution to system security, voltage control

strategies and reactive power management may have significant
impact on both capital expenditure and system operation costs.
Reactive power support and reserve are critical for efficient use of the
existing transmission capacity, because the system may become
voltage limited if the reactive loading is not managed appropriately,
and this could lead to under utilisation of capital investments.
Simultaneously, inadequate reactive support would inevitably cause
additional operating costs, such as voltage constraints requiring re-
dispatch of generation and hence increase balancing costs.
Furthermore, inadequate reactive support is likely to lead to an
increase in active power losses. On the other hand, excessive reactive
support would expose the users of the transmission system to an
increase in prices for using the system due to an unnecessary
increase in the corresponding capital expenditure.
44
4.62 Costs of providing reactive power support have generally two

components: (i) capital costs associated with the provision of reactive
capability and (ii) operating and maintenance costs, which depend on
the level of reactive output relative to capabilities. These cost
components are discussed in more detail in the references given in
the footnote16.
4.63 As discussed earlier, the TSO procures obligatory reactive power

services from generators through the reactive power market or the
default arrangements and has an incentive to manage total
expenditure for the provision of reactive power service. The selection
process takes into account location of generators, various network
configurations and the costs of competing options. However, NGC’s
own compensating plants do not participate in either market.
Impact of DG on TSO requirements

4.64 Distributed generation can make a significant impact on the amount
of reactive power exchanged between TSO and DNO systems. This
will be driven by a number of factors including:
• the level of penetration of distributed generation;
• the voltage level at which the generation is connected;
• the technology and operating regime of generation;
• electrical network characteristics of distribution circuits; and
• variations in loading conditions.
4.65 With respect to the various different types of DG operating regimes, a

number of scenarios can be considered:
• DG generates active power only: by generating active power in
distribution networks, distributed generation will reduce
corresponding amounts of power imported from the transmission
networks. This reduction in flow will reduce reactive consumption
(losses) of distribution circuits and hence less reactive power will
be imported from the transmission network.
• DG generates active and reactive power: by generating reactive
power locally, distributed generation can supply some of the
reactive demand to local loads and contribute to the supply of
16
L. Mogridge, ‘Economics of provision of a reactive power/voltage control service by
Generating plant’, paper no. 500-01, CIRGE Symposium on Open Access, Tours, France,
8-12 June 1997.
IEE Colloquium on ‘Economic provision of reactive power for system voltage control’,
London, October, 1996
45
reactive losses in distribution circuits. This would normally result

in a more significant reduction in the amount of reactive power
imported from the transmission network.
• DG generates active and absorbs reactive power: by absorbing
reactive power, DG will tend to increase the demand for reactive
power. The net effect will be driven by the overall balance
between the increase of reactive power demand by DG and
reduction caused by exporting active power.
4.66 In order to illustrate how DNO demand for reactive power varies with
different levels of DG penetration (over a range of DG power factors),
a simple generic model of the UK distribution was created. The
schematic diagram of the system is shown in Figure 2. The
distribution of load across the network and the assumed peak load
power factors are provided in Table 10.
Figure 2 − Generic distribution model with DG connected at 11kV and 33kV.
Trans miss ion Net wor k
132kV c irc uit
132/ 33 kV Sub
33 kV c ircuit DG - 33 kV
33/11 kV Sub Load - 33kV
11 kV c ircuit
DG - 11 kV
Load - 33 kV
11/0.4 kV Sub
Load - 0.4 kV
Table 10 − Distribution of load across voltage levels
Voltage Level Percentage of load Power factor
46
0.4 kV 65% 0.995
11 kV 30% 0.98
33 kV 5% 0.98
4.67 As a simplification, all DG was assumed to be connected at 11kV or

33kV with an equal split each and an even distribution across the
country17.
4.68 Electrical parameters of the generic network (lines and transformers)

are assumed to have typical values. Results are summarised in Table
11.
Table 11 − The total DNO reactive import [MVAr] from the transmission
network in MVAr at peak for different level penetration of DG and
various power factors (p.f.)
Aggregate Peak DNO Reactive Imports

(MVArs)
Penetration p.f. = 0.975 p.f. = 1 p.f. = 0.975

of DG [GW] (lagging) (leading)
0 19,981 19,981 19,981
2.5 18,107 18,790 19,477
5 16,325 17,671 19,033
7.5 14,629 16,620 18,647
10 13,013 15,635 18,319
4.69 From the above table we observe that the output from distributed
generation would tend to reduce the amount of reactive power that
will be imported from the transmission network during system peak.
Furthermore, given the assumptions regarding the distribution of
generation across DNO voltage levels, the amount of reactive power
imported will reduce with increased amounts of distributed
17
This exercise is carried out for illustrative purposes rather than for quantifying changes in
DNOs reactive power demand, and hence simplistic assumptions are considered to be
appropriate.
47
generation connected, irrespective of the power factor at which DG

operates. Clearly, reduction in active power flows in high voltage
distribution networks caused by distributed generation will reduce
reactive power consumed by lines (reactive losses) and hence reduce
the need for reactive power import.
4.70 As expected, however, the largest reduction in reactive power import

would be achieved where the distributed generation also injected
reactive power18. The reactive power output generated would be used
to supply local reactive loads, reducing the need for the import of
reactive power from the transmission network. On the other hand,
reductions in reactive imports would not be very significant when the
generation operates with a leading power factor.
4.71 The reduction in the import of reactive power from the transmission
network would lead to a corresponding reduction in reactive power
that needs to be produced by conventional generation, and hence this
would reduce TSO expenditure on reactive power. This corresponds
to a benefit provided to the TSO from distributed generation. In order
to examine the materiality of the potential savings in transmission
system operating costs, it is appropriate to consider the unity power
factor scenario.
4.72 By examining the results of the analysis presented above, we

conclude that the reduction in TSO reactive power requirements is
between 430MVAr and 470MVAr per GW of distributed generation
installed19. Taking the average to be 450MVAr/GW and assuming that
the savings apply for one quarter of each year, this would equate to a
value of approximately £1.2 /year for each kW of distributed
generation installed20.
4.73 As the value of the savings achieved do not appear to be very

significant, TSO reactive power displacement is unlikely to represent
a particularly attractive opportunity for distributed generation.
However, given the local nature of TSO reactive power services, there
may be specific situations, which represent higher value
opportunities for DG to reduce to reactive requirements21.
18
In this high level analysis we ignore potential problems associated with voltage rise
effect.
19
Note for example that a reduction in reactive import of 2,310MVAr can be achieved for
5GW of capacity of distribution generation, giving a saving of 462MVAr/GW.
20
This assumes a price for reactive energy at 1.2£/MVArh.
21
For example, reduction of reactive import would tend to be more valuable in South of the
country, given the magnitude of North to South flows.
48
4.74 It is however important to stress that this analysis is only indicative

and that more detailed work would be required to establish the
impact that various distribution generation growth scenarios may
have on DNO reactive imports, the need for reactive procurement by
the TSO and how the value of this may be assessed.
49
DNO Network security contributions from distributed

generators
4.75 As discussed in Section 2, there are likely to be increasing
opportunities for distributed generators to provide security
contributions for network planning as a consequence of increased
numbers of distributed generators connected to distribution networks
and the introduction of revised planning standards.
4.76 If a particular area of a DNO network is not ER P2/5 compliant, there

are various ways in which compliance can be achieved:
• increase the capacity of existing circuits (e.g. re-conductoring)
• build additional circuits (reinforcement)
• use distributed generation to substitute for the capacity of circuits
on outage.
4.77 All three options are permitted under ER P2/5. For circuit-based
solutions, additional security requirements can easily be determined
through simple power flow studies. In the case of generation-based
solutions, security contributions can be determined by reference to
Table 2 in ER P2/5 although the types of generation contained with
this table are limited. To date, the limited numbers of continuously
operated distributed generators has restricted the provision of such
security contributions and DNOs have largely been reliant upon
network infrastructure based solutions.
4.78 The basic principle underpinning ER P2/5 (and ER P2/6) is to assess

the time taken to restore group demand following an interruption
using Table 1 and to give a capacity credit to any distributed
generation connected to the demand point using Table 2. The
generation contribution to security is estimated by comparing the
reliability of generation with the reliability of an equivalent network
using the Expected Energy Not Supplied (EENS) criterion.
4.79 Recently, a methodology was developed to assess the security

contributions from a variety of modern distributed generation
technologies in order that Table 2 of ER P2/5 could be updated. It is
anticipated that this revised Table 2 will be used as a basis for the
new planning standard (ER P2/6), which will accommodate more
generation types and systems containing multiple generators with
50
different unit availabilities and capacities22. A draft of the new ER P2/6

planning standard is undergoing consultation.
4.80 This new planning recommendation could significantly broaden

opportunities for DNOs to consider generator contributions to
network security in the future. However, as DNO networks should
currently comply with ER P2/5, the requirements for security
contributions from distributed generators may be limited in the short-
term. In the medium to long term, load growth and asset
replacements could increase opportunities for DG to provide network
support services.
4.81 The simple example set out in Figure 3 illustrates how a DNO would
currently comply with ER P2/5 planning guidance in a 33/11 kV
demand group. As can be seen, the group demand of 100 MW can be
supplied through either distribution circuit such that if one circuit
were to fail, the group demand could be accommodated through the
remaining circuit. In this example, it is not necessary to include any
security contribution from the generator. Indeed, unless the generator
type was specifically recognised in ER P2/5, no security contribution
could be allocated.
Figure 3 − Example of ER P2/5 compliance without generation contributions
P2/5 Example
100MW 100MW G 50 MW
Max Group Demand = 100 MW
• Two distribution circuits rated at 100 MW each

• One generator with 50 MW export capability
• Maximum group demand 100 MW
22 In developing Table 2 of P2/5 and its update P2/6, the generation credit to be given was
estimated by comparing the reliability of generation, using expected energy not supplied
(EENS) as a criterion, with the reliability of an equivalent network. This was considered
to be an acceptable approach when P2/5 was developed in the 1970s.
51
4.82 If the group demand in the above example were to subsequently

grow to say 105 MW, the supplying network would no longer be ER
P2/5 compliant, thus requiring the DNO to seek additional security
contributions.
4.83 Figure 4 illustrates two different approaches available to DNOs, which

would secure sufficient additional security for network compliance
under ER P2/5 and the proposed ER P2/6.
4.84 Under ER P2/5, assuming no generator contribution could be utilised,

the DNO could be forced to seek a network solution to provide the
necessary security shortfall. In the example below, this could be
secured through the installation of a 3rd distribution circuit. The rating
of this third circuit would be at the discretion of the DNO but would
need to accommodate any further load growth forecast during the life
of the assets.
4.85 Under the proposed ER P2/6, it would be possible to recognise the

security contribution of the generator. Assuming the availability of
the 50 MW generator resulted in a security ‘F’ factor23 of 60%, an
overall security contribution of 30 MW could be recognised for
network planning purposes. Through the addition of the generator
security contribution, it can be seen that the original network
becomes compliant and hence the requirement for DNO investment
in a network solution is avoided. In such a situation, the inclusion of
the generator’s security contribution could be regarded as a valuable
service from the generator to the DNO.
23
Ron Allan, Goran Strbac, Predrag Djapic and Keith Jarrett, FES Project
DG/CG/0023/00/00, “Developing the P2/6 Methodology”, April 2004.
52
Figure 4 − Possible solutions to a network security shortfall under P2/5 &

P2/6
P2/5 Solution P2/6 Solution

• Neither circuit can supply group • P2/6 recognises generator contribution
demand alone • Generator contribution limited by ‘F’
• Network solution required for factor, e.g. 60%
continued compliance, e.g. install • Up to 30 MW contribution available
an additional circuit
• Original network adequate
30MW
Contribution
100 100 T3 G 100 100 G
50MW Export
Group Demand 105 MW Group Demand 105 MW
4.86 Table 1 of ER P2/5, included as Annex A, defines the minimum

demand to be met after first and second circuit outage conditions as
well as the timescales in which the specified portion of group
demand must be restored and the time in which full group demand
should be restored.
4.87 ER P2/5 prescribes maximum times to restore supplies. For demands

less than 1MW, this can be the associated repair time of the system.
For group demands of up to 12MW, most of the demand should be
restored within 3 hours and for group demands between 12MW and
60MW, much of the demand should be restored within 15 minutes.
These are therefore prescribed maxima for demand restoration times,
i.e. the longest outage times before restoration must take place.
4.88 It is important to note that the capability assessment needs to be

done for each of the time periods specified in Table 1 of P2/5. For
instance, in the case of Class C, the two time periods of concern are
the demand that must be recovered in 15 min and the demand that
must be recovered in 3 hr. Both periods must be assessed separately
since the required demand and the number of circuits and the
amount of generation could be different in each period. Intermittent
generation, such as wind, is expected to contribute significantly only
in the shorter periods.
4.89 Generation that makes contributions to security needs to become

available within these times, i.e. they represent the maximum values
of start-up times or reconnection times. Generation needs to be
53
persistent for a period of time after these response times during

which other means of supply are not available or not fully adequate.
These response time requirements will drive infrastructure
requirements and further enable generation to contribute to network
security.
4.90 The response timescales outlined in Annex A are favourable to many

distributed generators, as the restoration times for a substantial
portion of group demand are not onerous, exceeding the normal
start-up times of conventional standby DG. Hence, the
communication infrastructure requirements would not be time
critical.
4.91 In addition to substituting for distribution network primary

infrastructure, generation could also displace automation and remote
control facilities. A typical example of this is when an increase in
demand in a specific group causes it to change from a Class B to a
Class C group. In such a situation, the presence of generation (could
even be intermittent) may allow manual switching to remain instead
of replacing this with remote or automatic switching.
4.92 Consider the case of a group demand growing from 12 MW to 15

MW. In this case, following a circuit outage, 3MW of this demand
should be restored within 15 minutes, while the rest (12MW) should
be restored within 3 hours. Hence, a generation system able to
provide 3 MW of effective contribution for 3 hours would make the
system ER P2/5 compliant, provided that the remaining network after
being switched in can support the group demand in full (15 MW). In
this case, manual switching could remain instead of being replaced
by remote or automatic switching. This would be particularly
applicable for intermittent sources such as wind generation that are
able to provide persistent output for relatively short periods of time.
Similar logic could be applied to other Classes of group demand24.
4.93 In some situations, restoration activities cannot be completed in one

step and a sequence of switching steps is required. In this case the
generation can be used to support the group demand and prevent or
reduce overloads that may occur during the switching sequence. This
would allow earlier restoration of demand before switching is
complete without encountering excessive overloads.
4.94 It should also be recognised that not all generator security

opportunities will necessarily be related to planning standard
compliance. There will inevitably be areas on distribution networks,
24
R Allen, G Strbac, P Djapic, K Jarret, Developing P2/6 Methodologies, April 2004
54
which whilst ER P2/5 or ER P2/6 compliant, could remain vulnerable

to particular modes of failure, potentially causing disruption to many
customers. In such cases, if DNOs perceive the risks associated with
loss of supply to be sufficiently high, additional security contributions
could be sought from generators, thus taking overall security levels
beyond the minimum levels required by planning standards. Indeed,
some DNOs are already known to be considering generation-based
approaches to enhanced network security.
4.95 One means of valuing the security contributions provided by

generators will be for DNOs to compare the costs of generation and
network solutions for a particular security problem. In many
instances, network solutions involving OHLs are likely to be of lower
cost than generation solutions procured solely to resolve a security
issue25. This is evaluated further in Section 7.
4.96 A consequence of the lower cost of network solutions will effectively

cap the maximum amount a DNO will be prepared to pay for a
generation security solution (otherwise there would be no benefit in
the DNO selecting a generation solution over a network solution).
Such an approach to valuing the contribution of generation to
network security problems could thus be based upon the DNO’s
avoided cost of network investment.
4.97 Whilst such an approach represents but one valuation methodology,

there are a number of commercial and regulatory issues, which must
be considered when structuring security contracts. These are more
fully evaluated in Section 7.
4.98 Other considerations incentivising DNOs to pursue generator based

security solutions could include increasing levels of environmental,
planning and/or terrain related constraints. Such constraints could
restrict or prevent DNOs from selecting network based approaches
and could thus lead to a variety of niche applications for generators.
DNO Quality of Supply Related Services

4.99 As outlined earlier, electricity distribution networks have been
designed in accordance with planning standards stipulating certain
standards of security. Security has been traditionally graded
according to the total amount of power that can be lost and networks
have been specified according to the principle that the greater the
amount of demand that can be lost, the shorter the recommended
25
It should be noted that there will be other revenue opportunities available to generators,
e.g. energy sales
55
restoration time (as specified in ER P2/5). This implicitly determines

the level of assets required to comply with minimum security
standards. Such assets are usually in the form of OHLs, cables,
switchgear and transformers but compliance can also be achieved
through the use of network automation or operational support
services.
4.100 As planning standards do not require redundancy of assets on low

voltage (LV) networks, the duration of outages caused by LV faults is
determined by component repair and replacement times. Medium
Voltage (MV) networks are generally configured such that
interruptions caused by single faults can be restored much more
quickly, e.g. through switching.
4.101 These network design practices have effectively determined the

characteristics regarding quality of service as experienced by end
customers. The impact of these design practices is reflected in the
network performance statistics recorded under Ofgem’s Information
and Incentives Project (IIP) as shown below. Figure 5 summarises the
distribution of Customer Interruption (CI) and Customer Minutes Lost
(CML) according to voltage level.
Figure 5 − Distributions of CIs and CMLs according to distribution voltage

level
Customer Interruptions (CI) Customer Minutes Lost (CML)
Source: Ofgem IIP statistics
4.102 Clearly, the performance of medium and low voltage networks has a
dominant effect on the overall quality of service. The vast majority of
CIs (85%) and CMLs (93%), have their cause in LV and MV networks.
In GB, the average number of CIs is approximately 85 for every 100
customer each year. For CMLs, the average figure is approximately 85
56
minutes per annum. These statistics are primarily driven by the radial
design of these networks.
IIP Opportunities for DG

4.103 An important issue for consideration is whether the interactions
between historic network planning philosophies and Ofgem’s quality
of service incentive arrangements will present opportunities for DG to
provide new network support services in future. The network
performance statistics above demonstrate that there could be
significant opportunities for DG to improve service quality on 11kV
and 0.4 kV networks, given the contribution of these networks to the
overall system performance.
4.104 However, for DG to improve service quality on these networks, the

generation must also be connected at 11kV or 0.4kV, i.e. “below” the
point of fault. For example, supply interruptions caused by faults in
0.4 kV networks cannot be readily impacted by generation connected
at or above 11kV. The requirement for DG to be connected at
relatively low voltage levels in order to impact upon service quality
could restrict such opportunities to relatively small sized generation.
4.105 DG could, in principle, reduce the impact of outages in networks

operating at or above the voltage level that a particular generator is
connected should it be possible to operate locally islanded systems.
This may represent an interesting opportunity for DG, particularly if
DG can offer a cost effective solution to support local load growth
and/or substitute for replacement of upstream assets. This is
schematically presented in Figure 6, which shows that DG connected
at LV networks, close to the local load, would have, a higher value in
the context of offering network support and performance related
services26.
26
T Bopp, G Strbac, R Allen, Economic evaluation, of islanded operation, Power Engineer,
2004.
57
Figure 6 − (a) Traditional network layout (b) Potential for DG to provide

network services will depend on point of connection
(a) (b)
4.106 For the purpose of this section it is interesting to derive some

indicative figures that quantify the potential value of islanded
operation. This in turn gives indications regarding the level of
expenditure that can be justified to enable islanded operation.
4.107 Some of the established indices used to measure the quality of

service, as seen by the end customers, approximately address the
frequency and duration of outages27. The average number of
interruptions per customer per year and the total annual duration of
interruptions per individual customer are now used as the indicators
of performance of electricity systems in the regulatory context.
Examining the value of DG contributions to reduced CMLs

4.108 The system shown in Figure 7 (a) has two circuits or transformer
feeders (CT) supplying a demand of 50MW. Assuming the system
supplies a residential area with an average peak demand of 2 kW per
household, this would correspond to 25,000 customers. Each feeder
is assumed to be rated at 50MW, and have an availability of 99%.
Figure 7 − Comparison of CML performance for two networks
50 MW
27 50 50 50 50
R Billinton and R Allan, ‘Reliability evaluation of Power Systems’, Plenum 1984.
G
58
Group Demand 50 MW Group Demand 50 MW

4.109 The system shown in Figure (b) has the same circuits or
transformers together with a generator (G) having an output capacity
of 50MW, an availability of 40% that is significantly lower than the
availability of the circuits.
4.110 Let us now compare CML performance of these two systems.

