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Renewable energy is at the heart of the UK’s decarbonisation efforts. While wind farms, hydro plants and solar farms are a constant in public and government rhetoric, little is usually spoken about the vital infrastructure that enables the stability of the electricity grid, and the investment opportunity this segment of the energy infrastructure sector offers.
As well as investing in assets that generate energy, Downing is committed to investing right across the energy infrastructure sector including assets that help to store, moderate and distribute that energy.
These assets allow us to diversify our revenue streams, with the aim of providing stability and resilience to our overall portfolio - acting as a ballast against market uncertainties and volatility. We believe this approach can enhance the financial stability for our investors.
Ensuring grid stability
Investing for grid stability is crucial for our homes, businesses and industries, and is a key enabler for an efficient and growing economy. Infrastructure that supports the National Grid can include industrial batteries, shunt reactors, power stations and electricity cables and lines. The National Grid plays a crucial role in balancing supply and demand to maintain a stable electricity supply.
To ensure renewable energy is passed from the energy-generating technology to the National Grid efficiently and cost-effectively, specific grid stability services have been created.
Downing has started to invest in these markets which are fundamental for contributing to renewable energy consumption and adoption and will also support our aim to diversify and stabilise the revenue streams for our shareholders.
What are the grid support services in the UK?
Grid support services are a contract between holders of energy assets like Downing, and the National Grid, designed to supply or decrease electricity to the grid in response to consumer demand in exchange for payment. They provide another revenue stream for energy producers in addition to the sale of energy to wholesale markets.
Firm Frequency Response (FFR) is currently the main agreement in use, whereby assets commit to providing a certain amount of power to the grid. This will soon be replaced with the new suite of Dynamic Services, which predominantly consists of Dynamic Containment and Dynamic Regulation.
Dynamic Services are part of a suite of services aimed at controlling the frequency of the electrical grid to keep it within specified limits. These services are crucial for maintaining the stability of the grid. It mainly comprises:
Dynamic Containment (DC) rapidly responds to major disruptions in the grid's frequency, such as large losses of power generation. It uses generators to inject or reduce energy in proportion to demand to bring the frequency back to its target value. Batteries’ speed and flexibility make them particularly well-suited to the task with a reported 0.5 second response time.
Dynamic Regulation (DR) automatically adjusts power generation or demand major disruptions occur to keep the grid frequency steady across a range of operational frequencies.
The National Grid’s Dynamic Services is strengthening Britain’s electricity system, making it smarter and more flexible, meaning it can accommodate more renewable power, contributing significantly towards the ambition of decarbonising the energy system.
How is Downing invested in grid stability services?
Mersey shunt reactor:
A shunt reactor is an electrical device used in power systems and electrical networks to control voltage levels by absorbing or generating reactive power. Reactive power is the component of power that does not perform useful work (such as active power, which powers devices) but is necessary for the operation of inductive loads and maintaining voltage levels within acceptable limits. Shunt reactors are an essential part of power system design and operation, helping to maintain the stability and efficiency of electrical networks.
In June 2023, Downing Renewables & Infrastructure Trust (DORE) signed for Mersey Reactive Power - a UK-based, fully operational 200 MVAr shunt reactor for c.£11 million. This grid services asset became operational in May 2022 and was the first project to go live as part of the National Grid's Stability Pathfinder initiative.
Strategic battery storage:
Batteries serve as huge electrical grid-linked reservoirs, storing energy that would otherwise be wasted when excess renewable power is generated and supplying it when the grid needs it most. This smooths out the irregular patterns of wind and solar generation that can occur due to the reliance on unreliably sunny or windy days.
In 2019, Downing acquired development rights to construct a 50MW transmission-connected battery asset in Southampton, UK, which became operational in June 2023. It will provide vital storage capacity to the National Grid’s transmission network. The Nursling battery asset has been providing FFR, DC and DR.
Investing overseas: Nordic Wind Farm
Grid stabilisation services are prevalent in international energy markets, particularly in the Nordic countries where Downing is invested, which produce large amounts of renewable energy and so require the intensive measures to ensure electricity is pushed to the grid in a stable manner.
One of Downing’s wind farm assets, Konttisuo Wind Farm in Finland, acquired in 2022, participates in Finland’s balancing energy and capacity markets, known as mFRR – a similar system to the UK’s National Grid’s FRR service.
Since we made the acquisition, we installed additional capability comprising both hardware and software, underpinning our strategy of leveraging our assets to enhance the revenue streams and deliver further value for investors.
The impact for investors
Participating in grid stability markets is a crucial part of the transition to net zero. It also supports our strategy of diversification through technology, geography and revenue streams as we endeavour to create truly diversified investment portfolios, and provide new, long-term revenue streams for Downing-managed funds.
Here at Downing, we are always looking to further diversify our portfolio and our revenue streams. Our objective is to ensure we are not reliant on merchant power pricing, which is derived from selling the energy our renewable energy assets produce to the grid. An important part of this strategy is by increasing our funds’ exposure to the grid services sector - ultimately increasing the stability of revenues and consistency of income to our investors.
