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Flexible energy grid: How it works and what it means for businesses

Britain’s energy system is being transformed by the rapid growth of renewables, with wind power displacing fossil fuels as the dominant energy source. Yet this transformation brings a structural challenge: wind farm output is intermittent and cannot be controlled to match demand.

Addressing this mismatch requires an energy grid with greater flexibility, capable of balancing supply and demand in real time.

This article explores the evolving flexible energy grid in Britain and what it means for businesses. Here’s what we cover:

• Why Britain needs a flexible energy system
• Who runs Britain’s flexible electricity system?
• How a flexible grid works
• How businesses can provide grid flexibility services
• What grid flexibility means for business energy prices

What is grid flexibility and flexible energy?

This section explains the two key concepts of grid flexibility and flexible energy, and how they relate to each other.

What is grid flexibility?

Grid flexibility is the electricity system’s ability to adjust how power is generated, used, stored, and moved in response to changing conditions.

It allows the grid to stay balanced and reliable as supply and demand shift, for example, when wind output rises or falls, or when there are changes to consumer demand.

A flexible grid uses flexible energy assets such as energy storage, demand response, and dispatchable generation, so the system can adapt in real time to changes in supply and demand to maintain balance.

What is flexible energy

Flexible energy is electricity that can change when and how it is produced, consumed, or stored in response to system conditions.

It includes generation that can ramp up or down, demand that can be shifted over time, and storage that can absorb or release power when needed.

By responding to price signals or grid requirements, flexible energy assets play a key role in keeping the electricity system balanced.

Why Britain needs a flexible energy system

The British energy system is pursuing a Clean Power target under which 95% of electricity generation will come from low-carbon and renewable sources by 2030.

Transforming the grid will require almost completely eliminating reliance on gas power stations, which generated 26% of Britain’s electricity in 2024.

The main challenge with eliminating gas power stations is the loss of the dispatchable power they provide, which can be increased or decreased on demand to help keep the grid in balance.

In contrast, in a low-carbon energy grid:

• A wind farm only produces electricity when it is windy;
• A solar panel only produces power when it is sunny; and
• Nuclear power plants produce stable, but inflexible, baseload power.

A flexible energy system is therefore required so that the British national grid can reliably make use of intermittent renewable power while keeping the entire system balanced, with supply exactly matching demand.

Who runs Britain’s flexible electricity system?

The National Energy System Operator (NESO) is responsible for maintaining the second-by-second balancing of the British electricity grid.

NESO is a public body that reports to Ofgem, the energy market regulator.

NESO coordinates the following parties to ensure the grid is flexible enough to absorb intermittent power generation from renewables:

• Generators – Operators of large-scale facilities that feed power into the grid, including wind farms, gas power plants, and nuclear power stations.
• Energy storage facilities – Grid-scale facilities that can extract power from, or feed power into, the grid when requested.
• Industrial users – Industrial businesses and data centres that can provide reductions in demand on request.
• Grid operators – The operators of the transmission and distribution grids in Britain that NESO works with to ensure all supplied power can be transported to end users.
• Elexon – The market administrator that settles all payments for the balancing actions made by NESO.

How a flexible grid works

This section shows, step by step, how the British electricity grid adapts flexibly to intermittent power generation from renewables.

We use the real-world example of a windy day, when wind farms feed vast amounts of power onto the grid.

Day-ahead forecasting

Wind farm operators continuously forecast the next day’s power output based on weather reports.

These forecasts are fed into the day-ahead wholesale electricity market. Since wind power has a near-zero marginal cost, a forecast windy day causes wholesale prices to fall towards zero.

In response, other generators such as gas power stations, which must pay for natural gas to generate electricity, plan to reduce their output to a minimum.

The wholesale market’s response to weather conditions helps the energy industry plan ahead to avoid over-generation.

Intra-day markets

Wind forecasts improve dramatically when the forecast period is just a few hours.

In the wholesale market, intraday trading allows electricity prices to adjust to changes in the weather forecast:

• If wind is easing, wholesale prices rise and other generators adjust their plans so they provide power to the grid.
• If wind is coming in stronger than expected, prices fall further and more flexible generators minimise their generation.

These last-minute market adjustments help to reduce the mismatch that the market operator must fix through the balancing mechanism.

Balancing mechanism

The balancing mechanism is the real-time market that NESO uses to correct last-minute imbalances.

In the balancing mechanism, NESO directly trades with generators, energy storage facilities, and industrial power users to adjust the amount of electricity available on the grid.

Under the balancing mechanism, market participants submit offers (to add power) and bids (to remove power) to the grid as follows:

Balancing mechanism offers

Balancing mechanism offers are made by any party that can make more electricity available on the grid. Common examples include:

• Gas power stations ramp up generation.
• Grid-scale batteries discharge power.
• Industrial facilities reduce power consumption.
• Pumped hydro plants release water to generate electricity.

Balancing mechanism bids

Balancing mechanism bids are made by any party that can reduce the amount of power on the grid. Common examples include:

• Gas power stations reduce generation.
• Grid-scale batteries charge by extracting power from the grid.
• Wind farms are curtailed (disconnected from the grid).
• Pumped hydro plants use electricity to pump water to their upper reservoirs.

Short-term operating reserve

The grid operator, NESO, ensures there is a ready and available back-up supply of power when something unexpected occurs, such as a fault at a power plant.

Under the short-term operating reserve, NESO pays back-up power generation facilities not to produce electricity, but to remain available for activation at short notice.

How businesses can provide grid flexibility services

Businesses can participate in grid flexibility by providing demand-side response for NESO, or simply by responding to market signals.