Customers in system (a) will be interrupted only when both infeeds
fail simultaneously. The probability of this happing is 0.01x0.01 =
0.0001. The average duration of this event is therefore 0.0001x8760 =
0.876 hours, or 52 min per annum. Given that this affects all
connected customers CML for this load group will be 52min/year.
4.111 Assuming now that the generator in system (b) can operate in an
island mode, there will be 40% chance that the generator will be
available in the situation when both of these transformers are out of
service. Hence, CML in system (b) will be 0.6x52 = 31 min/year,
achieving a savings of 21min/year, for 25,000 customers. This is
clearly a massive reduction in CMLs experienced by these customers.
It is important to note that a generator with relatively poor availability
can make such a significant contribution to CMLs.
4.112 Assuming further that the DNO has 2,500,000 customers, the overall
reduction of CMLs at the company level will be 0.21 min/year.
Assuming a value £150,000 for each CML saved, the value of this
reduction in CMLs will be in the order of £31,500. For a generator of
50MW, this would amount to £0.63/kW/annum. However, this would
be relatively small part of the required income necessary to cover
investment cost. If we assume that the plant would need to earn
£45/kW/year (typical for OCGT) to cover its capital cost, for a 50MW
generator this would amount to £2.25m per year. If the generator
were renewable, operating at 40% load factor, ROC income (at
£50/MWh) would amount to approximately £9m.
59
4.113 As discussed earlier, the reliability performance of the whole

distribution system tends to be dominated by the performance of 11
kV and 0.4 kV networks. The relative contribution that a generator can
make to reducing CMLs could be generally significant (in the above
example the contribution was 40%), it is likely that only those
generators connected to 11 kV (and 0.4 kV) would significantly
contribute to the overall reduction in CMLs in absolute terms. This
however would require the generators to be able to ‘ride’ through 11
kV network faults or to be quickly reconnected after such faults and
would require the ability of operating in islanding mode.
Examining the value of islanding operation

4.114 CI & CML statistics provide indications of the scope for potential
improvements in service quality; an average customer in the UK
experiences less than one outage per year lasting for under 1.5 hours.
The monetary value of service quality improvements can be
investigated using the concept of interruption costs28. Such valuations
take into account the frequency and duration of supply interruptions
but also include the cost characteristics of specific customer classes
(domestic, commercial and industrial etc.). Typically, such costs are
normalised in £/kW of peak demand or £/kWh of annual energy
consumption according to class of customer.
4.115 The present regulatory incentive arrangement is based on the

number of customers affected by a fault rather than on the type of
customer affected and thus does not recognise the different values
that different classes of customers attach to service quality. Adopting
a different but complementary approach, Ofgem has recently
conducted a survey29 regarding the value that customers attach to
service quality.
4.116 The analysis showed that the maximum annual benefit of an

uninterrupted transition into islanding mode was approximately
£1.4/kW and £19/kW30 for average residential and commercial
customers31 respectively. Based on these values, the level of efficient
expenditure that could be allocated towards enabling islanded
28
K K Kariuki, R N Allan, “Assessment of customer outage costs due to electric service
interruptions: residential sector”, IEE Proceedings on Generation, Transmission and
Distribution, Vol. 143, No. 2, March 1996.
29
Consumer Expectations of DNOs and Willingness to Pay for Improvements in Service,
Ofgem, June 2004.
30
This also indicates the value of the services that could be available to DG.
31
T Bopp, G Strbac, R Allan, “Economic evaluation of islanding operation”, Power
Engineer, 2004.
60
operation can then be estimated. Considering typical values for asset

lifetime and discount rates, the present value of the potential benefits
of islanding would amount to about £15/kW for residential and
£200/kW for commercial customers. Assuming the average of peak
diversified demand for domestic customers to be 2 kW, expenditure
of around £30 per household would be justifiable to upgrade the LV
system for islanding operation32. Assuming that a LV network (that
can be run in an islanding mode) supplies a residential area of 500
households with a peak demand of 1MW, the level of justifiable
expenditure for islanding operation would amount to approximately
£15,000. On the other hand, 1MW of commercial demand would
support an investment of around £200,000 to enable islanding33. It
should be noted that these values are averages; the permissible
expenditure can be higher in network areas with a lower quality of
service and reliable DG, and vice versa.
Demand for islanding services

4.117 A number of industrial and commercial customers have installed
standby generation to increase reliability of supplies to high value
loads. It is unlikely that DG technologies that are relevant to achieving
Government targets would be able to effectively provide such
services. We therefore focus our discussion on the possible
application of new, energy production driven DG installations in the
provision of islanding services on LV networks of DNOs.
4.118 The most attractive target areas for extracting benefits of islanded
operation would include those networks delivering relatively poor
service quality to high value loads and/or large numbers of
customers. Generally, however, the number of such areas will be
limited, as under IIP, DNOs are investing in their local networks. It
should be noted that the current regulatory framework incentivises
DNOs to invest in network areas providing relatively poor
performance to large numbers of customers.
4.119 Clearly, urban networks represent areas with relatively high load
densities with large numbers of customers although it should be
recognised that these tend to be supplied from interconnected
underground networks rather than OHLs. As cable networks
experience fewer faults than OHL networks, the scope for network
support services is diminished in urban areas. Conversely, rural
32
These figures also indicate the value of the services that could be available to DG for
providing the service (ignoring cost associated with making islanding possible).
33
It should be noted that a recent survey carried out by Ofgem indicated that customers
value service quality more than expected.
61
networks tend to experience a larger number of interruptions.

Although the cost of outages to individual customers supplied by
rural network may be higher than in urban areas, the fact that rural
networks tend to supply relatively low load densities with fewer
consumers, the overall value of interruptions may not be sufficient to
warrant islanding operation.
4.120 The recent survey conducted for Ofgem34 indicates that all customers
value the speed of reconnection of power supply after major storms.
Domestic consumers appear to have high expectations regarding
quality of service. Although most consumers believe it is reasonable
for a power cut to occur in major storm, two thirds believe that
distributors should be doing more to reduce the impact of severe
weather on their networks. Consumers expect power to be restored
quickly; only 12% of customers expect restoration times to exceed 24
hours and nearly half expect power to be restored within 3 hours.
This is an area in which DG could potentially offer services in the
longer term. More work would be required to examine and quantify
the potential benefits in this area.
4.121 This suggests that, in the short to medium term, the demand for
islanding services from DG will be limited. Of course, there will be
specific cases in which islanding operation may be a technically and
commercially viable option. Also, it should be recognised that the
demand for higher quality of supply is only likely to increase in the
longer term. This issue is being explored elsewhere under the
Technical Steering Group Workstream 5 programme.
Technical issues associated with management of islanded networks

4.122 Notwithstanding the above, cost effectively managing the operation
of islanded operation on LV and MV networks is a challenging task.
Clearly, frequency and voltage control in islanded networks will
require local generators to be adequately equipped for these tasks
with appropriate governors and Automatic Voltage Regulators.
Managing the balance between demand and generation would be
particularly challenging given the relatively large mismatches that
would need to be accommodated. The management of demand and
supply on islanding networks would probably need to include load
management and may also require new technologies such as
storage, power electronic based compensation and voltage
regulators.
34
Accent Marketing & Research, Consumer Expectations of DNOs and Willingness to Pay
for Improvements in Service, June 2004, 145f/04 (Report to Ofgem).
62
4.123 Another technical issue to be resolved is the close coupling between

active and reactive power in LV and MV network. Given the relatively
large active to reactive impedance ratios frequency and voltage
control is complicated. Solutions established for the transmission
network, based on decoupled reactive power-voltage and active
power-phase angle would not be readily applicable and would
require modifications.
4.124 Re-synchronisation equipment will be required to enable continued

operation of islanded systems. Adequate protection schemes will
need to be developed to ensure safe operation of the network under
fault conditions. This may be a particular problem in networks with
inverter-connected generators.
4.125 Also, it should be recognised that currently, the communication,

metering and on-line monitoring & control infrastructure that would
be necessary to support island operation is least developed in LV and
MV networks.
4.126 The technical issues associated with the operation of highly

distributed power systems, such as micro grids, are the subject of
intensive research and development, supported by various national
and international research programmes and new solutions are likely
to emerge in future.
Existing experience
4.127 There are a number of examples of autonomous power systems.
There is a significant amount of standby generation installed on a
variety of industrial and commercial sites. As already discussed, this
generation is installed to increase reliability of supply to high value
loads where the public electricity supply system was not seen to be
sufficiently reliable. Generally, in the case of failure in the main
supply system, standby generation is configured to run in various
modes when disconnected from the system, e.g. to supply only
essential services or entire site demands. This demonstrates that the
technical solutions adopted, and the levels of redundancy and
automation specified, will vary according to the value of load that is
being secured.
4.128 Also, there are a number of solutions adopted for small islands but
these are not likely to be directly transferable to a large-scale
implementation in existing distribution networks. A direct example of
islanded power systems supplying very high value loads are found
on ships although such approaches are likely to be cost prohibitive
for a large scale implementation within distribution networks.
63
4.129 Whilst islanding may represent an interesting opportunity for DG in

the long term, it is not very likely it will present a significant or
lucrative market for DG in the short or medium term. Niche
applications may emerge and further work will be required if this
issue is to be explored in more detail.
DNO Voltage control services and Power Flow

Management
4.130 Voltage variations outside statutory limits and overload conditions on
distribution networks require immediate DNO remedial action.
Contributions from distributed generation could also potentially
remedy such situations, thus avoiding requirements to reinforce
networks. Similarly, services from distributed generation relating to
reactive power flow management could also maximise the capacity of
distribution circuits, again avoiding requirements for network
investment. This section explores the opportunities for distributed
generation to provide such services.
Voltage management services

4.131 Two opportunities for DG to provide voltage support services in
distribution systems are explored. One relates to a low voltage
scenario at the end of a feeder as a result of load growth as illustrated
in Figure 8. The other opportunity relates to a low voltage condition
arising from circuits being removed from service. Figure 12 illustrates
this second scenario, where the voltage at point A drops below
statutory limits after the section of feeder between the 11 kV
substation-1 and point A has been taken out of service and the
Normally Open Point (NOP) has been closed. Both voltage support
opportunities are evaluated further below.
Scenario 1: Use of DG to support voltage in load growth situations

4.132 If, as a result of load growth, load points D5 & D6 in Figure 8, begin to
experience low voltages outside statuary limits, there are number of
options available to the DNO to resolve the low voltage problem. An
obvious solution is to reinforce the system. Another solution would
be to use DG to inject power either at an intermediate point on the
feeder or at the end of the feeder. Yet another solution would be to
install a voltage regulator somewhere along the feeder or install a
capacitor (see Figure 9 and Figure 10).
64
Figure 8 − Use of DG for voltage support at the end of the feeder due to load
growth
11 kV
Primary
substation
11 kV feeder with
Tee offs
B C
A
D1 D2 D3 D4 D5 D6
Loads
Distributed
generator
4.133 The availability of DG will be the main issue of concern when

mitigating voltage problems using this method. For this reason DG
based on intermittent technologies could not be considered due its
low local availability. Even a non-intermittent generator with an
availability of 85% would be considered unacceptable. In reality
however, voltage violations would only occur at times of peak
demand (see Figure 11). From Figure 11, the DG would therefore only
be required to support voltage at peak times from t1 to t2 and from t3
to t4. As these periods are relatively short, the probability of voltage
violations would be reduced despite the “low – 85%” availability of
DG. In the case of a DFIG based wind farm, VAR support will
generally be independent from the active power output. Given that
wind farms are rarely shut down completely, the availability of
reactive power will be relatively high, and DNO could potentially
utilise this support for voltage control purposes.
4.134 DNOs prefer to use solutions with availability that is close to 100%
primarily because the statutory limits on voltage are deterministic. It
is conceivable that opportunities for DG to provide voltage support in
distribution networks could be enhanced considerably if the
European Voltage Standard (EN-50160)35, describing voltage limits in
statistical terms, were used to assess DNO compliance with statutory
obligations on voltage limits. Because EN-50160 specifies how often
and by how much voltage levels may be exceeded, it would not be
35 BS-EN-50160, “British Standard on Voltage characteristics of electricity supplied by

public distribution systems”, 1995.
65
necessary to work on the basis of a ‘zero tolerance’ for voltage

excursions as at present. Such voltage limits would provide DNOs
with more discretion regarding the adoption of DG based solutions to
manage network constraints/risks.
Figure 9 − Use of voltage regulator to mitigate voltage violation at the end

of the feeder due to load growth
11 kV
Primary
substation 11 kV feeder with
Tee offs
B
C
A
Voltage
D1 D2 D3 D4 regulator D5 D6
Loads
Figure 10 − Use of capacitive compensation to support voltage
11 kV
Primary
substation
11 kV feeder with
Tee offs
B C
A
D1 D2 D3 D4 D5 D6
Loads Capacitive
compensation
4.135 Use of capacitors to support voltage on distribution networks, as

shown in Figure 10, is not commonplace in GB. There are two main
reasons for this. The first one is that use of capacitive compensation
is not as effective on distribution system as is the case on
transmission networks due to the higher Resistance: Reactance ratio
on distribution networks. The second is that distribution switchgear is
often not well suited to switching of capacitive currents and there
may be potential for resonance phenomena to occur.
4.136 It should be recognised that the cost of capacitive compensation, at

around £20,000 per MVAr, is very low compared to that of a
generation based solution.
66
Figure 11 − Use of DG to support voltage at peak times
Load (MW)
t1 t2 t3 t4 Ti me (hr)
4.137 It can be concluded that with current UK voltage standards, the

opportunities for DG to provide voltage support in cases where
creeping load growth causes voltage problems on radial feeders are
limited. The opportunities could be improved if there are many
independent generators in a locality that can collectively provide a
higher level of availability comparable to network solutions such as
voltage regulators or capacitors.
4.138 If DG could be used to support voltage, the cost of the service must
be compared with cost of providing the same service from a voltage
regulator. As the typical cost of an 11kV voltage regulator is in the
region of £20,000/MVAr, the annual cost of such a device is roughly
£1500 assuming a 40-year life and a discount rate of 7.5%. Therefore
the annual cost of voltage support service provided by DG would
have to be equal to or below £1500 per annum36.
4.139 It is important to point out that in this application DG would not itself
require an AVR (automatic voltage regulator) to support voltage, as
the injection of active power along or at the end of a feeder would
cause the voltage to rise. In other words use of DG in this mode takes
advantage of the classic voltage rise effect caused by the output from
the distributed generator.
4.140 As the service is non-time critical, the infrastructure requirements

could be minimal consisting simply of telephone communication and
half hourly metering. Supporting commercial arrangements would
set out the contractual obligations including performance
36
(£1.50/kW assuming a 1 MVA generator).
67
requirements, proof of delivery and perhaps penalties for non-

delivery.
4.141 Under all circumstances it would be expected that the DNO would
remain accountable for voltage performance and retain liability for
any breaches of statutory obligations.
Scenario 2: Use of DG to support voltage on outage of part of the

network
4.142 As indicated earlier, under the scenario illustrated in Figure 12, Point
A experiences a voltage drop when the section of feeder from 11kV
primary substation -1 is removed from service and the loads on this
feeder are supplied from substation -2 by closing the normally open
point. The voltage problem could be resolved by injecting power
from DG as shown below. Alternatively a voltage regulator could be
installed and used to boost the voltage.
Figure 12 − Options for solving voltage dip problem at point A (assuming

outage section between substation 1 and A followed by closure of
normally open point)
11 kV Primary 11 kV Primary
substation - 1 substation - 2
Voltage
A drop
Loads
Normally
open point
B
Alte
Voltage r
regulator solu native
tion
s
Distributed
generator
Power flow management services

4.143 Two similar scenarios could also arise relating to the overloading of a
section of circuit in each of the above examples.
68
Scenario 1: Overloaded section of feeder due to load growth

4.144 This section explores the opportunities for DG to provide network
flow management services to DNOs, to relieve overloads in sections
of a circuit. In the example given in Figure 13, section A of the 11kV
feeder gets overloaded due to load growth. The overload can be
relieved by either installing a new cable, shown as a dotted line, or by
constructing a new 11 kV in-feed at B. Injecting power from the DG
somewhere along the feeder at C could also relieve the overload.
Figure 13 − Use of DG to mitigate partial circuit overload due to load growth
Overloaded
Section B
New 11 kV
11 kV in feed
Primary Normally
A open point
substation
C
D1 D2 D3 D4 D5 D6
Loads
Distributed
generator
4.145 Use of DG for this type of application raises the same issues of
availability as discussed under voltage control services. Therefore
only non-intermittent DG could provide this service. The service
would be required mostly at peak times. The value of the flow control
provided by DG would be determined by assessing alternative
network solutions as stated above. Infrastructure requirements would
consist mainly of half-hourly metering for the generator output and a
means of instructing the generator to start running. The latter could
be achieved through a telephone call or the machines could be
started remotely. Remote control would require appropriate
communication. Existing SCADA based communication would
suffice, thus avoiding any further infrastructure investment
requirements.
Scenario 2: Relieving overloads following closure of Normally Open

