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UK Energy System, Part 2: A Whirlwind Tour of Electricity Markets

  • Writer: Callum Wheeler
    Callum Wheeler
  • Feb 23
  • 4 min read
National Energy System Operator (NESO) Control Room, 2024
National Energy System Operator (NESO) Control Room, 2024

In Part 1, we covered the flow of electricity over the transmission network, the bottlenecks in the system between Scotland and England, and the difference between curtailment costs and constraint costs.


To complete the puzzle, we must now tackle the complex web of electricity markets and their role in maintaining grid stability.




A Crash Course on the National Grid


Frequency


The UK electricity network consists of over 500,000 miles of overhead lines and underground cables - enough to stretch to the Moon and back - delivering power at the speed of light and keeping supply & demand in perfect balance.


Grid frequency, via Alternating current (AC), must be maintained at all times, oscillating at 50Hz with little margin for error: >2% either side will lead to blackouts or damaged equipment.



The UK's grid frequency is finely balanced
The UK's grid frequency is finely balanced

Power plants, from multi-GW nuclear plants to diesel gensets, are connected to the grid as synchronous generators; that is, they all output electricity at exactly 50Hz in perfect harmony. Think of it like an orchestra spanning the length of the Country.



The Uk Grid must operate in perfect hamony
The Uk Grid must operate in perfect hamony

The Control Room


Under this analogy, the composer of this nationwide orchestra is the Electricity National Control Centre (ENCC) consisting of a main Control Room.


This is a 24/7/365 trading floor which has traditionally been highly analogue with mostly human input over the phone and, until late 2025, even via fax machine.


However, with a highly centralised supply of about 40 gigantic fossil & nuclear power stations, this system was perfectly adequate - even when special consideration was required for significant cultural events such as a Royal Wedding, World Cup penalty shoot-out or just an anticipated episode of Eastenders. On these occasions, the so-called ‘TV pickup’ effect would cause a spike in demand as millions of kettles simultaneously switched on in ad breaks creating GWs of demand in a matter of seconds.


This incumbent ‘tried & tested’ approach of using massive, centralised generators to address imbalances in supply or demand is one of the contributors to the primary problem outlined in Part 1 of this blog; specifically that wind farms are being compensated to turn down and manage locational oversupply, while massive gas plants are ramping up to replace it.



There is still a lot of analogue input in the control room
There is still a lot of analogue input in the control room

Decentralisation


But the 21st century marked a paradigm shift in our relationship with electricity. We have shifted away from a one-way street of ~200 power plants in 1980 to a decentralised network of more than 1.5 million generating assets across the country, with extra complexity coming from Battery Energy Storage Units (BESS) and demand-side controllable resources such as EVs, heat pumps and, of course, RenewaBlox datacentres.


This wave of Distributed Energy Resources (DERs) has stemmed centralised control, enabled greater sovereignty over electricity generation and storage and facilitated peer-to-peer ‘private wire’ exchange of electricity - a facet integral to RenewaBlox’s Business Plan.


Wait, doesn’t this sound familiar?


Distributed Energy Resources share similarities with the decentralised Bitcoin network
Distributed Energy Resources share similarities with the decentralised Bitcoin network

In order to manage this explosion of generating & storage assets, the Control Room has been forced to modernise and adopt a more automated approach of aggregating smaller assets together to manage locational supply or demand requirements.


This is achieved by managing the real-time financial market known as the Balancing Mechanism (BM).



UK Electricity Market Access


National Market with Regional Balancing


So what is the Balancing Mechanism and why do we need it?


Following a decision from the Review of Electricity Market Arrangements (REMA) last year, we are now committed to a UK wide national wholesale energy market.


As a national market, it is assumed that electrons generated at a particular location on the system can be transmitted and consumed at any other location say, for example, from the Isle of Skye to Lands End. However, this is a fundamental flaw in a non-locational market and leaves the system in Imbalance.


Now we can fit the puzzle pieces together. Going back to our example in Part 1, we can see how that wind-generated electron was promised to the Leeds hospital in the national wholesale market.


However, because of a constraint on the transmission boundaries, the Scottish offshore wind farm was compensated in the BM to curtail and a gas-fired power station south of the boundary was compensated in the BM to turn-up.


Therefore, the BM is split into two distinct markets:

  • Supply turn-down or demand turn-up = Bid

  • Supply turn-up or Demand turn-down = Offer


Further Market Headaches


This is the now near-cliched example of wasted renewables being replaced by expensive and carbon-intensive peaking gas plants.


Unfortunately, this is just the tip of the iceberg. To dive deeper into the efficient-market catastrophe of a national market requiring regional balancing, take a look at national electricity prices driving purchases from Europe to the UK via interconnectors.


The problem is that this imported electricity sometimes flows into locally constrained areas and, as you have probably guessed, it means that consumers pay again for local generation to curtail the balancing mechanism.



Bitcoin mining - the flexible & dispatchable solution


This does, however, create an opportunity for Bitcoin mining to slot in perfectly to participate in the BM as a Balancing Mechanism Unit (BMU).


As a technology, Bitcoin mining possesses 3 key attributes that are critical for this use case:

  1. Location Agnostic - Bitcoin mining is highly versatile and can be deployed in even the most rural locations (The Scottish Highlands for example…)

  2. Granular modularity - Load can be installed at the precise requirement, down to ~5 kW granularity

  3. Flexible & Dispatchable - Mining compute can ramp up & down flexibly to load balance a micro-grid, or switch on/off to dispatch given a market signal


Through these attributes, Bitcoin mining is ideally suited as a demand-side solution on both sides of the transmission constraint and allows participation in both BM bids & offers.


Bitcoin mining can provide demand response services on both sides of a constraint
Bitcoin mining can provide demand response services on both sides of a constraint

The UK is without doubt one of the most challenging places to deploy mining profitably. But through innovative thinking and market participation, RenewaBlox is demonstrating how this can be done.


In the next blog, we’ll be exploring a specific business model that RenewaBlox is progressing, showcasing both innovation and market participation.













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