This section explains three ways businesses can get paid or reduce costs by providing grid flexibility.

Balancing mechanism participation by businesses

Large business energy customers can participate in NESO’s balancing mechanism by reducing or increasing power demand when instructed.

Participation is most beneficial for businesses such as data centres or EV fleet operators that are able to shift the timing of their power consumption.

Demand-side response aggregators such as Flexitricity, and licensed suppliers such as Engie, facilitate individual businesses’ participation in the balancing mechanism.

Businesses receive a payment, priced per MWh, when actions are taken for the market.

To participate in the balancing mechanism, businesses require a half-hourly electricity meter and an Energy Management System that enables control of their power consumption.

Demand flexibility service participation

Smaller businesses and homeowners can be paid to provide demand response through the demand flexibility service.

The demand flexibility service is used to request reduced consumption during periods of peak grid stress.

Participation in this service is simpler, as it can be arranged directly via your supplier if they are a registered participant.

💡 At Business Energy Deals, we can help your organisation take advantage of the demand flexibility service. Use our business electricity comparison service to switch to a supplier that will facilitate participation in the demand flexibility service.

Dynamic business electricity tariffs

Suppliers such as Octopus Business Energy are leading the way by offering multi-rate business energy tariffs, for example Agile Octopus, where prices track the wholesale market in real time.

Using a smart meter, customers can adjust their business energy consumption to respond to low prices when renewable energy is readily available, and to reduce usage during periods of peak pricing.

Renewable flexible energy supply options for businesses

Businesses with commercial solar panels and battery storage can strategically control their consumption of grid power to take advantage of the incentives created by the flexible energy grid.

These businesses have three available sources of power, which enable them to import from the grid only when business electricity prices are low.

Using an Energy Management System, these businesses can strategically manage their consumption as follows:

• Charge commercial solar batteries from the grid when prices are low.
• Discharge batteries at peak times to avoid the most expensive electricity prices.
• Maximise self-consumption of solar energy to minimise power drawn from a business electricity connection.
• Reduce business electricity standing charges by lowering the required grid connection capacity.

Businesses with renewable, flexible energy supply can also participate in the balancing mechanism and demand flexibility service by discharging solar batteries onto the grid using a smart export guarantee tariff.

What grid flexibility means for business energy prices

This section explains the three main impacts of grid flexibility on business electricity prices.

Volatile wholesale prices

As the contribution of renewables continues to grow, electricity prices increasingly reflect real-time conditions on the grid.

Power generation from wind and solar is intermittent, and periods of supply abundance and scarcity are becoming more pronounced. The wholesale market passes these conditions through price signals, with prices falling when renewable generation is high and rising when power is scarce.

Businesses with flexible operations, or with renewable energy generation and storage, are in the best position to take advantage of increasingly volatile energy prices.

Negative electricity prices

Negative wholesale electricity prices occur when electricity supply exceeds demand, and grid flexibility is temporarily exhausted.

On very windy days:

• Wind farms generate large volumes of near-zero-cost electricity.
• Overall demand may be low (for example, overnight or during mild weather).
• The grid can only export, store, or shift a limited amount of that surplus.
• When there is still more power than the system can absorb, wholesale market prices fall, sometimes below zero.

Businesses on dynamic or wholesale-linked tariffs can take advantage of these prices. However, it is important to remember that wholesale costs are only one element of unit electricity prices, so the overall unit price of electricity paid by businesses will not fall below zero.

Balancing Service Use of System charges

The grid operator, NESO, funds the payments it makes under the balancing mechanism through Balancing Services Use of System (BSUoS) charges.

BSUoS charges are paid by all electricity consumers in Britain on a per-kWh basis, and currently contribute around 3% to overall business electricity bills.

Improved grid flexibility will reduce BSUoS charges, as the energy system becomes less reliant on expensive back-up electricity provided by gas power stations.

The future of Britain’s flexible electricity supply

This section summarises current initiatives aimed at increasing the flexibility of the British electricity supply to support further growth in renewable power generation.

Market-wide half-hourly settlement

By 2026, the rollout of smart meters is expected to be largely complete, giving the grid access to near real-time energy usage data from most consumers.

Using this data, the energy industry plans to implement the market-wide half-hourly settlement reform, under which this granular information will shape the way domestic and business energy suppliers buy and sell electricity.

This reform is intended to encourage suppliers to offer time-of-use tariff innovations, such as vehicle-to-grid tariffs, enabling more consumers to participate in demand-side response.

Increased baseload low carbon power generation

EDF Business Energy is currently constructing two major new nuclear power stations: Hinkley Point C and Sizewell C.

These stations will provide reliable baseload power for the grid, helping to reduce overall volatility in electricity generation.

Nuclear power stations are classed as a low-carbon source of energy, as the nuclear reactions used to generate electricity do not directly produce greenhouse gas emissions.

Developing energy storage capacity

The payments available from NESO’s balancing mechanism are encouraging the development of additional storage capacity on the grid. Notable grid-scale projects include:

• Statera’s Carrington Project (Manchester) – A 680 MW battery energy storage system, expected to become the largest in Europe when it comes online in 2026.
• Fidra Energy (Thorpe Marsh) – A 1,400 MW battery energy storage system, which has been granted planning permission and is expected to come online in 2027.
• Coire Glas PHS (Scotland) – A new pumped hydro storage project under development by SSE, with a potential capacity of 1,300 MW.

Challenges to achieving full grid flexibility

The transition to a fully flexible energy grid presents significant technical, economic, and regulatory challenges. Implementing the technologies required to make the grid more adaptable to intermittent renewables is both complex and costly.

The primary barriers to progress include:

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