Points
4.146 Following an outage on a section of an 11kV circuit between Point A
and substation 1 (see Figure 14), supply to loads downstream of Point
A can be restored by closing the normally open point, thus enabling
power to flow from substation 2 via the feeder connected to this
substation.
69
4.147 Suppose the two feeders are rated at 4 MW each and each circuit
carries a load of 3 MW at peak. When the Normally Open Point (NOP)
is closed after taking out the first section of the feeder from
substation 1, the loading on the feeder from substation 2 increases to
6MW, exceeding its rated capacity at peak times. This is also a
security of supply issue that would have to be assessed in the context
of ER P2/5 (or P2/6). In this case, the overload could not be resolved
by load shedding 1 MW, as required for a class B group demand,
since the remaining load of 5MW would still exceed the rating of the
cable (4MW). The options open to the DNO to resolve this problem
would include network reinforcement or contracting a security service
from the DG.
4.148 As in the case of voltage control services, availability of DG is the

main issue when assessing the use of DG to provide what is
effectively a network security service. Since overload problems occur
at peak times, DG availability is only critical at these times. Again, as
in the case of voltage control services, only non-intermittent DG could
reliably provide this service.
4.149 The infrastructure requirements would be largely determined by the

size of group demand, as the primary consideration when
determining the required speed of supply restoration. Most feeders at
11kV belong to either class A (group demands up to 1MW) or class B
(group demand over 1MW to 12MW). Class A outages are non-critical
as group demand must be restored according to repair times. Class B
outages have more potential as it is stipulated that group demand
minus 1MW must be restored in three hours. Any generation
contracted to provide the security service must be either running or, if
on standby, must be capable of starting in three hours. This is a fairly
long timescale, which most non-intermittent sources could satisfy
readily.
70
Figure 14 − Use of DG to mitigate circuit overload following closure of NOP
11 kV Primary 11 kV Primary
substation - 1 substation - 2
3-4 MW 3-4 MW
A
Loads
Normally
open point
B
Distributed
generator
4.150 Because of the long timescale, the infrastructure required to facilitate

such services are not onerous. A detailed description of the required
infrastructure as well as the means of valuing the service is given in
the section on security services.
4.151 These voltage control and flow management problems are

essentially network planning related issues as they relate to supply
restoration times following 11 kV circuit failure between the
substation-1 to point A. If no measures are taken to restore the
circuits within planning standard timescales (ER P2/5 or P2/6), then
the DNO would effectively be non-compliant for the group demand.
The problem should therefore be dealt with in the context of planning
standards. Depending on the group demand, the DNO could comply
with P2/6 by shedding 1MW of load. The full group demand would
then be restored in the repair time of the failed section of cable.
4.152 Because of the drive to reduce CMLs and CIs, DNOs have made
considerable investments in 11kV and 0.4kV networks. A direct result
of this investment is that distribution networks in GB are generally
“over compliant” with planning and security standards. In general, it
will be some time before the investment in MV and LV networks is
outstripped by load growth resulting in non-compliance with security
standards. For the foreseeable future, the scope for DG to provide
security related ancillary services in such situations could be limited,
71
however, niche opportunities could emerge for DG to provide such

services.
Reactive Power Management

4.153 The maximum transport distance of distribution circuits for given
load characteristics is usually driven by the maximum voltage drop
constraints. This is likely to be relevant predominantly to 11 kV
networks, particularly rural overhead circuits. For 33kV and 132kV
circuit this is usually not a significant issue.
4.154 Supplying loads with poor power factors can make the situation
more severe. In order to illustrate this we consider an 11 kV OHL and
an Underground Cable (UC), with the following per-kilometre
characteristics:
OHL r = 0.36 Ohms/km, x = 0.4 Ohms/km (max current ~ 300A)
UC r = 0.36 Ohms/km, x = 0.09 Ohms/km (max current ~ 220A)
4.155 Assuming a load of 4MW (lumped at the end of the circuit or evenly
distributed along the circuit) and allowable voltage drop of 5%, the
maximum transport distance is calculated for various distributions of
the load along the circuit and various power factors. This is presented
in Table 12.
72
Table 12 − Maximum distances of the OHL and UC circuits
Power 1 0.9 0.8

Factor
Location Lumped Distributed Lumped Distributed Lumped Distributed

of load
Maximum 8 16 5.2 10.4 4.3 8.6

distance
for OHL
(km)
Maximum 8 16 7.1 14.2 6.7 13.4

distance
for UC
(km)
4.156 From the table we observe that transporting significant amounts of

reactive power (to loads with poor power factor) through overhead
distribution circuits may considerably reduce the distance over which
the power can be transported. The distance over which the power can
be transported can drop to 50% for 0.8 power factor, and hence may
adversely affect circuit utilisation. For underground cables, this is
significantly less important (this is driven by considerably lower
reactance of cables in comparison to overhead lines).
4.157 In the case of a voltage-limited circuit, which transports significant

reactive power, it may be beneficial to compensate for the reactive
power, introduce in line voltage regulators or to reinforce the circuit.
Compensation or voltage regulator based solution is likely to be more
cost efficient, given the cost of these alternative solutions.
4.158 Furthermore, transport of reactive power occupies useful capacity of

distribution circuits and may limit the amount of active power that
can be transported. Table 13 illustrates this effect, showing the
amount of active power (as % of the circuit capacity) that can be
transported for various power factors.
Table 13 − Active power (as a % of the circuit capacity) that can be

transported
Power Factor 1 0.9 0.8
Active power 100% 90% 80%

transportable
73
4.159 This may be also presented by the increase in demand for capacity of
the plant supplying load with various power factors, as shown in
Table 14.
Table 14 − Additional plant capacity required to transport reactive power
Power Factor 1 0.9 0.8
Required increase 0% 10% 25%

in capacity
4.160 From this simple analysis we observe that the power that can be
transported (as % of the MVA capacity of the circuit) is directly
proportional to the power factor of the load supplied and that the
need to transport reactive power considerably increases the capacity
requirements of network infrastructure.
4.161 Distributed generation connected close to load could supply some of

the reactive needs of the load and hence increase the transport
capabilities of the existing circuits. The value of this service would be
limited by the cost of compensation equipment. However, it should
be noted that the question of availability of this support would need
to be relatively high for DNO to consider DG contribution in this
context.
74
5. PROSPECTS FOR DISTRIBUTED GENERATION
5.1 The impact of DG on system operation and development, including

opportunities for DG to provide ancillary services, will depend on
levels of penetration, the technologies employed and the point of
connection within the distribution network.
5.2 Possible development scenarios could include various combinations

of:
• large off-shore wind farms, perhaps over 100MW, connected to
132kV distribution or transmission networks;
• medium size distributed generators (e.g. on-shore wind, biomass,
CHP, with sizes ranging from 300 kW to about 50MW, connected
to 11kV and 33kV distribution networks; and
• micro generation connected to 0.4kV network. This is
schematically presented in Figure 15.
Figure 15 − Schematic diagram of the power system with various forms of

DG technologies connected to distribution networks
Central
Generation
Transmission
HV Distribution Large DG (off-shore wind)
MV Distribution Medium size DG (on shore

wind, biomass, CHP)
LV Distribution
Micro Generation (µ CHP,
PV)
Demand
5.3 For example, large off shore wind farms connected at high voltage
distribution networks (or directly connected to transmission
networks) will have different impacts on system operation, than will
micro generation or biomass. The connection of intermittent and
unpredictable wind generation will increase the demand for
75
frequency regulation and reserve services significantly more than

micro generation or biomass. Location and the connection voltage of
DG will also be very important. For example, generation connected to
low and medium voltage levels will have more opportunity to provide
local network services than generation connected at higher voltage
distribution network, e.g. avoidance of distribution asset replacement.
5.4 This section outlines the capabilities of existing and near commercial
distributed generation technologies to provide different ancillary
services described in section 3. The technologies evaluated include:
• Wind Power (including the latest doubly fed induction generators);
• Biomass, Land Fill Gas and small hydro-electric schemes;
• Large conventional CCGT power stations, > 100 MW;
• Large CHP installations, >30 MW;
• Micro CHP installations, typically rated between 1 – 3 kW; and
• Standby Generation, typically rated between 200 kW & 50 MW.
5.5 In addition to the above list of thermal and renewable technologies,

consideration was also given to solar, tidal and wave power although
in depth analyses was not undertaken due to uncertainties regarding
technical specifications and capabilities.
5.6 To recall, the most technically feasible ancillary services outlined in

Section 3 were:
• TSO Frequency response;
• TSO Regulating and standing reserve; and,
• DNO Security of Supply contributions.
5.7 As the operating regimes for the different listed types of distributed
generation vary considerably, the list of technologies has been
segregated into renewable and non-renewable sources. It is assumed
that the incentives for renewable generators will remain consistent
over the coming years, i.e. to maximise outputs in the pursuit of ROC
revenues unless more attractive revenue opportunities can be
identified.
5.8 This section focuses on the new services which could be provided by
each technology type. The capabilities and opportunities for both
renewable and non-renewable distributed technologies are
summarised in Table 16 and Table 17 at the end of this Section.
76
Renewable Distributed Generation Technologies
Wind Power
TSO Frequency Response
5.9 Wind generation technology has historically been based on simple
fixed speed induction generators with very little control over the
dynamic performance of the generator (passive stall turbines). Over
recent years, significant progress has been made regarding the
development of active stall and pitch regulated variable speed wind
turbines. This development is important, both in terms of increased
turbine efficiency but also control capabilities.
5.10 The latest wind turbine technology is in principle capable of providing

frequency response by controlling the electrical power output. Using
blade angle control wind turbines should be able to easily provide
high frequency response, by reducing its output in response to an
increase in frequency.
5.11 Regarding the provision of low frequency response, a part-loaded

wind farm should be able to rapidly increase its power output to the
maximum when system frequency falls and then back-off as system
frequency recovers. Although this does not appear to be technically
challenging, this service is expected to be required only very
occasionally. Clearly, in order for a wind farm to provide low
frequency response it would need to run part-loaded. This implies
that some of the available wind energy would not be utilized.
5.12 However, with large penetrations of wind generation, there will be

occasions (generally during low demand days over summer) when
the number of conventional units needed to supply the remaining
load will be so few, that adequate levels of response and reserve may
not be possible to maintain37. In extreme situations available
renewable generation may even exceed the demand during some
periods. These conditions would generally occur during the periods
of low demand coinciding with (very) high output of wind generation.
When all available options are exhausted and the amount of
conventional plant on the system is still insufficient to provide
adequate system support services, wind generation could be
constrained off (de-loaded) and then instructed to take part in
frequency regulation tasks, as the available wind power cannot be
absorbed by the system. The opportunity cost of this operation will
need to include losses of ROC revenue.
37
C Chen, G Strbac, X P Zhang, "Evaluating the impact of plant mix on frequency
regulation requirements”, UPEC 2000, Belfast, Sept 2000.
77
5.13 Under NETA (and subsequently BETTA) if National Grid requires

plant to operate at a lower level in order to provide frequency
response, the change in output is instructed by accepting the bid in
the BM (the bid price is declared by the generator). This market
mechanism should ensure that the economics of renewable energy
production are reflected in the scheduling of frequency response.
5.14 Although wind generation is not expected to be regularly instructed

to provide low frequency regulation service, the costs associated with
the necessary wind turbine upgrades appear minimal and hence may
be justified.
Large wind farms and Grid Code reviews

5.15 Although the penetration of intermittent renewable resources and
other forms of distributed generation may displace significant
amount of energy produced by large conventional plant, there are
concerns regarding system security relating to the ability of such new
generation technologies to withstand various network disturbances
and to provide adequate system support services.
5.16 Wind generation uses different technology to conventional plant and

generally (at the moment), is not able to provide a similar spectrum
of support services to the system. At the relatively small levels of
penetration this can usually be tolerated. However, operating the
system with large amount of such plant could pose major challenges
in terms of sustaining system integrity.
5.17 Given the anticipated levels of wind generation deployment in the

UK, TSOs have recently set out a proposal that specifies requirements
for connecting of wind generation to the transmission network and
these are detailed in the Grid Code38. In a number of other countries,
Grid Codes are being reviewed to reflect the trend of increased levels
of wind generation.
5.18 The proposed Grid Code requires wind generation to be capable of

operating continuously over the full frequency range between 47.5 Hz
and 52 Hz, while maintaining constant active power output between
49.5 Hz and 50.5 Hz. In addition, between 47 Hz and 49.5 Hz, their
active power output should not reduce more than pro rata with
system frequency.
5.19 The provision of primary, secondary and high frequency response

capability is also required on large wind farms. Furthermore, wind
38
Grid Code consultation document, June 2004
(http://www.nationalgridinfo.co.uk/grid_code).
78
farms are required to have a steady state reactive power capability of

0.95 power factor leading to 0.95 power factor lagging at rated MW
output at the point of connection. Wind farms will be subject to
reactive power dispatch across a range of loading conditions. This
will facilitate wind generation taking an active role in network voltage
control.
5.20 In addition to frequency and voltage control requirements, one other

key topic relates to the ability of wind generation to continue
operating during transmission network faults, to avoid the
widespread tripping of wind farms and losses of substantial amounts
of active power generation. This is known as the fault ride-through
(FRT) capability.
5.21 For the duration of a fault on the transmission network, the voltages
on the faulted phases are assumed to be zero at the point of fault.
Considering the relatively low transmission circuit impedances, such
fault conditions can cause a large transient voltage depression across
wide network areas. Conventional synchronous generators are
expected to trip only if a permanent fault occurs on the circuit they
are directly connected to. However, other electrically nearby
generators that are connected to healthy circuits will remain
connected and stable after the faulted circuits are disconnected. At
present the transmission system is operated to withstand a maximum
instantaneous in-feed loss of 1320 MW (Sizewell B).
5.22 However, if generation connected elsewhere on the transmission

network would not remain stable (or would potentially disconnect)
during or after the fault is cleared, such generation could exacerbate
the original fault conditions and more than 1320MW of generation
could be lost from the system.
5.23 A study has recently been carried out recently to estimate the
additional system cost that would need to be incurred in order to
accommodate wind generation with various degrees of robustness to
withstand faults on the UK transmission network39. The findings
suggest that the system cost of holding additional response could
increase considerably for wind penetrations above 10GW.
Furthermore, given the indicative cost of providing fault ride through,
it would be cost efficient to invest in equipment and solutions
necessary to enable wind generators to ride-through faults.
39
T Bopp, G Strbac, Value of fault ride through capability of wind farms in the UK, a report
to the DTI, August 2004.
79
Contribution of wind generation to network security

5.24 For wind generation to provide security, the output must remain at or
above a certain required level for a minimum period of time,
designated as Tm. This persistence time has a considerable impact on
the capability that can be associated with wind generation and is
related to the duration of the system conditions for which such
generation may be able to avoid or reduce customer disconnections.
There are three distinct system conditions, each of which can be
associated with different minimum persistence times. Table 15
contains recommended values for Tm associated with the critical
switching, repair and maintenance activities detailed in ER P2/5.
5.25 Wind generation connected to a demand group could be used to

support loads during periods whilst transfer capacity is being
switched. In such circumstances, Tm can be conceived to be the
period between the maximum restoration time specified in ER P2/5
for the Class of Supply being considered and the point in time when
switching of the transfer capacity is completed. The generation
should be considered as contributing to security whilst this switching
takes place. The associated value of Tm is likely to be relatively short.
Manual switching could take up to 3 hours at 11 kV, while for 33kV
systems with remote switching this may take up to 15 minutes.
80
Table 15 − Recommended40 values for Minimum Persistence Times (Tm) for

Switching Actions
ER P2/6 Switching Repair Maintenance

Group
Demand
A n/a n/a n/a
B 24 hours 24 hours 2 hours
C 3 hours 5 days 18 hours
D 3 hours 15 days 24 hours
E 3 hours 90 days 24 hours
5.26 Consequently, the capability of wind generation to contribute towards

system security will be greater in systems with automated switching
compared with those in which manual switching is utilised. In a
similar way to the above, wind generation may be sufficient to
provide immediate support to a group following a non-damaged first
circuit outage, given that the likely restoration time will be of the
order of 15 - 30 minutes in most circumstances. In this case, the
minimum persistence time Tm is equivalent to the restoration time.
5.27 This situation would typically occur in instances where the group
demand increased above 12MW. Instead of automating, manual
switching could be retained and intermittent DG relied on for the time
period between 15 min and up to 3 hr. Therefore, the worst-case
scenario is to adopt a value of 3 hours for Tm.
Minimum persistence times for repair activities

5.28 For situations where, after a first circuit outage (caused by a damaged
circuit), sustained support is required until the faulted circuit is
repaired, the contribution of intermittent wind generation may be
limited. In such cases, the duration of repairs could last for a number
of days, and this would then be the period for which security support
is required. However, contribution of wind generation rapidly reduces
with increasing persistence times and hence this is not likely to be a
significant opportunity for wind.
40
These times were recommended by Work Stream 3 of the Technical Steering Group of
DGCG.
81
Minimum persistence times for maintenance outages

5.29 ER P2/5 considers that a circuit outage may be due to planned
maintenance. In emergencies, these activities can frequently be
closed down within a short period of time. Consider a circuit that is
on a scheduled planned maintenance outage. This circuit is assumed
to be in a group of circuits that, together with one or more
intermittent sources, supply a group demand. The situation to be
considered is the support of this group demand following a damaged
fault on one of the remaining circuits. Under this situation, any
intermittent generation connected to the group could contribute to
the supply until the circuit on maintenance is put back into service,
assuming this restoration time is less than the likely repair or
restoration time of the failed circuit. Consequently the minimum
persistence time Tm for which generation may need to provide
support is related to the time it takes to complete an urgent return to
service on the circuit undergoing planned maintenance.
Wind Power summary

5.30 Depending upon the size, specification and operating regime of wind
turbines, it may be possible to source a limited number of ancillary
services from wind farms in the future. These include:
• TSO Frequency response;
• TSO reactive power; and
• DNO network security services.
5.31 As operational uncertainties apply regarding the ability of wind farms

to deliver these services, it must be assumed that opportunities,
especially in the short-term, will be limited.
5.32 In order to determine the ancillary service capabilities of a wind farm,

a thorough technical and operational analysis should be undertaken
for each individual site.
Biomass
5.33 Biomass is an example of a base-load, predictable, renewable
generation technologies, of medium size. Compared to intermittent
wind, integration of biomass plant is likely to reduce system
operation and development cost. Even with high penetrations,
biomass would be widely distributed around the country and hence it
is likely to reduce flows in high voltage distribution and transmission
82
networks, potentially postponing investments in these networks and

reduce overall network losses41.
5.34 Biomass can comprise a wide range of technologies and fuel sources.
One of the most likely forms of biomass generation would be based
on energy crop incineration. From an electricity system perspective,
these are all expected to exhibit similar characteristics.
5.35 Exceptions to this will be biomass based CHP schemes, as their

operation will be heat rather than electricity driven. The ability of CHP
plant to contribute to ancillary services is discussed in more detail
later in the report.
5.36 Size of biomass plant will be limited by the ability to transport and
store large volumes of low energy-density feedstock. It is not
expected that the biomass plant will exceed 30MW-50MW sizes.
Hence, smaller schemes are likely to be connected to 11kV while
larger to 33kV.
5.37 Biomass generation will use traditional, well established steam

turbine- synchronous generation technology. The plant is likely to
operate as a base-load generator running at full output. In some
cases, biomass generation could be used as a cogeneration plant
(biomass based CHP) for steam production in which case the
electricity output would depend on the demand for steam (CHP is
discussed extensively later in the report, from paragraph 5.63).
TSO services
5.38 In principle, large biomass schemes will be able to contribute to
system frequency regulation, similarly to conventional large steam
sets. However, in order for the plant to provide low frequency
response the generator would need to run part-loaded. Given that the
opportunity cost of operating part-loaded in frequency sensitive
mode would be relatively high, due to the losses of ROC revenue (in
addition to reduced energy sales and losses in efficiency of
operation), this is unlikely to be attractive to either plant or the
system operator42. It is even less likely that this plant would provide
synchronous reserve due to smaller value of this service.
41
SCAR, ILEX/UMIST, October 2002.
42
In order to position the plant in frequency sensitive mode, the system operator will need
to de-load it and compensate the plant operator opportunity cost.
83
5.39 On the other hand, there is scope for the provision of high frequency
response. As indicated earlier however, the value of this service is not
very significant43.
5.40 Provision of standing reserve would not be feasible, as it would be

unlikely to bring the plant on the system (from cold) within 20
minutes.
DNO services
5.41 Existing biomass plant has a relatively high technical availability and
hence the capability to contribute to provision of security related
services would be significant, provided that there are no restrictions
in fuel availability. However, the need for such services is likely to be
location specific and depend on the strength of local network. The
evaluation of security services is discussed in Section 6.
5.42 Given that biomass technologies use synchronous generators and

