The Rise of Demand Side Units (DSU)

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What are DSUs? Currently large consumers can participate in the market by registering as a Demand Side Unit (DSU). By reducing its consumption, a DSU can be considered a generator within the SEM. In return, DSUs receive capacity payments for the potential demand reduction they make available, they also avoid paying SMP for any reduction in their demand instructed in the market. Although DSUs must be greater than 4MW to register in the market, it is possible to aggregate several demand sites into a single DSU. DSU capacity has increased significantly in recent years and now represents 400MW of capacity with the majority of this capacity located in the Republic of Ireland. INSERT 2nd IMAGE HERE DSUs can have an interesting effect on market prices. Over the past year they have set the shadow price during periods of both high and low system demand. High demand periods During periods of high system demand and low renewable generation, DSUs may be scheduled by the market for a short period of time to avoid turning on a more conventional generator to meet the peak demand. Using DSUs for peak load shaving like this can avoid the need to turn on conventional generators which, although they may have a lower variable costs, would incur expensive start-up costs and are likely to be subject to a number of technical constraints (minimum on time for example) which means scheduling the DSUs may be the least cost solution overall. The figure below is a recent example where the shadow price is set by a DSU for a single period during the peak evening demand. INSERT 3rd IMAGE HERE Low demand periods Conversely, during periods of low demand and high renewable generation, DSUs have also been observed to be price setting in recent months. Certain DSUs submit negative bids into the market and as a result are typically continuously scheduled in the market throughout the year. The rationale behind negative bidding can vary but a simple example would be an industrial site with a high heat/steam usage, such a site may choose to operate an on-site Combined Heat and Power (CHP) system thereby reducing their power demand from the grid provided they are scheduled in the market as a DSU. The bidding of these DSUs is responsible for the negative prices we’ve seen in the SEM recently during periods of high wind output and low demand. An example of negative prices set by DSU bidding during an overnight lull in demand is presented in the figure below. INSERT 4th IMAGE HERE What next? While DSUs have historically represented only a small proportion the system’s capacity, if they continue to grow at their current rate we can expect their influence on the market to increase. The market changes expected with the move to I-SEM will bring both challenges and opportunities for DSUs. The current capacity payment mechanism which has provided a revenue source to DSUs is set to change under I-SEM and may represent a challenge to the traditional DSU business model. On the other hand, the changes to the ancillary services market driven by the DS3 programme could potentially offer an opportunity for DSUs to provide increasingly important services to the grid in the coming years. If you are interested in ElectroRoute’s new DSU services, please contact the Client Services team for further information: