By ESS news
Battery asset owners trading in Britain’s frequency response markets faced a mixed outcome after Ofgem ruled in favor of some rewrites of the terms and conditions for its Dynamic Response range of frequency services, while rejecting others.
Network operator NESO originally submitted ten amendments for industry consultation between November 20 and December 19, 2025, later withdrawing two before final submission to Ofgem. The regulator has approved six of the remaining eight proposed changes, spread over two effective dates.
The first approved changes will come into effect from 31 July 2026 and include a new link between the way providers signal their availability in the UK balancing market and their ability to operate in the frequency services markets. Under the new rule, any balancing mechanism unit (BMU) that fails to submit a valid Final Physical Notification (FPN) – the recorded declaration of a unit’s planned output or consumption for a given settlement period – will be deemed unavailable for Dynamic Response, regardless of the unit’s actual technical capabilities.
The rules governing how Dynamic Response revenue stacks with other NESO services have also been tightened, with a new requirement for a pre-approved baseline methodology where assets are also contracted under Stability Network Procurement Services. This has been introduced in an attempt to prevent providers from being paid twice for the same capacity. A third administrative change changes some names in a section of the terms and conditions that govern availability payment calculations.
Frequency response markets formed a significant portion of battery energy storage system (BESS) revenues in the early years of BESS deployment in Britain, although increased deployment has put downward pressure on revenues from these services. Although trading BESS assets in the UK often operates with a variety of revenue streams, frequency markets remain important for many assets.
NESO claims that the proposed changes to Dynamic Response Services – the suite of frequency services consisting of Dynamic Containment, Dynamic Moderation and Dynamic Regulation – will improve operational effectiveness, increase safety, competition and value for money.
Further changes will come into effect on January 1, 2027, impacting Dynamic Response participants who do not trade in the Balancing Mechanism market – a category that includes smaller and aggregated battery assets.
Under current rules, providers can mark their battery as “disabled” in their performance data if it has been deliberately taken out of service – sometimes at NESO’s own instruction. This prevents the asset from being penalized for not responding to a frequency event.
The new rule would impose a fine on any provider who marks its unit as disarmed without being ordered to do so. A further amendment gives NESO the right to publish penalty data for individual providers, a transparency measure that Ofgem calls proportionate, despite some concerns about commercial sensitivity.
Ofgem has also approved a requirement to submit operational metrics and baseline operational data even outside contract periods, requiring market participants to reach 80% over a rolling assessment period of up to 28 days to remain active in daily auctions. NESO said the rule is primarily aimed at non-BMU providers because BMUs already submit equivalent data under the grid code.
Two NESO proposals were rejected by Ofgem, although they were revived. An attempt to introduce a four-step criminal ladder for underperforming providers, and an expansion of the grid operator’s power to ban providers from the market, were both rejected due to insufficient consultation with the sector. Ofgem said it remains open to a resubmission once those guidelines have been properly consulted, adding that NESO could still meet its original January 1, 2027 target for tiered penalties if it acts quickly.
All three decision notices are available from Ofgem.