may be equipped with AVRs, such plant could contribute to voltage
control in the local network. The ability to control reactive power may
enable the scheme developer to connect the plant to weak
distribution and avoid network reinforcement cost. Furthermore,
biomass plant could supply some local reactive needs and hence
increase the transport capabilities of the existing circuits. The
availability of this support would need to be relatively high for DNO
to consider this contribution.
Landfill gas
5.43 Landfill gas generation would use synchronous generation
technology. The plant is likely to operate as a base load generator
running at full output, provided that there are not limits of gas
availability.
5.44 Typically, the size of the majority of landfill gas sites in the range 0.5 –
1.5MW. Some larger sites could be above 1.5MW, but usually these
comprise multiple sets. Landfill gas would primarily be connected to
11kV.
TSO services
5.45 Landfill gas units are too small for provision of TSO frequency
regulation services while provision of standing reserve is not feasible
43
With large penetration of wind however, the need for downwards regulation is likely to
increase and this increase in volume of the service may also lead to increase in value of
the service. However, it is unlikely that the provision of this service would lead to
significant financial benefits.
84
if already operating. In instances where the gas supply is becoming

depleted, there may be opportunities to provide some reserve
services.
DNO services
5.46 Availability of landfill gas generation is relatively high, although the
performance of individual sites may vary and will be primarily driven
by gas availability. Landfill gas plant will generally be able to
contribute significantly to provision of network security service. The
importance of this contribution will be driven by the strength of the
local network.
5.47 When evaluating contribution of landfill gas generation potential

concerns may be associated with the uncertainty in future operation.
In this context, it is interesting to note that the majority of existing
sites have NFFO 3,4 and 5 contracts, although some sites that were
developed under the NFFO 1 and 2 arrangements are still in
operation.
Hydro generation
5.48 Small and medium sized hydro schemes without significant storage
capacity are likely to be characterised by considerable variations in
available water flow and hence output, particularly if the catchment
area is on rocky or shallow soil. Therefore, uneven rainfall will lead to
a variable resource. This generation would be normally classified as
intermittent, similar to wind.
5.49 On the other hand, larger schemes would normally have some
storage capabilities.
5.50 Small hydro schemes may use induction or synchronous generators,

while larger schemes are based on synchronous generation.
TSO Services
5.51 Although in principle, medium size hydro scheme based on
synchronous generation would be able to provide low frequency
response, this is unlikely to be sufficiently attractive to schemes
without storage, due to relatively high opportunity cost associated
with spilling water and cost of lost ROC revenue. In addition to having
installed governor control equipment, remote real time monitoring
system will be required, which would contribute to increase of service
provision cost.
5.52 Small schemes would not normally be adequately equipped to

provide frequency regulation services.
85
5.53 Provision of standing reserve would be feasible for schemes with

reservoirs providing that the minimum requirements can be met.
DNO services
5.54 Similar to wind generation, intermittent hydro generation could
contribute to security provided that the output can remain at or above
a certain required level for some minimum period of time. For
schemes examined44 the persistence of small hydro plant was found
to be more significant than that of wind and hence there is more
scope for hydro to contribute to contribution to network security. This
implies that hydro generation should be able to contribute to security
not only during the period in which network transfer capacity is being
switched in following a circuit outage, but also during repair and
maintenance activities, as the contribution of hydro plant is likely to
last for days.
5.55 Larger hydro with storage could make a contribution not only to
network security, but also to service quality, as much of this plant is
equipped with AVR and governor facilities necessary for islanding
operation, including re-synchronisation equipment45. Such services
would be generally of high value to DNOs, particularly in cases if
interruptions to large number of customers may be avoided.
Non-Renewable Distributed Generation technologies
Large Combined Cycle Gas Turbine power stations

Frequency response, reserve and reactive power services
5.56 Large CCGT power stations, connected into 132 kV distribution
networks, already participate in both the TSO’s frequency response
and regulating reserve markets. Such power stations are few in
number.
5.57 Regular CCGT provision of frequency response is comparatively rare

due to the technical limitations of many gas turbines. Some modern
gas turbines capable of rapid changes of output, whilst in frequency
sensitive mode, are well placed to continue participation in this
market. The TSO’s existing market arrangements are adequate for
this purpose.
44
P2/6 Data Collection, Power Planning Associates, April 2004.
45
This is particularly the case with medium size hydro schemes developed prior to privatisation.
86
5.58 As the technical and infrastructure requirements for regulating

reserve services are less onerous than those for frequency response,
this could facilitate wider CCGT participation in the BM. The extent to
which CCGT plant will participate in regulating reserve markets will
depend upon the relative economics of generation from different fuel
sources. Should gas fired plant represent the marginal generators of
the future, it is highly likely that CCGT plant will continue to provide
regulating reserve. As such plant is required to have a direct interface
with BM through dedicated BMUs, the submission of bids and offers
is simplified.
5.59 Overall the provision of frequency response and regulating reserve

from CCGT plant is likely remain significant for the future. The
anticipated increase in gas-fired generation may result in increased
numbers of CCGTs providing such services.
5.60 The ability to control reactive power and the proximity to the
transmission network is likely to be useful to the TSO for
transmission voltage control purposes. CCGT aleady participate in
this market.
DNO Network Security Services

5.61 CCGT plant has a high technical availability and hence the capability
to contribute to provision of security related services could be
significant. The need for such service is likely to be location specific
and depend on the strength of local network. Given that such CCGT
power stations are usually connected at 132 kV, the opportunities to
provide security contributions are likely to be few due to the smaller
number of installations and increased redundancy on 132 kV
networks. However, opportunities could emerge to defer 400(275)/132
kV transformer reinforcement.
5.62 Given that CCGT utilise synchronous generators and will be equipped
with automatic voltage regulators, such plant could contribute to
voltage control in the local network.
Large CHP Installations

5.63 Figure 16 illustrates a typical schematic for a large scale CHP
installation utilising a gas turbine and a Heat Recovery Steam
Generator (HRSG) to raise high-grade steam, which can be used to
power a steam turbine and feed an industrial process. Within this
cycle, electricity is generated from both gas and steam turbines.
87
Figure 16 − Typical schematic for a large scale CHP installation
Stack
Combustion
Chambers
Compressor Turbine
S
T
Air in
Heat Recovery
Gas
Supply
Steam Generator
Supplementary Burners Steam
S
Turbi ne
Process
Steam
5.64 A critical design consideration for CHP schemes is the balance

between electrical and heat outputs. Usually the latter dictates the
former, i.e. the gas turbine is sized according to the heat profile
requirements of the industrial process.
5.65 Often CHP plants are specified such that the gas turbine runs at full
load and thus provides a base load of heat input into the HRSG and
supplemental burners are used to meet peak process steam
requirements. Such arrangements optimise the efficiency of the CHP
scheme and simplify the control arrangements as many installations
are controlled with reference to HRSG inlet temperatures.
5.66 A consequence of such arrangements is that the operating envelope

of the gas turbine, and hence the electrical generator, is severely
constrained by the demands of the industrial process requiring heat.
Normally the operational requirements of the industrial process will
take precedence over any electrical output considerations.
5.67 During the 1990s there was a trend towards ‘over-sizing’ the
electricity generating infrastructure on some large CHP schemes in
response to advantageous trading arrangements in wholesale
electricity markets. Such initiatives sacrifice overall thermal efficiency
in return for an increased ability to export power.
88
5.68 Such schemes do not usually qualify as ‘Good Quality’ installations

according to current DEFRA classifications although these can be
more flexible in terms of the controllability of electrical outputs whilst
still ensuring that process steam requirements can always be
satisfied.
5.69 Another feature of some large CHP schemes is the ability to continue
providing heat to the industrial process in situation where the gas
turbine has been taken out of service. Again, supplementary burners
must be utilised to meet the process heat requirement in such
circumstances whilst electrical loads can be supplied from the local
distribution network.
5.70 The availability of supplementary burners can effectively decouple

electrical and heat outputs to the extent that the gas turbine can be
operated independently of the industrial plant.
5.71 One consideration common to both optimised and over-size CHP

schemes is security of supply. Whilst the primary motive for
industrial customers installing CHP is to manage down energy costs,
a secondary motive can be to improve security of supply. In the event
of a supply interruption some schemes are configured to disconnect
from the local network such that electrical supplies can be maintained
to on-site equipment, effectively requiring the generators to operate
in island ‘site’ mode.
5.72 In islanded operation, the on-site electrical generators must be

capable of maintaining site frequency and voltages so must be
equipped with governor control and Automatic Voltage Regulation
(AVR) infrastructure in order to match the varying on-site electrical
load. Again the requirement to independently deliver the required
process heat output is achieved through the use of supplementary
burners.
5.73 Sites with supplementary burners (thereby de-coupling heat and

electrical outputs), governor control and AVRs can be regarded as
distributed generators with highly flexible electrical capabilities and
should thus be able to provide a wide range of ancillary services to
both the TSO and DNO.
5.74 Whether CHP operators choose to provide such services will depend
upon commercial priorities. Some operators with high value heat and
electrical loads may be unwilling to provide network support services
during times of system stress (e.g. post fault), preferring to operate in
an islanded mode until any network constraints have been removed
from the system, thereby limiting their risk exposure.
89
Frequency response services from large CHP installations

5.75 A definitive statement regarding the capabilities of large CHP to
provide frequency response services is not possible as there are a
number of site-specific dependencies.
5.76 Frequency response services require part-loaded yet flexible and

responsive generator operation through governor control. Essential
to the provision of frequency response services from such providers
will be the ability to de-couple electrical and heat loads, which
invariably requires supplementary burners. It should be noted that
such operation would immediately lead to reduced thermal
efficiencies and thus increase costs.
5.77 Without such infrastructure, it is unlikely that a CHP operator could

provide such services. Also, the technical specification of the gas
turbine would also need to be assessed to ensure that the desired
rate of change of output was achievable. It is reported that many gas
turbines deployed within CHP schemes will not be sufficiently flexible
to provide frequency response services.
5.78 Those CHP schemes equipped to operate in islanded mode may be

able to provide frequency response services as these are likely to be
fitted with the necessary infrastructure (albeit minus TSO monitoring
hardware). Such operation would represent a new mode of operation
for many CHP operators and the attractiveness of service provision
would need to be determined on an individual basis.
5.79 The largest CHP schemes, i.e. those over 100 MW, will be required to
comply with Grid Code requirements so should already be capable of
providing frequency response services to the TSO.
5.80 Overall, the ability of large CHP schemes in general to provide

frequency response services is not clear. Undoubtedly, some
installations will be able to provide such services. Plant
configurations and infrastructure requirements represent the key
dependencies although there is a high probability that the largest
schemes will have the broadest capabilities.
Reserve Services from large CHP installations

5.81 As the economics supporting investment in large-scale CHP
installations are linked to high utilisation, energy intensive processes,
there is a high probability that such CHP will operate continuously.
This immediately discounts any opportunities in standing reserve
markets. Indeed, even if a CHP plant was in standby mode, it is
unlikely to be sufficiently flexible to satisfy TSO requirements.
90
Consequently any opportunities regarding reserve will relate to

regulating reserve markets.
5.82 Similar to frequency response, regulating reserve requires part-

loaded, flexible plant. Again there will be a requirement to de-couple
electrical and heat loads through the use of supplementary burners.
This will reduce thermal efficiencies and thus increase operating
costs.
5.83 Without the ability to decouple, it is unlikely that a CHP operator

could provide reserve services. Also, the technical specification of gas
turbines would also need to be evaluated to ensure that the desired
ramp rates could be achieved.
5.84 The largest CHP schemes are likely to have direct interfaces with the
BM via dedicated BMUs so the submission of bids and offers should
be straightforward. For smaller schemes, registered in settlement
through a supplier, there would be a requirement for the supplier to
submit bids and offers on behalf of the CHP operator, inevitably
complicating service delivery. In order that smaller operators could
participate in the BM, it may be necessary for suppliers to aggregate
the capabilities of many CHP operators to offer meaningful reserve
volumes to the TSO.
5.85 Overall, large CHP does not appear a natural candidate to provide
reserve services. The complexity of service delivery from such highly
specialised plant, coupled with settlement complications mean that
regulating reserve will continue to be provided by large flexible
power station units with dedicated BM interfaces. Any opportunities
which arise are likely to be linked to the largest and most flexible CHP
schemes.
Network security services

5.86 Currently, the commercial operation of different CHP plants is
extremely variable due to energy market conditions. CHP should be
capable of a relatively high technical availability and hence should be
capable of contributing to the provision of security related services.
However, the ability of each CHP provider would need to be assessed
individually to determine whether contributions could be sourced.
5.87 Given that large CHP may be equipped with AVRs, such plant could
contribute to voltage control on the local network. The ability to
control reactive power may enable scheme developers to connect the
plant to weak distribution networks and avoid network reinforcement
costs. Furthermore, CHP could potentially supply some local reactive
requirements, thus increasing the transport capabilities of the
existing circuits.
91
5.88 The availability of this CHP support would need to be relatively high
for DNO to consider contributions. As has already been discussed,
the CHP operators own concerns regarding site security of supply
may take prudence to the extent the generation will be disconnected
from distribution networks during network disturbances.
Micro-CHP capabilities
5.89 This section discusses the potential for micro CHP to provide ancillary
services and outlines the infrastructure that might also be required.
High-level estimates are provided regarding the costs of the
infrastructure.
Potential for Micro CHP to supply ancillary services

5.90 The micro CHP schemes considered are those used in domestic
applications. They range in size between 1 and 5kW and are normally
connected at 230V. Most schemes employ Sterling engine
technology. In common with large schemes these devices are heat
led. The generators in typical micro CHP devices are of asynchronous
design with no governor or AVR.
5.91 Taken individually, micro CHP cannot meaningfully provide any of the
ancillary services evaluated as part of this work. However when
aggregated together, micro CHP could theoretically provide some
service capabilities. Therefore, a condition precedent for micro CHP to
provide services to either the TSO or DNOs, is that the outputs from
units would need to be aggregated together.
5.92 Should infrastructure be available to coordinate aggregate responses

from micro CHP, it may be feasible to facilitate the provision of
standing reserve and DNO network security services. It would not be
possible for aggregated micro-CHP to provide any low frequency
related services because inductive current inrushes would exacerbate
any low frequency problems and the gradual transition into power
generation would be too slow.
DNO security services

5.93 On LV networks, DNOs could utilise the aggregate output of micro-
CHP generators to offset network demands and support local demand
groups during peak periods. This could ensure compliance with
planning standards without necessitating investments in network
infrastructure.
5.94 In order to deliver the desired contributions to particular Group

Demands, the DNO would need to ensure that the remote
aggregation and operation arrangements were able to target
particular areas with sufficiently high densities of micro CHP. This
92
would enable security contributions to be initiated at any time,

although the DNO would probably need to assume the role of
aggregator and controller in these circumstances46.
5.95 However, if DNOs were only likely to require micro-CHP security

contributions during winter peaks, probabilistic approaches could be
adopted whereby the DNO would accurately predict how much micro
CHP contribution could be relied upon. During winter peak demand
periods, there would be a high likelihood that many micro CHP
installations would be operating.
5.96 Group Demand support from micro-CHP could be relevant to Supply

Classes A, B and C from Table 1 of ER P2/5. This is mainly because of
the favourable timescales for restoration of group demand following
a single circuit outage. The most onerous timescale is 15 minutes to
restore group demand minus 12 MW applicable to class C. This time
scale is comparable to the 20 minutes for generation contracted for
standing reserve in the reserve market to be up and running.
Standing Reserve
5.97 Assuming generation from many micro CHP installations could be
initiated simultaneously, it should be possible for micro CHP to also
contribute towards standing reserve. The infrastructure required to
control large numbers of micro CHP installations would be very
similar to that required for aggregating outputs for DNO security
contributions.
5.98 Assuming both the DNO and TSO required aggregate services from
micro CHP installations, any infrastructure costs could be shared. As
the DNO is likely to require more locational control than the TSO, it
would make sense for the DNO to act as aggregator (however this
would have other implications as explored in Section 6).
5.99 The infrastructure would basically need to comprise communications

to switch the micro generation on or off as required, an interface with
the homeowner’s local control and metering arrangements. The key
issues and options related to these infrastructure components are
discussed below.
Communication
5.100 The objective of remote aggregation is to enable a group of micro
CHP units to be controlled centrally making communication the
46
Contribution of aggregated (controlled) micro-CHP is not considered in the proposed ER
P2/6
93
central consideration. When the generating units involved are micro

CHP units some form of broadcast based communication would
appear to be a sensible means of achieving the required levels of
aggregated response within the required timescales. For example to
achieve a 3MW response from 1-5kW requires simultaneous
communication with 2 to 3 thousand units.
5.101 The units themselves must be equipped with transceivers and be

able to carry out specific instructions as directed by the aggregator
(or central controller). Local control issues and options are discussed
in the next section. Potential communication options are outlined
below.
5.102 Figure 17 below shows a schematic diagram of the communication

process from the TSO to the micro CHP. Due to the large number of
small CHP units it is not practical for the TSO to instruct the units
directly and monitor proof of delivery from each unit. Therefore a
single instruction would be sent out to the aggregator requesting a
specified level of response. The infrastructure required to send this
instruction can take one of several forms.
5.103 The simplest form would be via the telephone using the PSTN or
mobile services.
Figure 17 − Communication process from TSO to micro CHP via the

aggregator
TSO
Single instruction
to aggregator
multiple
instructions to Aggregator
micro CHP units
Micro CHP units
5.104 The communication from the aggregator to the micro CHP units is
more challenging. For this application two-way communication is
essential for:
94
• on/off status reporting and control;

• despatch of CHP generators; and
• metering data communication
5.105 The communications options currently available include:

• Radio tele-switching: (RTS) via radio frequency broadcast;
• PSTN Dial-up: Communication by public telephone;
• ADSL: Asynchronous digital subscriber line allows permanent
connection to the Internet in the home;
• mains signalling (e.g. ripple control); and
• GSM/UMTS: Mobile phone technology, General System for
Mobile (GSM) and its successor Universal Mobile
Telecommunications System (UMTS).
5.106 The RTS system in the UK uses BBC 198kHz transmitters (Radio 4
long wave) to regulate the charging of storage heaters. Because RTS
is unidirectional and tends to have a very low bandwidth it is not
suitable for control and monitoring of micro CHP.
5.107 While offering two-way communication with adequate bandwidth

and wide coverage countrywide the Public Switched Telephone
Network (PSTN) is also not suitable because it does not allow
broadcasting from a central control point. There are also problems of
system integration in the home between a phone line used for
domestic calls and Internet access, and a micro generator control
unit. Provision of a dedicated line would be uneconomic.
5.108 In recent times the introduction of Asymmetric Digital Subscriber

Line (ADSL) services by BT and other operators, allows permanent
connection to the Internet in the home, independent of the telephone.
Broadcasting over the Internet is possible, but the main limitation of
this option is that ADSL coverage does not extend to rural areas, and
the high cost will limit its take up. Broadband cable offers similar
Internet access, with the same limitations.
5.109 Ripple control is the best-known form of mains signalling and it has
been deployed for many years to control water heaters as part of
demand side management. The high cost associated with these
schemes prevents their use on a large scale. However, transmission
across the mains wiring within the home works well as a Local Area
Network (LAN) technology and various proprietary techniques are in
use.
5.110 The current mobile phone technology, General System for Mobile
(GSM) and its successor Universal Mobile Telecommunications
95
System (UMTS), are capable of supporting both bi-directional and

broadcast data communications over most of the UK. This technology
is the most promising option for application in monitoring and
control of aggregated micro CHP participating in a reserve market.
5.111 The particular features of GSM that are well suited to this application
are the Short Message Services (SMS). A detailed description of
these services has been discussed by Boait 200247. In summary SMS
services comprise SMS Point to Point (SMS-PP), text messaging
service, and Cell Broadcast (SMS-CB). Message rates of 2,500 per
second can be processed by current high performance SMS systems.
This would readily support, for example, a daily status report from
millions of generators to the central database.
5.112 SMS-CB allows a data message of between 1 and 15 pages, each of

82 octets, to be transmitted to all GSM receivers in a specific
geographical area comprising one or many cells. Because each
receiver has an association with only one cell, it is possible to
broadcast different messages on adjacent cells with no ambiguity in
the overlap zone. The size of cells varies from a minimum diameter
of about 200 metres in urban areas to 15 km in rural areas. The
combination of an efficient broadcast mode and fine geographic
granularity would allow the Radio Tele-switch concept to be extended
to create sophisticated control and data exchange protocols.
5.113 A further advantage of SMS services is that data carried by these

protocols is protected by the forward error correction and encryption
included in the GSM standard. This will allow a direct interface to the
application layer software performing the required control functions.
Local control for micro CHP and Metering

5.114 To allow the various system components within the home to be
procured or replaced separately, but integrated successfully, a
standardised home network is required. At present there are several
competing protocol standards of which the European Home System
(EHS), BACnet, and LONTalk/LONWorks are particularly well
developed for heating and electrical control applications.
5.115 The most convenient communications medium within the home is

the mains wiring, for which suitable LONTalk modules are already
available.
47 P. J. Boait, ‘Telecommunications Architectures And Protocols For Control And Despatch

Of Embedded Micro Generators’, Fifth International Conference on Power System
Management and Control, 2002. (Conf. Publ. No. 488), 17-19 April 2002, Pages:329 -
334
96
Data transfer and control protocols

5.116 As discussed above, protocols are required for generator status
reporting and control, despatch of CHP generators and
communication of metering data.
Status reporting and control

5.117 To allow accurate aggregation each generator should report that it
has been enabled for normal operation. CHP units should also report
the heating control timer settings that will determine when they can
generate.
5.118 The central controller should be able to disable generators singly or

in an area (defined by cell broadcast).
Micro CHP generator despatch

5.119 The use of this SMS messaging to despatch domestic CHP
generators can be achieved by dispatching a single instruction to
several units to increase or reduce output. The primary
communication from the aggregator could also be accomplished
through a smart meter, which would in turn communicate with micro
CHP unit via the mains. Since the smart meter has to communicate its
reading to the central point, there is a lot of merit in using a single
point for all communication between the central point and a
particular site. Again this could favour the DNO as aggregator.
5.120 In normal operation the heating output will be controlled by a wall

thermostat which triggers the heating when the room temperature
falls below a threshold set by the consumer, and cuts it off when the
temperature rises past that threshold. Where water heating is also
provided by the micro CHP a similar control regime would also be
available.
5.121 The heating operates on a duty cycle determined by the heat loss rate
of the house, which in turn depends on the difference between the
thermostat setting and the external air temperature.
5.122 Dual heat supply functions (space and water heating) enhance the
capability and duration of the micro CHP unit. Remember that for
standing reserve the TSO’s instructed level of output should be
provided within 20 minutes and last for at least 20 minutes with the
recovery period being no more than 20 hours.
Cost estimates
5.123 It is reported by Boait, that depending on the extent to which cell
broadcast is taken up by PTOs for other applications, it should be
97
possible with large scale deployment (>100,000 units) to obtain a cost

of 2p per unit or below for overnight message exchange, giving an
annual cost of £7.30 per unit. The cost for dispatching SMS
messaging as and when required would not be very different
depending on how frequently the service is called upon. It is also
reported that the cost of the GSM transceiver if integrated with the
domestic control unit should cost no more than £50. These costs
would have to be compared with income earned from providing the
service to decide whether it is worth making the investment or not.
Other technical and commercial issues

5.124 There are number of technical and commercial issues that must be
considered in the application of micro CHP to supply reserve to TSOs
and security services to DNOs. These issues are discussed briefly
below.
Technical
5.125 It is envisaged that the collective output of a group of micro CHP
units requested to generate power (for reserve or security services)
from cold will start high (but less 100%) and decay as shown in Figure
18.
Figure 18 − Response scheduling of groups of micro CHP units
% MW
Response
100%
95% Average
response
over time
Time (minutes)
T1 T2 T3
5.126 The initial power output will in general fall below 100% as some units
may fail to start or may already be running. In general units will run
for periods ranging 30 to 60 minutes and switch off depending on
maximum temperature settings for water heaters and space heating.
After a period of cooling off, the units would restart until the
temperature constraints again force them to switch off. In order to
ensure that a certain level of response is sustained the DNO, acting as
98
aggregator, would have to organise the micro CHP units into groups
with staggered starting times T1, T2 and T3 as shown in Figure 18.
5.127 The response of micro CHP units will vary seasonally and with time
of day. In winter for example it would be expected that most units
would already be running during the day to keep homes warm
whereas at 3:00 AM in the morning most units would be expected to
be off as people will be asleep. In summer, all space heating may be
switched off leaving only water heating. The duration the unit is likely
to be able to run will be significantly shorter on a hot summer
afternoon than on cold winter morning. In addition, customers will
retain overall control of the heating equipment within the home and
may override DNO instructions, thus reducing the availability of the
service.
5.128 The data needed to derive typical micro CHP group response curves
shown in Figure 18 would be gathered over time.
Commercial
5.129 On the commercial side, suppliers have contracts with final
customers and with DNOs. DNOs also have contracts with TSOs. In
operation of the system the DNO who has no direct contracts with the
final customers will effectively issue instructions to operate their CHP
units. As there are commercial implications each time a DNO (or TSO
via the DNO) calls upon a customer to provide either standing reserve
or security related services, the DNO would have to notify suppliers
as well. Therefore suppliers would also have to be equipped with SIM
cards to enable them to receive notification via SMS each time their
customers are called upon to supply a service.
5.130 The cost implications to the customer and hence the compensation
they would expect to receive for service delivery would vary
seasonally and with time of day. The cost to the customer of
providing the service is composed of the fuel cost (gas) incurred less
the income earned from energy sales for the duration of service
delivery. The economic justification for micro CHP is based upon
customers’ requirements for heat and electricity is a by-product of the
heating process. Therefore if the customer has no use for the heat
generated during the time the service is being delivered they would
seek full cost recovery (assuming the micro CHP unit could somehow
dump heat). Conversely, if the heat could actually be used within the
house, then the cost would be lower. It may not be straightforward to
determine whether or not the heat was needed at the time the service
was called upon. It might be simpler to simply compensate the
customer assuming the heat was surplus to their requirements.
Clearly this is a subject for further debate.
99
5.131 The other interesting issue relates to performance when called upon
to provide the service. It is to be expected that the performance of
different customers when called upon to provide a service will vary
for a whole host of reasons. For example a customer may not
respond because their micro CHP unit may already be running or
there could be failure in communication.
Standby Generation
5.132 Diesel generators are frequently used to provide standby generation
for industrial and commercial operations. They vary in size but tend
to be less than 5MVA and are normally connected at 11kV or 33kV.
Range of services
5.133 Most diesel sets use synchronous generators fitted with a droop
governor and an AVR as they are required to operate as stand alone
units. In theory therefore diesel generator sets could provide
frequency response and reactive power services. However because
the machines are normally on standby, they cannot provide
frequency response services as these services can only be provided
by part-loaded machines that are already running and synchronised
to the grid.
5.134 Standby diesel is more likely to provide standing reserve to TSOs and
security (and perhaps niche service quality related services to DNOs).
Depending on size, some aggregation may be required to realise
these services. The infrastructure requirements to facilitate
participation of standby diesels in standing reserve, security and
service quality markets are discussed below.
Infrastructure requirements remote start-up and communication

5.135 Unlike the micro CHP case where there are potentially many
thousands of units, the number of standby diesels is likely to be a lot
fewer, most likely in the region of hundreds for a given area. The
infrastructure requirements for an aggregated service from a group of
diesel generator sets would mainly comprise metering and the
communication infrastructure to switch the generation on or off as
required. This infrastructure could be to a large extent similar to that
required to facilitate micro CHP participation in standing reserve and
security services markets for individual stand by operators.
5.136 As discussed earlier, a consequence of the 3MW participation

threshold has been that aggregated standing reserve services have
already developed. These aggregation arrangements are much
simpler than those proposed for micro-CHP as they apply to
customers with a relatively small number of standby generators
100
(typically <20) or customers with a ‘large’ standby generator. The

infrastructure approach adopted utilises a dedicated personal
computer provided by the TSO and an iSDN communication link
between the TSO and the aggregator/customer, which is used to
issue service initiation instructions. Dedicated communication and
control arrangements, installed by the customer, remotely start the
standby plant and monitor ongoing operation. Such data is also fed
back to the TSO.
5.137 The costs of the existing arrangements are high and not necessarily
scaleable. The economics of such service provision is justified by the
size of standby generators utilised. To see a step change in the extent
of aggregation undertaken, lower cost control infrastructure would
need to be developed.
Infrastructure to facilitate operation in parallel with the grid

5.138 In order for standby units to provide reserve and security services,
they would have to operate in parallel with the grid. Diesel units
purchased specifically for standby duty may not have the required
facilities and infrastructure to facilitate this mode of operation. At the
very least the following hardware and facilities would be needed:
• synchronising facilities; and
• enhanced protection.
Synchronising facilities
5.139 Synchronising two separate alternating current systems is a well-
established practice. Three conditions must be fulfilled before the two
systems can be connected; 1) the phase angle, 2) frequency and 3)
voltage magnitude differences between the two systems must be
within acceptable tolerances. This is to reduce the amount of current
flow when the two systems are connected, hence avoiding any
damage to transformers and other equipment such as distributed
generation.
5.140 There are several existing devices that are used to check
synchronism before two ac systems are connected to together. Some
of the common ones are synchroscope, phase angle voltmeter,
synchronising check relay and synchronising relay that checks the
difference in phase angle, frequency and voltage between two
systems before closing the circuit breaker to connect the two
systems.
5.141 The synchroscope and phase angle voltmeter are used in the
situations where circuit breaker is closed manually. The
synchronising check relay is used to provide an electrical interlock in
101
order to prevent closing of the circuit breaker when the frequency,

voltage and phase angle differences between the two systems are not
within the acceptable limits.
5.142 Automatic synchronization equipment would be preferred for reserve

applications as the time it takes to call out an operator to carry out
manual synchronisation may exceed the 20 minutes time stipulated
for standing reserve to be up and running. Where automatic
synchronization equipment is fitted, excitation and governor control
of the diesel unit will regulate the terminal voltage and speed of the
generator to match the grid frequency and voltage automatically.
5.143 Synchronising equipment is standard and machines that do not have

it could be retrofitted if required.
Protection
5.144 When a standby diesel unit is to be operated in parallel with the grid
it is important to ensure the machine is equipped with appropriate
protection to protect it from the grid, which is a very large source of
fault current. Therefore basic generator protection including in
particular reverse power, negative phase sequence, over-current and
earth fault would have to be installed. Again these protection devices
are standard and can be installed at relatively low cost.
Summary of theoretical DG capabilities

5.145 The ancillary service capabilities of renewable and non-renewable
technologies are summarised in Table 16 and Table 17.
Table 16 − Summary of renewable technology capabilities

DG
DG Technology
TechnologyType
Type
Ancillary
Ancillary Wind
Wind Wind
Wind Land
LandFill
Fill
Biomass
Biomass Solar
SolarPV
PV Hydro
Hydro
Service
Service non-DFIG
non-DFIG DFIG*
DFIG* Gas
Gas
Size
Size <<50
50MW
MW >50
>50MW
MW 1–100MW
1–100MW 11––10MW
10MW <100
<100kW
kW >>1MW
1MW
Frequency
Frequency HF
HFonly
only HF
HFonly
only HF
HFonly
only
Reserve
Reserve Possible
Possible Possible
Possible Possible
Possible Possible
Possible Possible
Possible Possible
Possible
Reactive
Reactive
Network
Network Limited
Limited
Support
Support
Future
Future Future
Future Future
Future
Black
BlackStart
Start islanding?
islanding?
* Wind Farms <50 MW may employ DFIG machines in future
Table 17 − Summary of non-renewable technology capabilities

DG
DG Technology
TechnologyType
Type
Diesel
Diesel&&
Ancillary
Ancillary CCGT
CCGT Large
LargeCHP
CHP Micro
MicroCHP
CHP OCGT
OCGT
Service
Service (Standby)
(Standby)
Size
Size >100
>100MW
MW 1-100
1-100MW
MW 11––55kW
kW <<50
50MW
MW
102
Frequency
Frequency Limited
Limited Limited
Limited
Possible:
Possible:High
High
Reserve
Reserve Possible
Possible penetrations
penetrations
Reactive
Reactive
Network Possible: High
103
6. COMMERCIAL & TECHNICAL FRAMEWORK
6.1 This section explores potential arrangements for the provision of

different ancillary services from distributed generation in terms of:
• service recipients, providers and intermediaries;
• consistency with the current commercial arrangements; and
• new commercial arrangements.
Service recipients, providers and intermediaries
Service recipients
6.2 The primary recipients for the selected ancillary services will be either
the TSO or individual DNOs.
6.3 For the purpose of this work, TSO frequency response and TSO
reserve have been regarded as non-locational national services. By
contrast, TSO reactive power and all the DNO-centric services have
been treated as being highly locational, i.e. the position of the service
provider on the recipients network has been regarded as critical.
Service providers
6.4 Consistent with the scope of this work, the parties evaluated as
potential providers of the above services have been the various forms
of distributed generation rather than demand side participation
(which have been specifically excluded from this study). As
distributed generation is a broad term encompassing many
generating types, the work has focused on existing and near
commercial DG technologies.
6.5 Although most forms of distributed generation will have a theoretical

capability to provide many of these ancillary services, it will be not
possible to make absolute statements regarding the service
capabilities of different generation types due to the wide variety of
other considerations influencing service delivery. Such other
considerations include:
• size of generator;
• generator availability: Technical and commercial;
• intermittency of generation;
• location and voltage of Connection;
• extent of Active Management on the local DNO network;
104
• presence of network constraints impacting upon generation

operation;
• interactions with other generator services;
• sophistication of generator control infrastructure; and
• staff presence.
6.6 Whilst absolute statements confirming technology capabilities are not

appropriate, it is possible to outline the generic capabilities for the
different generation types. These generic capabilities are discussed
further in Section 4.
6.7 Other non-technological considerations will impact upon service

delivery, reinforcing the requirement that most DG installations will
need to be evaluated on a site-specific basis to determine their actual
ancillary service capabilities.
Scope for intermediaries

6.8 It is envisaged that in many cases, it will be possible for a direct
relationship to be established between service provider and recipient.
This will be especially true for the larger distributed generators. This
does not necessarily preclude alternative arrangements whereby the
provision of ancillary services is facilitated by an intermediary
positioned between the recipient and provider.
6.9 The primary driver for indirect arrangements relates to generator size.
In many instances, individual small generators will be unable to
provide sufficient output to satisfy recipient requirements. In such
cases, it may be possible for small generators to contribute
collectively by aggregating their individual outputs to create a useful
of level service for a recipient. Aggregation activities may be suited to
the following range of different market participants:
• suppliers;
• DNOs;
• customers (owning a number of distributed generators); and
• 3rd party operators.
6.10 In the case of services being provided to the TSO, especially response
and reserve, aggregation could remove TSO operational constraints
regarding the initiation of a service from multiple generators. From a
system operation perspective, it is unlikely that the TSO will want to
maintain potentially thousands of interfaces with small individual
generators, especially in cases where service delivery cannot be
guaranteed.
105
6.11 In circumstances where delivery uncertainty will undermine a

provider’s ability to offer an attractive service, aggregators could
become involved and employ statistical techniques across a number
of similar providers to reduce recipient uncertainty and hence
increase service attractiveness.
6.12 It appears that aggregation activities could be particularly well suited

to non-locational, national services, as the number of potential
service providers can be maximised. This does not preclude
aggregation services also evolving for locational services.
6.13 The characteristics of different aggregation activities are developed

further later in this Section.
Consistency with the current commercial arrangements
Energy trading and settlement

6.14 It should be noted that the market structures for electricity currently
differ between England & Wales and Scotland although it is intended
that these arrangements will be harmonised across Britain from April
2005 following BETTA implementation. For the purposes of this
report, a post BETTA outlook has been adopted.
6.15 In the absence of exemptions, all large and grid connected generators
(as outlined in paragraph 2.5) are required to comply with the Grid
Code, the Connection and Use of System Code (CUSC) and the
Balancing and Settlement Code (BSC). Operationally, such generators
are required to trade and settle their outputs through a dedicated
generation BMU account under NETA.
6.16 By definition, distributed generation is not connected to the

transmission system and therefore most DG is not required to comply
with the Grid Code, CUSC or BSC. Instead, the energy from
distributed generation is traded and settled as negative consumption
through a supplier’s demand BMU, i.e. supplier aggregate
consumption under each BMU is effectively reduced by the output
from distributed generation. Consequently, it is important for
Suppliers to accurately forecast generation output in order to manage
their imbalance exposures in the BM.
6.17 These settlement arrangements have advantages and disadvantages

for distributed generators. The avoidance of a direct interface with the
BM has costs benefits for the distributed generator in terms of
avoided operational interfaces (hardware, software and staff),
simplified information flows and simplified contracting
arrangements. Also, as distributed generation metering points are
106
registered on DNO Metering Point Administration Systems (MPAS),

this facilitates straightforward changes of supplier (purchaser in the
case of a generator) through the processes defined in the Master
Registration Agreement (MRA). The Supplier-Hub principle also
reduces the administrative burden on generators by delegating
responsibilities for metering, data collection and data aggregation to
others.
6.18 The main disadvantages of this indirect approach to trading and

settlement are reduced flexibility in terms of BM participation and the
requirement to share any trading benefits with suppliers.
6.19 In the context of ancillary service provision, where distributed

generators are potentially required to change output levels at short
notice, supplier exposures to energy imbalances may increase,
especially where instructions are issued within NETA Gate Closure
timescales. These exposures are discussed in greater detail later in
this Section.
6.20 Similarly, TSO instructions requiring distributed generators to change

output within Gate Closure timescales may require Bid/Offer ladders
to be submitted by the supplier to ensure payment. In such
circumstances, the supplier would receive corresponding payments
from the TSO, the benefits of which would need to be factored into
any commercial agreement between the supplier and the distributed
generator.
6.21 Whilst such indirect trading mechanisms, via supplier BMUs, are
perhaps not ideal for ancillary service provision, these arrangements
do not preclude the development of such services in the future. Also
it should be recognised that these arrangements do provide
generators with a cost effective means of trading their main energy
outputs.
Supplier Renewable Obligation

6.22 The Renewable Obligation requires suppliers to source an increasing
proportion of their electricity requirements (by volume) from
renewable sources until 2015. Suppliers comply with this obligation
by procuring Renewable Obligation Certificates (ROCs). Should
Suppliers fail to procure sufficient renewable generation to meet their
targets, they are required to buy-out any shortfalls by paying into the
RO Buy-out fund at an indexed rate of £31.39/MWh.
6.23 For each Renewables Obligation period, total buy-out payments

received by Ofgem, together with any interest earned on them, is
distributed amongst those suppliers who have correctly presented
107
ROCs in proportion to the total number of correctly produced ROCs

for the period.
6.24 The net effect of this mechanism is to enhance the value of renewable
generation to a current value of approximately £52/MWh. The high
value of renewable electricity exports has a significant impact on the
revenues of renewable generators. These cash flows are evaluated in
Section 7.
6.25 As a high proportion of renewable generation is connected to

distribution networks and thus settled through suppliers’ NETA
demand accounts, the administrative complexity of administering
Renewable Obligation compliance is therefore simplified.
6.26 Overall, as there is currently a shortfall of renewable generation to

the extent that not all suppliers are able meet their targets, ROC
prices are forecast to remain high. One effect of high ROC prices is
that renewable generators are strongly incentivised to maximise
outputs to avoid foregoing any ROC income. Similarly, suppliers are
incentivised to comply with the Renewable Obligation and will often
require renewable generators to maximise their outputs.
6.27 The impact of these incentives on renewable generators to maximise

output will have significant implications regarding the attractiveness
of any ancillary services requiring part-loaded operation.
Connection and Operational agreements

6.28 All DNOs require connection agreements with individual distributed
generators. In the supply market, the arrangements for demand
customers are simplified through the use of standardised connection
terms, applicable to most customers. In non-standard situations (e.g.
industrial sites), DNOs often adopt a more detailed, model-form
agreement, which was developed nationally, and can be tailored to
the requirements of each customer’s connection. As yet, no such
arrangements have been developed for distributed generators.
Indeed, considerable regional variations exist in relation to the terms
of connection for distributed generators.
6.29 In instances where the connection of a distributed generator to a

distribution network requires significant and costly system changes48,
DNOs can sometimes offer less expensive alternative arrangements
where the generator is prepared to accept operational constraints,
e.g. requirements to reduce output or cease generation under certain
48
This situation may be somewhat ameliorated by the move to ‘shallowish’ DG connection
charging regime as proposed from 1 April 2005.
108
pre-defined network conditions. Such arrangements often appear

attractive to distributed generators, as the cost savings can be
significant and the operational constraints are manageable, although
this may then preclude the provision of certain ancillary services.
6.30 Both connection and operational agreements provide an existing

contractual relationship between DNOs and distributed generators,
which could be extended to incorporate terms for ancillary service
provision to DNOs.
Use of system
6.31 Distribution Use of System Agreements (UoSAs) are bilateral
contracts predominantly between DNOs and suppliers (the primary
users distribution systems). These agreements are important to DNOs
as the bulk of their regulatory income is derived through Distribution
Use of System (DUoS) charges.
6.32 Historically, distributed generator connections have been paid for

according to a deep connection charging policy, so it has not been
necessary for DNOs to apply use of system charges upon distributed
generators. From April 2005, the connection charging arrangements
for new distributed generation will move from deep onto a shallower
basis, i.e. a lower initial capital contributions will be sought from
connectees although ongoing use of system charges will be
introduced where network reinforcement is required.
6.33 During the next regulatory price control period, there is an

expectation that a more cost reflective pricing mechanism will be
developed for users of distribution networks, including generators.
Under such arrangements, it will be possible to accommodate
services provided to and services from generators in DUoS charges.
Taken to the extreme, it could be feasible for generators, providing
significant levels of ancillary services to DNOs, to receive negative
DUoS charges.
6.34 Whilst cost reflective DUoS charging represents an interesting

medium term development with respect to ancillary service
provision, it should be recognised that existing UoSAs do not as yet
fully accommodate distributed generation and amendments will be
required to introduce direct Use of System charging.
Commercial arrangements for DG ancillary services

6.35 Dependent upon the nature of the ancillary service provided and the
different parties involved, there are a number of different commercial
109
arrangements that could be adopted to reward generators for service

provision.
6.36 The selection of the most appropriate commercial arrangement for

each service will largely depend upon the number of service
providers able to offer the required service and the financial
materiality of the market, relative to the costs of operating the
commercial arrangement.
Market Opportunities
6.37 A pre-requisite for markets or market mechanisms to develop, is the
requirement for multiple providers to be capable of providing each
service or multiple buyers requiring particular services.
6.38 Another factor facilitating the development of competitive market

mechanisms is the standardisation of product offerings to minimise
differences in provider value propositions.
6.39 Whilst it is possible that market based arrangements could emerge

with respect to national, non-locational services (e.g. frequency
response and reserve), such approaches will be less suitable where
services are bespoke or there is lack of alternative service providers.
Such considerations will be particularly relevant to the highly
locational DNO services, especially whilst DG penetrations remain
low.
6.40 In recent years, the TSO arrangements for the procurement of

frequency response and reserve (both regulating and standing) have
become increasingly market based and this trend appears set to
continue. One possibility for increased DG participation in these
markets will be to extend the current arrangements such that smaller
providers can participate. However, it should be recognised that the
TSO’s current arrangements do not actually preclude participation
from smaller generators, albeit through aggregators.
6.41 One means of increasing small generator participation in TSO

ancillary service markets would be through an expansion of
aggregation services. To date, the development of aggregation
services has been slow with only one independent aggregator
currently active in these markets. As aggregation is a commercial
activity, its attractiveness depends upon a number of wider market
considerations such as market structure, the levels of generation
overcapacity and prices. The attractiveness of expanded aggregation
services is further discussed later in this Section.
6.42 Market-based mechanisms that are particularly well suited to

competitive service provision, especially in monopsony situations,
110
include tender based approaches whereby the service recipient

defines the service requirement and requests potential providers to
submit proposals for the service. The extent to which service
recipients define their service requirements depends upon the
recipient’s desired outcome. In instances where recipient service
requirements are prescriptive, a price focussed tendering process will
result. Alternatively, where service specifications are less
prescriptively defined, providers have more latitude to influence the
service offering, which can encourage innovation.
6.43 Where a service recipient is primarily focussed upon price,

standardised approaches can be appropriate although recipients
must ensure that service requirements are not over specified as this
only serves to increase the cost of all provider offerings. This issue is
particularly relevant to ancillary service provision at the TSO level, as
the mandatory capabilities of certain generator types, as defined in
the Grid Code, are currently under review.
6.44 It should be noted that, whilst mandatory generator capabilities can

facilitate market-based mechanisms, such approaches do not
guarantee the delivery of least cost solutions.
6.45 Other, more localised, ancillary services for which market-based

mechanisms could be developed (at a distribution level) include TSO
reactive power displacement and DG contributions to network
security. In both instances, it would only be appropriate to consider
competitive approaches to service procurement once sufficient DG
was located within a particular area.
Non-market based approaches

6.46 A range of alternative commercial arrangements are available for
situations where insufficient generators are available to merit market
based approaches. These could include:
• bilateral arrangements;
• cost reflective approaches; and
• administered solutions.
6.47 Bilateral arrangements represent a highly flexible approach whereby

two willing parties agree mutually acceptable terms for service
provision and delivery. Such arrangements are usually formalised
through legal contracts, which can be of fixed duration or ‘evergreen’
in nature.
6.48 Difficulties can arise with bilateral arrangements where one party,
either the buyer or the seller, has disproportionate power in
111
negotiations. This can be especially relevant in monopoly or

monopsony situations where regulatory guidance can be required.
6.49 Bilateral arrangements could be particularly relevant for ancillary

services, especially regarding those services provided to DNOs, e.g.
generator security contributions, IIP services and voltage support. To
ensure negotiations are equitable, it could be necessary for the
regulatory guidance to be issued regarding valuation methodologies
and procurement principles.
6.50 Also, in order to ensure that a consistent approach is adopted

nationally, it could be beneficial to develop standardised bilateral
contractual forms, which could be localised by DNOs to reflect
specific situations. The benefits of such an arrangement would be
simplified and reduced cost contracting for both parties and
consistency of approach for distributed generators, irrespective of
where they chose to operate in the country.
6.51 Cost reflective approaches could also be adopted whereby recipients

reward providers according to the costs incurred in delivering the
service. Similar cost pass through arrangements can also be
developed. Difficulties can arise where parties fail to agree the
associated costs of service provision. Other disadvantages include
the absence of any strong incentives on providers to reduce the cost
of services.
6.52 Administered solutions often require the intervention of an

empowered third party, such as a regulator, to determine the
commercial arrangements for a service, including reward
mechanisms and prices. It should be noted that administered,
centrally managed, solutions are the least favoured by regulators and
market participants alike.
6.53 Reasons for the unpopularity of such approaches include the burden
upon administrators, the requirement for third party intervention in
market operations (which can influence impartiality), a lack of
flexibility in terms of service provision and the inability to capture and
reward enhanced services. Consequently, such approaches are often
only adopted as a last resort.
Contractual options
6.54 For each potential distribution level ancillary service, there will be a
variety of possible contracting options. As has already been outlined
in the review of TSO ancillary services, a range of contractual
structures already exist. These include:
• mandatory and commercial arrangements for frequency response;
112
• for commercial frequency response services, there is also a

distinction between firm and optional contracts; and
• for standing reserve services, providers can select whether they
provide services on a flexible or committed basis.
6.55 It is not envisaged that the emergence of new distribution level

providers of frequency response and reserve will necessitate
significant changes to these arrangements. As arrangements for both
of these services can already accommodate distributed generation, it
is likely that any changes should relate to the minimum size of
participants.
6.56 For services to DNOs, similar contractual forms could also be adopted
although it appears likely that for network support related services,
DNOs will be keen to ensure service delivery which would thus favour
firm and committed approaches.
6.57 There is an ongoing discussion regarding Grid Code requirements for

distributed generation. Whilst mandatory arrangements will feature
for the largest distributed generators connected at or above 33 kV,
many DG ancillary services are likely to be commercial in nature.
6.58 As reliable service delivery could be critical to DNOs, there will be a

high probability that contracts will need to address the issues
surrounding non-delivery of service.
6.59 Similarly, in situations where service recipients seek to influence

generator-operating regimes, contractual provisions regarding
enhanced commercial availability may be required.
Payment arrangements
6.60 There are a variety of different remuneration arrangements, which
could be utilised to reward generators for the provision of services to
DNOs and TSOs. These include:
• Flat fees: These represent a simple arrangement whereby the
generator would receive payments irrespective of season, time of
day, running status, delivery requirement and quantities delivered.
• Time based charges: These are effectively a variant of the flat fee
approach but time capped according to windows within which the
recipient requires the service.
• Capacity based charges: Capacity based arrangements can be
used to secure a proportion of a generator’s output where the
provider does not necessarily require the full generation
capability.
113
• Option fees based on availability: Similar to capacity charges,

although these can incorporate time based elements in addition to
capacity in order that the recipient pays to secure capacity as
required.
• Exercise fees based on utilisation: Exercise fees can be useful in
that they provide a linkage to actual usage of a service and output.
In an energy context, such arrangements are often used to recover
operating and fuel costs.
• Reduced DUoS payments: Whilst each of the above options can be
used as an incremental means of remunerating generators for
new services provided, incorporating the value of such service
within use of system charges represent a more holistic approach.
6.61 It should be noted that such approaches are not mutually exclusive,
i.e. combinations of the above approaches could be implemented.
The advantages and disadvantages of each approach are outlined in
greater detail in Section 7.
Procurement Arrangements for Different Ancillary Services

6.62 From Sections 4 and 5, it can be concluded that the most likely
ancillary services to provided by distributed generators will include:
• Frequency response and Standing Reserve; and,
• Network Security Contributions.
6.63 Potential procurement arrangements for each of these services are

discussed in greater detail in this section.
Frequency Response and Standing Reserve Services

6.64 DG already has the ability to provide frequency response and
standing reserve services to the TSO through either direct contractual
relationships or indirectly through aggregators. It is envisaged that
the current arrangements for commercial frequency response
services and non-BM standing reserve will continue.
6.65 It should be noted that the majority of distributed generators seeking

to provide these services would be non-renewable due to the strong
incentives to maximise generation outputs, i.e. avoidance of part-
loaded and standby operation.
6.66 The main constraints regarding the participation of the smaller

generators in each of these markets relate to the technical capabilities
of generating equipment (as discussed in Section 5), the commercial
attractiveness of providing the service to the TSO (revenue available),
114
the infrastructure required for participation and particularly the

availability of aggregation services.
6.67 It is anticipated that the TSO will continue to require contributions

from providers of a scale that is useful to the management of the
transmission system. As response and standing reserve both require
service delivery in quantities of over 1 MW, any direct participation
opportunities will only apply to the larger distributed generators, i.e.
those already participating.
6.68 In order for smaller generators (<1MW) to participate in either of

these markets, it will be essential for new aggregation arrangements
to evolve. The current aggregation arrangements require expensive
dedicated communication and control infrastructure, which would be
cost prohibitive for smaller generators. Alternative arrangements will
be required potentially based upon GSM type technologies as
discussed in Section 5.
6.69 Assuming that infrastructure barriers can be overcome, distributed

generators with either frequency response or standing reserve
capabilities will probably require the services of aggregators.
6.70 A range of different parties could provide aggregation services. These

include:
• dedicated 3rd Party Aggregators;
• suppliers within large vertically integrated groups;
• stand alone suppliers; and,
• DNOs.
6.71 It is interesting to note that aggregation services have been slow to

develop, only being offered by stand alone suppliers and dedicated
3rd party aggregators, i.e. the largest market participants do not offer
such services to distributed generators.
6.72 For DNOs this is perhaps not surprising, as aggregation requires

active energy trading capabilities and market interfaces (e.g. BM),
which DNOs do not have. Whilst the aggregation of energy outputs is
not a natural DNO activity, this does not preclude DNO involvement
in instances where the DNO requires delivery of other services, e.g.
network security contributions from micro-CHP.
6.73 The reluctance of the large vertically integrated groups to provide

these aggregation services can perhaps be explained by the potential
impact on their own transmission connected generation portfolios. As
transmission connected generators currently provide the bulk of
115
frequency response and standing reserve, any increased participation

from DG would effectively displace their own plant.
6.74 Another feature of standing reserve, which undermines the

attractiveness of independent aggregation services, is where the
aggregator must assume responsibility for the delivered energy.
Unless the aggregator can sell the aggregate DG output in the
wholesale market, this energy will be spilled in the BM at potentially
low prices. It would not make economic sense for any supplier to pay
a premium for such energy as the supplier was equally well placed to
procure the energy directly. Consequently, such aggregation only
appears attractive for aggregators with associated supply businesses.
6.75 Independent aggregation services (where the aggregator does not

assume any responsibility for the delivered energy) rely upon a
supplier’s registration of the distributed generator in settlement to
offset the energy produced. In such instances, aggregator instructions
to distributed generators to provide standing reserve will impact
upon the associated supplier’s BM imbalance exposure. This is not an
ideal situation for suppliers, although the financial implications
associated with the delivery of unpredicted energy volumes into a
demand account are not currently onerous. The low volumes of
standing reserve energy, relative to the overall size of a supplier’s
NETA demand account, may not be significant. Also any energy
delivered would cause the supplier demand account to go ‘long’ such
that the supplier would receive a payment from the BM.
6.76 Whilst the latter option is currently a minor feature of the ancillary
services market for standing reserve, and suppliers tolerate the
related imbalance implications for their demand accounts, it is not
clear that this arrangement is robust to large-scale expansion.
6.77 The contractual options for aggregation are illustrated in Figure 19.
As can be seen, a variety of aggregation contractual arrangements
are possible depending upon which parties undertake the
aggregation activity. The right hand arrangement could be utilised in
situations where the DNO was procuring other services from the
same portfolio of distributed generators, e.g. security from micro-
CHP. Also similar arrangements could evolve if the DNO (or any other
party) had invested in a communication infrastructure between a
central point and customer premises, e.g. smart metering initiatives.
6.78 It can be concluded that increased participation from smaller

distributed generators in the frequency response market and
especially the standing reserve markets, will require new forms of
aggregation to evolve, utilising lower cost communication
infrastructure.
116
Figure 19 − Contracting options for Aggregation
TSO
Supplier Aggregator DNO
Supplier
Generator
Contract
Network Security Services

6.79 The high-level valuation methodology adopted for all network
support services relate to the deferred or avoided costs of network
investment. This assumption would apply to network security
contributions, voltage support and power flow management.
6.80 Distributed generation can also substitute for installation of remote

control and switching facilities, and as explained in section 4, this is
an area that is particularly relevant when considering security
contribution of intermittent generation, such as wind.
6.81 As such network services are all highly locational in nature, it is likely
that bilateral contractual arrangements will evolve before there is
sufficient DG penetration to enable more market-based approaches.
6.82 Also, as network security services appear to be the most promising

DNO service, especially in the medium term, this section focuses on
the procurement, valuation and funding arrangements, which could
apply to these.
Historic Procurement of DNO Network Security

6.83 Before evaluating the potential procurement process for DG sourced
network security, it is worth reviewing the arrangements which have
historically been adopted for network asset based security
contributions.
117
6.84 By monitoring network usage on a local basis, DNOs are able to

determine whether any areas of their network are likely to become
non-compliant with network security standards. Consequently DNOs
will have records indicating the margin by which demand groups
exceed ER P2/5 planning requirements.
6.85 Should a situation arise where a particular demand group is drifting

out of compliance (e.g. through load growth), the DNO will typically
develop options to resolve any security shortfalls. Typically this will
involve network based solutions due to the low penetration of
distributed generation and the restricted recognition of DG security
contributions as outlined in ER P2/5.
6.86 When developing network solutions, DNOs must estimate the

magnitude of a particular security requirement over a wide timeframe
due to the long operational lifecycles associated with network assets,
e.g. DNOs would not wish to replace a new transformer as a
consequence of inaccurate load growth forecasting.
6.87 After designing the preferred network solution to a particular security

problem, the DNO is then able to fund the purchase and installation
of the related assets through CAPEX budgets.
6.88 A consequence of such funding is that the DNO is able to secure a

long and guaranteed rate of return on the assets employed,
irrespective of whether the initial network usage assumptions proved
to be accurate. The DNO is thus protected from risks associated with
stranded assets.
6.89 An interesting feature of this procurement process is that the DNO

identifies the initial problem, develops potential solutions and
implements the necessary upgrades, i.e. the DNO undertakes the role
of purchaser and provider of the service. Also, it should be
recognised that only the DNO understands the network security
requirements. These considerations will be relevant when
considering competing security arrangements from non-DNO
sources.
Proposed network security procurement process including DG

6.90 In the same way as at present, DNOs would monitor their networks to
ensure compliance with security standards. In the event of a demand
group drifting outside planning standard compliance, the DNO would
determine nature of any security shortfall in terms of timescale and
duration. The DNO would also need to identify any constraints
regarding the application of network solutions, e.g. environmental or
planning obstacles.
118
6.91 Upon determining the network security requirements to ensure

planning standard compliance, the DNO would then be required to
determine whether an existing or a proposed (firm) distributed
generator could provide the necessary contribution within the
demand group.
6.92 The contribution of different generation technologies would be

determined by factors outlined in the ER P2/6 proposal based upon
availability. In the event that DG could provide the required security
contribution, the DNO would then be required to seek the permission
of the generator to utilise this contribution before committing to
network investment.
6.93 In the event that, under normal operating conditions, the generator
would not be able to provide sufficient contribution, the DNO may
wish to explore whether the generator’s contribution could be
enhanced to meet the desired requirement.
6.94 In both instances, the DNO and the generator would enter into a
commercial contract regarding the provision of a security
contribution. It should be noted that the existing regulatory treatment
for procuring network security does not accommodate such
arrangements.
6.95 A consequence of such an approach would be that existing DG

sources of network security would be utilised (if appropriate) before
initiating network investment.
Valuing DG security contributions

6.96 The valuation methodology for the provision of network security
contributions would most likely be based upon the avoided costs of
network reinforcement. The reason for this is comparative costs of
network and generation solutions. In the majority of cases, network
solutions will be of lower cost than a generation solution so the DNO
would not ever be incentivised to pay more for network security than
could achieved through a network solution.
6.97 The valuation methodology would also need to address the following
critical questions:
• How much security contribution would the DNO procure?
• For what duration will the DNO require the contribution?
6.98 If network and generator based solutions to network security

shortfalls were to be treated equally, the DNO would be required to
procure the generator’s entire security contribution (even if this took
119
the DNO beyond network planning requirements), over the full

operating life of the generator.
6.99 An alternative arrangement would be for the DNO to only procure

sufficient generator security to meet the planning standard. The
duration of security contracts with generators could also be
shortened from the full operating life of the generator. An example of
an alternative timescale could be the duration of a price control
period.
6.100 The arrangement equivalent to a network solution would be

advantageous to the generator as it would provide certainty
regarding income streams and could also improve the economics of
new distributed generation projects. The above alternative
arrangement might be more attractive to DNOs in that more flexibility
is offered.
6.101 In future, as the level of DG deployment increases and the density of

DG within a particular load groups also increases, it may be possible
for the DNO to procure security contributions through a competitive
tender process from a range of providers.
6.102 Alternatively, it could be possible for DNOs to influence the location

of new distributed generators through the availability of security
contracts.
Contractual structures for DG network security provision

6.103 The nature of contracts between DNOs and distributed generators is
likely to depend on the degree of control over generator operating
regime required by the DNO.
6.104 In instances where a generators’ normal operating regime had

historically provided the DNO desired security contribution, it is
unlikely that the DNO would need to influence generator operation. In
such a case, it may be appropriate to reward the generator with a flat
fee arrangement based upon £/MW contribution or £/month.
Obviously, the DNO would need to be informed of any proposed
changes in the generator’s operating regime.
6.105 Where DNOs sought a generator security contribution in excess of

that delivered through normal generator operation, it is likely that the
generator would be required to respond to DNO operational
instructions to enhance security contributions. In such cases, service
delivery becomes a more important consideration and contracts may
reflect this. By structuring rewards according to availability (£/MW)
and utilisation (£/MWh), the DNO would effectively incentivise the
generator to deliver when required.
120
6.106 Taken one step further, DNOs will, no doubt, want to evaluate the
implications of non-delivery, which could lead to the prospect of
penalty clauses within generator contracts.
Expected Level of Delivery

6.107 When setting penalty arrangements for under delivery (or rewards
for over delivery) it must be recognised that the contributions
prescribed by ER P2/5 are delivered with a probability that is less than
one. Assuming unit availabilities of 86% (as in ER P2/5), and the
probabilities of delivering and not delivering the allocated
contribution are shown in Table 18.
121
Table 18 - F factors of identical non-intermittent units of 86% availability

with the probabilities of delivering these contributions49.
Number F Factor Probability of Probability of not

of Units (%) Delivering Delivering
Contribution Contribution
1 49.9 86.0 14.0
2 60.7 74.0 26.0
3 65.6 94.7 5.3
4 68.0 90.3 9.7
5 69.6 85.3 14.7
6 71.1 80.0 20.0
7 72.5 74.4 25.6
8 73.5 91.1 8.9
6.108 We observe that the probability of delivering the allocated

contributions varies between about 75% and 95%. This means that a
generating system comprising 7 units is expected to deliver its
contribution of 72.5% in only three out of four occasions (more
precisely in 74.4% of all situations). In other words, it is expected that
the generators will not deliver their allocated contribution for 25% of
the time. This concept is carried forward and is embedded in the
proposed update ER P2/6. This feature of the security standard should
be adequately reflected in the penalty/reward arrangement and the
generators should not automatically be expected to deliver on every
occasion.
Basis for non-delivery payments

6.109 When setting non-delivery mechanisms for DG in the context of the
contribution they could make to network security, it is important to
consider the basis on which the value of the penalty payment should
be determined.
6.110 A penalty could be expressed in terms of a reducing generator

security contribution following non-delivery of the expected
49
For wind generation, the probability of delivery of the allocated contribution is about
40%
122
performance. This would be consistent with the principles of P2/5.

The generator could be allocated a lower contribution value (F factor
in P2/6) and this would lead to corresponding reductions in option
fees for subsequent periods. The same principle can be applied to
generators offering enhanced security contribution.
6.111 The penalty for non-delivery should not be linked to DNO exposures
associated with increased CMLs and CIs caused by generator
unavailability. This is because there is no direct link between the
contribution that the generator makes to network security in the
context of ER P2/5 and actual network performance as measured by
CMLs and CIs50. Clearly the contribution to network security and the
contribution to network performance are two different matters51.
6.112 In the longer term, therefore, there may be a requirement to develop

security standards that are consistent with DNO output performance
measures.
Safeguarding the procurement process

6.113 As already discussed, the DNO as service procurer and potential
service provider occupies a powerful position in any negotiations
with a generator. Indeed, the current regulatory arrangements
incentivise DNOs to pursue network solutions through CAPEX. Also
there is an information asymmetry between service procurer and
provider. Consequently, there may need to be safeguards built into
the procurement process to protect the interests of generators.
6.114 Taken to the extreme, a DNO with a network security shortfall may be
aware of a generator on their network with an operating regime that
would resolve the problem. In such a circumstance, the DNO might
avoid declaring their security requirement whilst utilising the
generator’s contribution for compliance purposes, and the generator
would remain unaware.
6.115 Examples of potential safeguards to avoid this happening might be:

• A requirement on DNOs to declare the level of network security
headroom for the different demand groups on their network.
50
It should be remembered that ER P2/5 does not deal with the question of outage
frequency but is only concerned with the maximum restoration times.
51
The recent update to ER P2/5 was developed to allow a simple and straightforward
extension to the existing ER P2/5 Table 2, such that contributions from modern
generation technologies could be recognised in the short term. The approach adopted was
consistent with the original ER P2/5 methodology and hence unrelated to CIs & CMLs.
123
• A requirement on DNOs to evaluate the availability and suitability

of DG security contributions before committing network
investment.
• A requirement on DNOs to seek the approval of generator before
being allowed to use the generator’s security contribution for
compliance purposes. Such an obligation could benefit DNOs as it
could incentivise generators to enter formal contracts with a DNO.
6.116 There are a number of issues here concerning the procurement of

security contributions from DG, which may require further work to
develop more comprehensive arrangements. It may be beneficial to
develop a consistent framework, which could be applied nationally.
Ofgem’s newly formed Distribution Commercial Forum could take
such arrangements forward.
Interactions between different distribution level ancillary

services
6.117 In an era of significantly increased levels of DG operating on active
services may increase and also situations could arise in which
individual generators were contracted to provide multiple services.
6.118 This section evaluates the implications of increased levels of active

management on ancillary service provision and also investigates
whether conflicts could arise regarding the provision of different
services.
Compatibility of ancillary service provision with active management

6.119 As discussed earlier, passive networks are designed to accommodate
the full range of envisaged operating parameters (including generator
outputs) with a minimal requirement for network monitoring and
reconfiguration. Such approaches are sometimes referred to as ‘fit
and forget’. Features of passive networks tend to be a strong reliance
on primary infrastructure such as transformers, switchgear, OHLs and
cables, which results in electrically robust systems. Passive networks
tend to be less well developed in terms of secondary infrastructure,
which includes communications, monitoring, and control equipment.
6.120 By contrast active networks are less reliant on primary infrastructure

although more reliant on secondary infrastructure. A definitive
statement regarding which approach to network managements is
most advantageous to ancillary services from DG is not possible, as
the requirements of the TSO services differ from those of DNO
services.
124
6.121 Ancillary services to the TSO from distributed resources will most
easily be accommodated from passive networks. This is because,
irrespective of operating status, the distributed generator should be
able to respond to TSO instructions if it is within the generators’
capability. However, on active networks there is an increased
likelihood that due to distribution network constraints, certain modes
of operation may not be permitted by the DNO. Consequently there
could be increased delivery uncertainty regarding TSO ancillary
services originating from distributed generators on active networks.
6.122 Conversely, there will be most scope for ancillary services to DNOs
from distributed generators connected to active networks. This
relates to the reliance on fewer primary assets. In the case of a
passive network, it is unlikely that the DNO will require as many
services from distributed generators, as will be the case in an actively
managed scenario. Also the availability of more sophisticated
secondary infrastructure on active networks will facilitate more
generator participation.
6.123 It is clear however that increased levels of DNO secondary

infrastructure will facilitate more DG services to both the TSO and
DNOs.
Hierarchy of services
6.124 In instances where a distributed generator is providing multiple
services to both the TSO and DNO, it is useful to determine which
service takes precedence in the event of conflicting instructions.
Examples of such services could be:
• Local Voltage Support;
• DNO Network Security; and
• frequency response and reserve services.
6.125 Determining the relative importance of such services can be

accomplished by considering the extent to which a service is
localised or national and the timescales for compliance with the
relevant network performance requirement.
6.126 Applying such tests reveals that voltage, as an absolute localised

requirement, represents the highest priority due to the absolute
nature of statutory limits. The requirements to provide security
contributions will be slightly less onerous due to the time based
nature of the service requirement (as it might only be required at
peak) and the time constants associated with thermal overloads.
Frequency Response and reserve, as national services, represent the
125
lowest priority for such generators, as it should be possible for the

TSO to instruct alternative providers of the service.
6.127 Such hierarchies will influence the types of contract that the
distributed generator selects to enter. In the above example, the
generator would be unlikely to enter a firm frequency response or
reserve contract.
Information flows for service provision

6.128 When a distributed generator receives an instruction to provide a
particular service, there could be implications for other parties
involved along the supply chain. This section evaluates which parties
would need to be informed of service initiation and also focuses on
supplier implications.
Party notification requirements

6.129 In the event that the TSO issues an instruction for a distributed
generator to provide a frequency response or a reserve service, there
will inevitably be a change in generator output. A key question relates to
whether the DNO would need to be informed of such an instruction.
6.130 As already discussed in the active management section above, it is

highly likely that a passive network would accommodate the full
operating range of a distributed generator without the requirement to
reconfigure. This implies that the DNO would be indifferent as to the
service requirements of the TSO.
6.131 On an actively managed network, the DNO would require details of the
generators full operating range and the nature of any services to be
provided. The DNO would then design the network to prevent unsafe
situations arising. This would merit careful DNO consideration during
the design phase. In the event of a TSO instruction to change generator
output, the active management control arrangements would
automatically react to prevent undesirable outcomes (e.g. voltage rise)
so again the DNO would not need to be informed of each TSO
instruction. The DNO’s initial information requirements may become
more detailed in such situations.
6.132 A complication for the generator in such situations is that the active
network could intervene and prevent service delivery to the TSO. Such
instances would need to be addressed within contracts. Inevitably, any
delivery uncertainty would undermine service value.
126
Supplier implications of ancillary service provision

6.133 A more general consideration is the effect that service delivery
instructions (from either the TSO or DNO) could have on suppliers. As
most distributed generators output will be settled through a suppliers
NETA demand account, any changes in operation will impact upon the
supplier’s imbalance exposure within the BM.
6.134 Critical to the impact on supplier imbalance are the timescales within
which service delivery is required following initiation (the key timing
consideration being NETA Gate Closure). In the event that a supplier
could be provided with sufficient notification of an ancillary service
delivery instruction, the supplier could accommodate the proposed
change in output before Gate Closure. Should ancillary service
instructions be issued within an hour of Gate Closure, the supplier will
inevitably have an increased imbalance exposure.
6.135 Whilst such supplier exposures may be insignificant and thus

tolerable with relatively low levels of DG ancillary service provision,
this cannot be guaranteed should DG ancillary service provision
become more commonplace. In such situations suppliers would seek
notification of service instructions to amend their commercial
positions. For instructions implemented within Gate Closure
timescales, suppliers may choose to factor such risks into contract
prices for energy. This would probably be most significant for
instructions to de-load as the supplier demand accounts would go
‘short’, thus exposing supplier to system buy prices.
127
7. IMPACT ASSESSMENT
7.1 This section considers the impacts upon different market participants
involved in the supply and delivery of ancillary service from
distributed generators.
7.2 The attractiveness of different ancillary services will depend on the

materiality of each service to the service provider relative to other
income streams. Consequently, it is important to estimate indicative
values for each service.
Impact on Distributed Generation

7.3 In order to consider the impact of ancillary service provision on
distributed generation, it is necessary to evaluate the services
provided by different types of distributed generator.
7.4 By adopting the capabilities of the different DG technologies as

discussed in Section 5, the impact on specific types of DG can be
considered.
Frequency response
7.5 As the only new distributed technology with a consistent capability to
provide low frequency response services is wind power utilising
Doubly Fed Induction Generator (DFIG) technology, it is most
appropriate to consider the impact of frequency response in this
context.
7.6 As has already been discussed, the requirement for wind power, or
indeed any renewable source, to provide frequency response will be
comparatively rare due to the part loading requirements and the
costs associated with losses of ROC revenue.
7.7 The only time that such generators are likely to enter frequency
responsive mode is during periods of low national demand (summer
nights) when renewable output may need to be curtailed.
7.8 In such circumstances, the wind generator will be de-loaded

according to TSO instructions by exercising a high bid price to
recompense the generator for the loss of ROC revenue.
7.9 Upon entering frequency responsive mode, the generator might

receive a payment of £4/MW/h (assuming the generator was capable
of both primary and secondary response at current prices). So
assuming a 100 MW wind farm was required to provide this service
during summer weekends (26 occasions) for approximately 4 hours
128
per night, the addition revenue earned would equate to £4 x 26 days x

4 hours x 100 MW = £41,200 per annum, i.e. £0.40/kW. In the context
of a 100 MW wind farm with 30% utilisation factor, the annual ROC
revenue would equate to approximately £14m, i.e. payments for low
frequency response services would add less than half of one percent
to the wind farm’s revenues.
7.10 With the level of frequency response income being so low, it is

questionable whether the wind developer would recover the costs of
the required infrastructure.
7.11 By contrast a 400 MW flexible CCGT earning approximately £50m per

annum from energy sales, could earn up to an additional £1m per
annum from frequency response services (£2.50/kW), which
represents a 2% increase in revenues.
Standing reserve
7.12 In the standing reserve market at present, the most flexible plant can
earn approximately £23/kW52 per annum from standing reserve
services. It should be recognised that the costs of entry for the lowest
cost OCGT plant are in excess of £45/kW53 per annum. Consequently,
the standing reserve market is not attracting new entry at present.
7.13 However, this does not imply that the value of standing reserve will
remain these levels in the future. With the increased deployment of
intermittent generation, the value of standing reserve could increase
significantly over the next decade although would not exceed the cost
of new entry but this does not imply that the provision of such
services would be unattractive to existing standby generation.
7.14 Applying such data to a 10 MW distribution connected standby

generator, which would require periodic testing, an additional
revenue stream of approximately £70,000 per annum could be
generated for an activity that the operator would potentially have
undertaken anyway. Such an arrangement would appear to be an
attractive option and perhaps explains the increasing number of non-
BM providers.
7.15 By contrast, should the infrastructure become available to facilitate

the remote aggregate switching of many thousands of micro CHP
installations, standing reserve could be provided from such sources.
Indicative infrastructure capital and operating costs have been
estimated to be between £10 and £15 per annum for each 1 kW
52
Market participant figure.
53
ILEX data.
129
device. The fact that not all such devices would be able to respond to
TSO instructions (some would be switched off, already generating or
heat limited) would result in a considerably lower value for the
service. Should the most effective provider currently be able to earn
£23/kW per annum, the uncertainties associated with the delivery and
the duration of service from micro-CHP could reduce this figure
potentially below £7/kW. This figure is gross of any fee paid to the
aggregator.
7.16 At such levels, the service would not cover the costs of the
infrastructure unless the communication infrastructure could be used
to facilitate other services such as smart metering. Even if the value
of the service were to triple, it is difficult to envisage an income of an
extra £20 per annum (before infrastructure costs) influencing a
customer’s selection of heating system.
DNO network security services

7.17 To investigate the materiality of DNO network security services,
consider the different options for resolving a network security
shortfall as illustrated in Figure 20. In this 33 kV, 20 MVA example, an
additional 5 MW security contribution is sought which can be
provided by three options. These investments are as follows:
Figure 20 − Options to address a 5MW security shortfall at a 33/11 kV, 20

MVA substation.
Reinforcement Options: Additional 5 MW Requirement
Option A
X
20 20 G
Option C
Option B
X X X
Option A: Extend/Reinforce Substation Option B: Adopt a Generation Solution

• Additional 33/11kV transformer •New generator
• Two additional circuit breakers •Utilise existing generator
• Reinforcement of 33 kV OHL to primary sun-
station
Option C: Invest in Transfer Capacity
130
• Option A: Reinforce the existing substation. The costs of this

option were calculated for a range of different infrastructure
requirements. The simplest reinforcement was to add a single 20
MVA transformer. The most involved reinforcement assumed the
additional requirement to upgrade the 18 km circuits at 33 kV
supplying the substation with underground cables. Other
reinforcement options were also considered.
• Option B: Investment in a generation solution. By utilising the
least cost OCGT technology with a security F factor of 50%, a 10
MW generator could be used to provide an additional 5 MW
security contribution.
• Option C: Invest in 5 MW of transfer capacity at 11 kV involving a
new 10km OHL or cable.
7.18 The range of annualised cost estimates54 for each option is included
in Table 19 below. As can been seen, all of the network solutions are
of lower cost than the generation solution. Whilst the least cost
option is to invest in 5 MW of transfer capacity (assuming the circuit
to be OHL), the simple substation reinforcement delivers 20 MW of
security contribution for less than twice the cost of the transfer
capacity option. The annualised cost of the generation solution is
more than 20 times that of the cheapest network solution. It can also
be seen that the most complicated network reinforcement (involving
a new 33 kV cable) approaches the cost of a generator solution
although it delivers 20 MW rather than the 5MW from the generator.
Table 19 − Comparison of costs of delivering additional security

contributions55
Cost hiera rchy & Security Contribution
Transfer Capacity OHL £21k pa 5 MW
Reinforce substation only £38k pa 20 MW
Transfer Capacity Cable £60k pa 5 MW
Reinforce substation & one

£107k pa 20 MW
new 33 kV OHL
Reinforce substation & re-
£111k pa 20 MW
conductor 2 x 33 kV OHLs
Reinforce substation & one
£467k pa 20 MW
new 33 kV Cable
54
A 6.5% cost of capital and a 20 year depreciation period was assumed for network assets.
OCGT Generator (inc O&M) £545k pa 5 MW
A 13% cost of capital and a 10 year depreciation period was assumed for the generator.
55
Network cost data from EDF Energy. Generation costs from ILEX market reports.
131
7.19 Assuming the DNO would pay the generator its avoided costs of
network reinforcement, such payments would range between £10k
and £120k (£1/kW - £12/kW) per annum depending upon the
complexity of the network solution. It is anticipated that most
reinforcements would be at the lower end of this range.
7.20 Assuming the average costs of network reinforcement to be £30k per

annum, this could represent an attractive service for a standby
generator in the same way that standing reserve services are also
attractive. It appears from this analysis that network security
payments and standing reserve payments could be of a similar order
of magnitude.
7.21 This analysis also suggests that in rare instances, where the costs of
network solutions are high the value of generation contributions
could increase significantly.
7.22 In the context of a biomass generator with 70 % availability, the ROC

income would equate to approximately £4m per annum whereas a
similar non-renewable generator could expect energy revenues of
approximately £1.3m per annum56. The magnitude of network
security payments relative to these energy revenues is less than 1 per
cent for the renewable generator and less than 3% for the non-
renewable generators. In both cases the value of security
contributions is less than the forecasting errors for energy revenues.
7.23 In instances where DNOs are prevented from investing in network

solutions and there is a suitable distributed generator located within
the demand group, it could be advantageous for the generator to
provide security to the local network. Such applications will represent
niche opportunities where, environmental, planning or terrain related
issues constrain DNO activities.
7.24 It is unlikely that a decision to invest in a distributed generator would

be influenced greatly by the prospect of security contribution
payments. However, a generator with a choice of locations, might
select the one with security opportunities.
56
ILEX projections.
132
7.25 Overall, it appears as if the opportunities for DG to provide ancillary

services to the TSO and DNOs will be technology, service and
location specific. Where a distributed generator is able to provide
such services, it appears likely that the incremental revenue streams
will be regarded as useful supplements to the original business case
justifying the initial investment. It is unlikely that any individual
service would merit investment in generation plant alone.
7.26 Inevitably, niche applications for the provision of services by

distributed generators will emerge. These will normally relate to
situations in which network constraints apply, preventing the network
operator from pursuing a network solution or where the network
solution is prohibitively expensive. Such opportunities will usually
relate to distribution, rather than transmission system constraints.
7.27 In the longer term (post 2015), with sufficient distributed generators
connected within individual load groups, there may be increased
opportunities for DG to provide voltage and flow management
services, owing to increase in aggregate availability of generators.
Further work could be undertaken to evaluate such opportunities.
Impact on DNOs
7.28 In the short to medium term, the ability of DNOs to source network
security services from distributed generators will not fundamentally
change the way in which DNOs operate their networks.
7.29 The availability of network security contributions from distributed

generators will broaden the scope of potential solutions for DNOs
when accommodating any network security shortfalls. Such
contributions will be particularly useful to DNOs in situations where
constraints restrict the adoption of conventional network solutions.
These situations could include environmental, planning or terrain
related constraints.
7.30 A potential problem for DNOs relates to the current regulatory

framework in terms of CAPEX and OPEX funding distinctions. At
present, network security is procured through CAPEX, which does not
currently accommodate generation contributions. The current
arrangements for Operational Expenditure (OPEX) are not ideal either
in that the DNO could be financially penalised for funding DG
contributions through this route. More work will be required to
establish a suitable funding mechanism for network security and
support.
7.31 In order that a consistent and transparent set of arrangements can

emerge to facilitate increased security contributions from DG, it will
be necessary to establish principles (and potentially standardised
133
commercial arrangements) for procurement processes and valuation

methodologies. Indeed, the Distribution Commercial Forum might
consider the development of a standardised ‘model form’ contract
suitable for localisation by individual DNOs.
7.32 A major concern of DNOs regarding the reliance on distributed

generators to provide network support services is likely to relate to
non-delivery risk exposures. Such exposures could be financial,
regulatory or legal in nature. Consequently, the issues associated
with service non-delivery require further exploration.
7.33 The extent of opportunities on DNO networks will largely relate to

possible to determine which of these two will provide the greatest
number of opportunities, it may be useful to evaluate this distinction
further in future.
Impact on the TSO

7.34 The provision of ancillary services from DG to the TSO will effectively
broaden the choice of operators available to the TSO and potentially
enhance competition.
7.35 Similarly, the emergence of new providers of existing services may

also be advantageous to the TSO facing increased balancing service
requirements. In particular, the increased availability of standing
reserve from distributed players could be particularly useful with
increased volumes of intermittent generation on the system. It should
be noted that the TSO currently secures less than 800MW of standing
reserve from non-BM participants whereas the actual opportunity
may be in the order of 5 GW.
7.36 With respect to intermittent generation, the TSO’s concerns regarding

system stability have been widely documented elsewhere. It remains
unclear as to whether intermittent generation, as the source of many
of these concerns, will actually be required to resolve any related
network stability issues. The revenues associated with periodic
frequency regulation from wind farms may not be sufficiently
attractive to developers.
7.37 Increased numbers of aggregators and new aggregation services may

evolve to facilitate increased levels of participation from DG in TSO
ancillary service markets. Such developments could be beneficial to
the TSO compared with a non-aggregated alternative, requiring the
TSO to manage interfaces with many small distributed generators.
7.38 Whilst the current aggregation arrangements have been successful in

134

new low cost communication and monitoring arrangements should
be evaluated. Such infrastructure could facilitate wider participation
by smaller generators.
Impact on Suppliers
7.39 As the output from distributed generation is largely purchased by
NETA, suppliers must ensure they understand generator operating
regimes and whether generator operation is likely to be affected by
instructions to provide ancillary services. It should be noted that both
NETA and the Supplier-Hub arrangements can accommodate TSO
and DNO ancillary service provision from DG.
7.40 Supplier concerns will relate primarily to imbalance exposure in the

BM. Unless suppliers are notified of scheduled ancillary service
provision, it will not be possible for suppliers to revise demand
forecasts accordingly. As has already been examined, instructions
issued post Gate Closure will inevitably impact upon a supplier’s
imbalance exposure.
7.41 Whilst the numbers of distributed generators remain low, supplier

exposures are likely to be manageable. Indeed, instructions to
increase generator output may not actually penalise suppliers as they
could be cashed out favourably. Note that increased generator
outputs will tend to cause supplier demand accounts to be ‘long’.
7.42 Obviously, a simple way for such exposures to be managed would for
the supplier to act as the aggregator between the TSO (or DNO) and
the generator. Alternatively, suppliers would need to ensure that they
were notified in the event of ancillary service instructions being
issued to generators with whom they had contracts. It will be
interesting to observe whether large suppliers, owned by vertically
integrated parents, choose to offer such aggregation services.
7.43 One other impact upon suppliers relates to the supplier’s renewable
obligation targets. It is conceivable that a conflict could arise between
a distributed generator willing to provide ancillary services through
part load operation and a supplier incentivised to maximise
renewable purchases. Any such conflicts would need to be managed
by the affected parties.
Impact on Aggregators
7.44 New aggregation opportunities could emerge with increased
numbers of distributed generators. In addition to the existing
135
opportunities relating to TSO ancillary services, it may be possible for

aggregators to co-ordinate action from DG to provide network
security contributions to DNOs.
7.45 At the TSO level, whilst the current infrastructure arrangements may
not facilitate the participation of small individual distributed
generators, new infrastructure may become available, thus extending
participation. It might be beneficial for the TSO and aggregators to
explore how such arrangements could be structured.
7.46 For those aggregators without a supply business (or a BM interface),

it may become necessary for the aggregator to provide information to
suppliers in future regarding their operational impact on contracted
generators. This would enable suppliers to manage imbalance.
Alternatively, it may be more attractive for potential aggregators to
also operate supply businesses.
Overall impact on the British electricity sector

7.47 The provision of a broader range of ancillary services from a wider
range of distributed generators could be beneficial in terms of the
costs of operating the transmission and distribution networks.
7.48 The provision of ancillary services from existing generators

potentially increases asset utilisation both for generation equipment
and networks. Such increased utilisation could avoid or defer
investments in network infrastructure, and would thus represent an
overall cost saving.
7.49 In addition, the provision of ancillary services from distributed

generation could in niche situations, avoid the negative impact of
network investments in environmentally sensitive areas.
7.50 Increased DG participation in TSO standing reserve markets may

increase the levels of competition in the future. This could be
especially relevant if, through increases in intermittent generation,
the scope for such services is set to expand.
7.51 The increased opportunity for DG to provide services may also

increase the scope for aggregation and thus catalyse the emergence
of new aggregators.
7.52 Specifically, it should be recognised that the provision of both DNO

and TSO ancillary services from distributed generation should not
undermine security of electricity supplies.
136
7.53 Similarly, it should also be recognised that the provision of ancillary

services from distributed generation should not impact negatively
upon Government climate change targets.
137
138
8. CONCLUSIONS AND RECOMMENDATIONS
8.1 This work evaluated opportunities for distributed generation to

provide ancillary services to the TSO and DNOs. The ancillary
services evaluated were:
• DNO Quality of Supply services; and
• DNO Voltage and Power Flow management services.
8.2 Although all of these services were explored in detail, only TSO
frequency response, TSO regulating and standing reserve and DNO
security of supply contributions represent realistic opportunities for
distributed generators in the short or medium term.
8.3 CCGT and DFIG wind generators were the most promising
technologies for the provision of TSO frequency response services
whereas CCGTs, diesel standby generators and perhaps micro CHP
were best placed to provide reserve services.
8.4 It was found that, to varying degrees, DNO security of supply services
could be provided by most existing distributed generation
technologies.
8.5 As the majority of existing DG has been installed for electricity supply
purposes, very few generators are equipped with the infrastructure
necessary to provide ancillary services. Such infrastructure includes
governors, automatic voltage regulators, resynchronisation facilities
and appropriate protection, monitoring and communication facilities.
8.6 The most appropriate commercial arrangements for response and

reserve services appear to be market-based mechanisms. Ideally the
TSO’s current arrangements could be extended. Expanded
aggregation arrangements, utilising lower cost infrastructure, would
facilitate increased participation from small generators.
8.7 The most appropriate commercial arrangements for DNO security of

supply services appear to be bilateral contracts due to the local and
site-specific nature of security requirements.
8.8 Opportunities for DG to provide ancillary services will undoubtedly

increase as DG penetrations and availabilities increase.
139
8.9 The analysis undertaken suggests that value of the most feasible
ancillary services will be relatively low. Consequently, such services
will represent incremental revenue opportunities for DG. In general, it
would not be possible to develop business cases for investing in DG
solely on the basis of ancillary service income.
8.10 Niche opportunities will emerge for DG to provide ancillary services,

usually in circumstances where constraints restrict network
development, e.g. environmental, planning and terrain related
constraints.
8.11 In an era with significantly increased levels of DG operating on active

services may increase. However, on active networks there is an
increased likelihood that due to distribution network constraints,
certain modes of operation may not be permitted by the DNO.
Consequently there could be increased delivery uncertainty regarding
the provision of TSO ancillary services from distributed generators
connected to active networks.
8.12 In circumstances where a distributed generator receives conflicting

instructions regarding the provision of different ancillary services,
local services should take precedence over national services.
8.13 Higher penetrations of DG will increase DNO options regarding

network operation and development decisions, which could (in
certain situations) lead to lower overall costs.
8.14 Increased penetration of DG could also enhance competition in TSO

markets for frequency response and reserve. This could be
particularly relevant should demand for these services increase with
intermittent generation.
8.15 As the output from distributed generation is largely purchased by

NETA, suppliers must ensure they are aware of generator operating
regimes and also whether generator operation is likely to be
influenced by ancillary service provision. Supplier concerns will relate
to imbalance exposures in the BM and the fulfilment of ROC targets.
Suppliers will require notification of ancillary service provision, in
order to suitably revise demand forecasts. Ancillary service
instructions issued post Gate Closure will inevitably impact upon a
supplier’s imbalance exposure and potentially reduce the value of the
energy supplied.
8.16 The introduction of Register Power Zones (RPZs), created to

encourage DNOs to develop and demonstrate new, more cost
effective ways of connecting and operating generation, could provide
140
an initial platform for the development of appropriate ancillary

services contracts. In order for new technical solutions to become
widely accepted, an appropriate contractual framework will need to
be established, and RPZs could be used to develop such
arrangements.
8.17 It is important to stress that provision of ancillary services from DG

should not jeopardise or degrade security of supply and may even
contribute to its enhancement in future.
8.18 It should be recognised that the provision of ancillary services from

distributed generation should not impact negatively upon
Government climate change targets
8.19 In addition, the provision of ancillary services from distributed

generation could, in niche situations, avoid any negative impact of
network investment in environmentally sensitive areas.
Recommendations
8.20 The extent of opportunities on DNO networks will largely relate to
possible to quantify the relative magnitudes of these opportunities
within this project, such information will be critical to evaluating the
market potential for network security services under alternative future
development scenarios and should be explored further.
8.21 In order that a consistent and transparent set of arrangements can

emerge to facilitate increased security contributions from DG, it will
be necessary to establish principles (and potentially standardise
commercial arrangements) for procurement processes and valuation
methodologies. Indeed, the Distribution Commercial Forum might
consider the development of a standardised ‘model form’ contract
suitable for localisation by individual DNOs.
8.22 A major concern of DNOs regarding the reliance on distributed

generators to provide network support services will relate to non-
delivery risk exposures. Such exposures could be financial, regulatory
or legal in nature. Consequently, the issues associated with service
non-delivery require further exploration.
8.23 Whilst the current aggregation arrangements have been successful in

new low cost communication and monitoring arrangements should
be evaluated.
141
8.24 A potential problem for DNOs relates to the current regulatory

framework in terms of CAPEX and OPEX funding distinctions. At
present, network security is procured through CAPEX, which does not
currently accommodate generation contributions. The current
arrangements for OPEX are not ideal as DNOs could be financially
penalised for funding ancillary services through this route. More work
will be required to establish a suitable funding mechanism for
network security and support.
8.25 As this work explored ancillary services opportunities for DG in the

short to medium term, alternatives for the long term need to be
investigated given that there may be fundamental changes to the
structure of power systems, particularly in the context of the recent
Technical Architecture initiative.
142
[This page is left intentionally blank]
143
ANNEX A – TABLE 1 OF ER P2/5
Minimum demand to be met after
Class of Range of group

First circuit outage Second circuit outage
supply demand
In repair time (Group

A Up to 1 MW NIL
Demand)
Within 3 hours
(Group Demand minus 1
Over 1 MW to 12 MW)
B NIL
MW
In repair time (Group
Demand)
Within 15 minutes
(Smaller of Group
Demand minus 12 MW
Over 12 MW to
C and 2/3 Group Demand) NIL
60 MW
Within 3 hours (Group
Demand)
Within 3 hours (For Group

Immediately (Group
Demands greater than 100
Demand minus up to
MW, smaller of Group Demand
20 MW (Automatically
Over 60 to 300 minus 100 MW and 1/3 Group
D disconnected))
MW Demand)
Within 3 hours
Within time to restore arranged
(Group Demand)
outage (Group Demand)
Immediately (All customers at

2/3 Group Demand)
Over 300 to 1500 Immediately
E
MW (Group Demand)
Within time to restore arranged
outage (Group Demand)
CEGB Planning Memorandum PLM-SP2

F Over 1500 MW
Scottish Board Security Standard NSP 366
144
[This page is left intentionally blank]
145
ANNEX B – CONTRIBUTORS TO THE STUDY
The authors would like to thank the following individuals for their
input to this study:
Anthony British Gas David Tolley RWE Innogy

Musgrave Power
Generation
Simon Econnect Ham Hamzah RWE Innogy

Cowdroy
Tony Woods EDF Energy Raoul Thulin RWE Innogy
Paul Wynne E.ON UK Alan Laird Scottish

Renewables Power
Peter Turner E.ON UK Peter Thomas Scottish

Power
Mark Lewitt Future Energy Ron Allan UMIST

Solutions
Russell Gaz de France Thomas Bopp UMIST

Reading
Mark Bailey Gaz de France Nick Jenkins UMIST
Andrew National Grid Derek Lumb UMIST

Malins Transco
John National Grid Danny Pudjianto UMIST

Greasley Transco
Lewis Dale National Grid David Andrews Wessex

Transco Water
Arthur Ofgem Christian Hjelm Western

Cooke Power
Distribution
Gareth Ofgem Nigel Turvey Western

Evans Power
Distribution
146
147
ILEX
Quality Control Check Sheet
ANCILLARY SERVICE PROVISION FROM DISTRIBUTED GENENERATION
Report Unique Serial No: 2004/087
Director
Stephen Andrews
Date 20 September
2004
Project Manager
David Porter
Date 20 September
2004
Author
David Porter
Date 20 September
2004
Quality Control
Beverly King
Date 20 September
2004
ILEX is a member of Electrowatt-Ekono, part of the Jaakko Pöyry Group
148
149
ILEX Energy Consulting Tel: +44 (0)1865 722660
King Charles House Fax: +44 (0)1865 722988
Park End Street E-mail: energy.consult@ilexenergy.com
Oxford, OX1 1JD www.ilexenergy.com
UK www.ewe.ch
ILEX Energy Consulting Ltd, King Charles House, Park End Street, Oxford OX1 1JD. Registered in England No. 2573801
ILEX is a member of Electrowatt-Ekono, part of the Jaakko Pöyry Group

DG As Ancillary Service

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Ancillary Service

URN NUMBER: 04/1738

We champion UK business at home and

URN NUMBER 04/1738

This work was commissioned and managed by the DTI's Distributed

Ilex Energy Consulting with the Manchester Centre for

The work described in this report was carried out under

First published 2004

 Crown Copyright 2004

Introduction and Background: In support of DGCG TSG, Workstream 5, the

Investigate any existing arrangements for distribution level Ancillary

The scope of the project included a consideration of the opportunities for DG to

Findings/Conclusion: This work area is relatively new and without a market

3. THE SCOPE FOR NEW ANCILLARY SERVICES AT THE

4. EXPLORATION OF ANCILLARY SERVICES FROM

5. PROSPECTS FOR DISTRIBUTED GENERATION 75

6. COMMERCIAL & TECHNICAL FRAMEWORK 104

7. IMPACT ASSESSMENT 128

8. CONCLUSIONS AND RECOMMENDATIONS 139

ANNEX A – TABLE 1 OF ER P2/5 144

ANNEX B – CONTRIBUTORS TO THE STUDY 146

TABLE 1 − SUMMARY OF RENEWABLE TECHNOLOGY CAPABILITIES V

FIGURE 1 − CONTINUOUS AND OCCASIONAL FREQUENCY RESPONSE SERVICES 8

This report describes a joint study undertaken as part of the DTI’s

The scope of this project was to:

The study investigated the potential for distribution level ancillary

Whilst renewable electricity generation connected to distribution

A pre-requisite for the detailed development of operational and

a view towards improving the attractiveness of distributed and

The services for which potential arrangements have been explored

TSO Frequency Response

A key feature of TSO frequency response provision is the requirement

Although mandatory frequency response capabilities may become a

The value of TSO Frequency Response is estimated to vary between

TSO Regulating and Standing Reserve

The key differences between frequency response and reserve services

It is unlikely that synchronised reserve will be provided by renewable

TSO Reactive Power

DG connected at lower voltage levels can make a significant impact

The impact of reactive power management on the transport

DNO Security of Supply Contributions

The value of security provided by non-intermittent DG can be related

A number of examples were used to illustrate the potential value of

Because of the drive to reduce Customer Interruptions (CI) and

DNO Quality of Supply Services

In order for DG to improve service quality on such networks, the

Analysis suggests that the annual benefit of islanding operation was

DNO Voltage and Power Flow Management services

Because of the relatively low availability of DG compared to network

Opportunities to provide voltage and power flow management

Ancillary Service Capabilities of Different Generation Technologies

Table 1 − Summary of renewable technology capabilities

* Wind Farms <50 MW may employ DFIG machines in future

Table 2 − Summary of non-renewable technology capabilities

It was found that, to varying degrees, DNO Security of Supply

As the majority of existing DG has been installed for electricity supply

Commercial, Technical and Policy Implications

The most appropriate commercial arrangements for response and

The most appropriate commercial arrangements for DNO Security of

Opportunities for DG to provide ancillary services will undoubtedly

Niche opportunities will emerge for DG to provide ancillary services,

In an era with significantly increased levels of DG operating on active