DSO Flexibility Markets Transforming GB’s Grid Economics

The Rise of DSO Flexibility Markets in Great Britain’s Energy Revolution

1.1 What is Flexibility and Why Does It Matter?

Flexibility in electricity markets represents the ability to adjust power generation, consumption, or storage charging/discharging in response to grid signals. This capability has become critical as the Great Britain (GB) power system transforms from one dominated by predictable, dispatchable power stations to one dominated by intermittent renewables and millions of connected devices. From virtually no formal procurement in 2019, GB’s local flexibility markets have expanded to 31GW tendered and about 9GW contracted volumes in 2025, making it the world’s largest local flexibility market. This remarkable growth has already delivered £300 million in consumer savings in 2024 and is projected to deliver over £3bn in savings by 2028 through avoiding or deferring network reinforcements, reducing connection charges and increasing the use of low-carbon energy sources.

Why does this matter now? The Clean Power 2030 Action Plan has outlined a system-wide flexibility requirement of 51-66GW by 2030, while NESO’s FES 2025 has estimated that total flexibility capacity will need to reach 204GW by 2050 (under the Holistic Transition scenario). Without flexibility, accommodating the increase in demand from electric vehicles and heat pumps while integrating unprecedented volumes of renewable generation would require massive infrastructure investment in new power lines, substations, and transformers, costing billions to end-consumers. Flexibility offers a smarter path of using existing assets more efficiently by compensating providers to adjust/shift their energy use or generation when the grid needs it most. The government’s 2021 Smart Systems and Flexibility Plan estimates that flexibility services could save consumers £10 billion annually by 2050 and reduce total net zero transition costs by up to £70 billion.

1.2. The Two-Layer Flexibility System: National vs Local

Great Britain operates flexibility markets at distinct levels, each addressing different grid challenges.

Transmission-level flexibility, managed by the National Energy System Operator (NESO), maintains balance across the entire national grid. The recent Flexibility Market Rules Consultation by Elexon categorises transmission flexibility to include services such as the Demand Flexibility Service (DFS), Local Constraint Market (LCM), MW Dispatch, different ancillary services, and the Balancing Mechanism. Transmission flexibility operates at massive scale, coordinating resources across regions to ensure the lights stay on when a power station trips offline or wind generation suddenly drops.

Distribution System Operator (DSO) flexibility operates at the local network level. This is delivered through services such as Peak reduction, Scheduled Utilisation (SU), Operational Utilisation (OU) and others. Here, flexibility solves localised problems such as preventing a substation from overloading when everyone charges their electric vehicles after work. DSO flexibility is about surgical precision rather than brute force, targeting specific network constraints that would otherwise require expensive upgrades. With more than 100,000 assets already registered and prequalified to participate in the distribution flexibility markets, Energy Networks Association (ENA) estimates that the resulting improvement in network access for renewables can reduce the wholesale electricity costs by around £430m by the end of 2028.

1.3. Where DSO flexibility markets are today

From 116MW in 2018 to approximately 9GW in 2025, the local flexibility market has grown by about 77 times in contracted volume. All six GB DSOs now run regular, transparent tenders to buy flexibility (turn-up/turn-down) and dispatch it via common product types. Most use public platforms, standardised products, and are converging on common baselining and settlement methodologies under Elexon’s new Market Facilitator role. Moreover, the Flexibility Market Asset Register is set to launch in 2027, acting as a single authoritative source of information for flexibility providers, especially for small-scale assets like EV chargers and domestic BESS, enabling them to join more than 20 flexible energy markets with a single registration.  

2. How DSO Flexibility Markets Are Run

2.1. Planning and Forecasting

The procurement journey begins with comprehensive network forecasting. DSOs identify future network needs and publish findings through three key documents:

• Distribution Future Energy Scenarios (DFES) provide long-term demand and generation forecasts to 2050, modelling how the energy system might evolve under different drivers of change, such as electrification rates, renewable deployment, and adoption of low carbon technologies (LCTs) like EVs and heat pumps.
• Long Term Development Statements (LTDS) provide granular information on existing network infrastructure and available capacity over the next five years.
• Network Development Plans (NDPs), introduced in May 2022, bridge the gap between long-term scenarios (DFES) and near-term detail (LTDS). Covering a 5–10-year horizon, NDPs present the ‘best view’ of planned asset investments and flexible network solutions, detailing where reinforcements may be required, where flexibility can defer capital expenditure, and how network capacity will evolve.

2.2. Evaluation of Network Need

Once future network needs are identified, DSOs must evaluate the most cost-effective intervention options to address them. This critical decision-making process is facilitated by the Common Evaluation Methodology (CEM) tool, first launched in 2020 and updated in 2024. The CEM tool enables DSOs to assess whether flexibility-based solutions, such as demand side response can defer or eliminate the need for traditional capital-intensive network reinforcement solutions. By quantifying the costs and benefits of flexibility versus conventional reinforcement under various load growth scenarios, the CEM ensures DSOs select the most economically efficient solution while maintaining network reliability.

2.3. Prequalification and Onboarding of Assets

Asset prequalification and onboarding is the gateway to market participation. Flexibility service providers (FSPs) must complete a few commercial and technical steps before becoming eligible to participate in tenders. Until 2024, each DSO ran its own prequalification checks, creating significant administrative burden and ambiguity, especially for FSPs operating multi-region portfolios. Since then, a standardised Prequalification Questionnaire (PQQ) has been rolled out under ENA Open Networks programme and is being adopted across GB DSOs, substantially reducing duplication.

FSPs need to first establish their accounts on their DSO’s market platform (detailed in Section 2.4) and submit information on commercial criteria (e.g., company information, financial standing, and insurance cover) as well as technical criteria (e.g., connection status, technology type, operational parameters, and metering details). The DSOs then verify the commercial details and conduct an initial credit check. Following successful company checks, DSOs issue FSPs with a Framework Agreement. This overarching agreement, signed by both the FSP and the DSO, is a prerequisite for participating in the tender. Next come the technical steps, wherein the FSPs register their assets on the market platform, and their DSO validates the asset eligibility. Upon completion, FSPs become eligible to participate in flexibility tenders.

2.4. Launch of Tenders

DSOs publish flexibility opportunities through dedicated procurement platforms that facilitate the entire procurement lifecycle from opportunity identification through prequalification, bid submission, market clearing and settlement. These procurement platforms differ by DSO. The current platform landscape looks as below:

Table 2‑1: DSO Flexibility Procurement Platforms

Beyond facilitating prequalification and onboarding, these platforms equip FSPs with essential tools for identifying and evaluating flexibility opportunities. For instance, they provide interactive maps displaying Constraint Management Zones (CMZs) or Flexibility Zones (terminology varies by DSO). These zones are specific geographic areas where network constraints are confined, indicating where flexibility opportunities exist for FSPs.

2.5. Tender Response

Once pre-qualified, FSPs submit bids through their DSO’s procurement platform over varying timeframes.

Procurement timeframes (DSO-specific):

• Long-term: Many DSOs run long-term tenders, which operate between published Competition Open and Close dates, typically running annually or semi-annually (spring and autumn). Contracts can span a season to multi-year periods.
• Short-term: These tenders operate more frequently, for example, on a weekly or monthly basis (e.g., SPEN’s monthly and NGED’s weekly tenders). They allow DSOs to refine procured capacity on a week- or a month-ahead basis and enable FSPs to optimise their positions across multiple markets.
• Day-ahead: This procurement mode allows DSOs to refine procured capacity closer to real-time. Offers can typically be submitted or modified until gate closure (commonly around midday for next-day delivery).

Regardless of tender type, all bids must specify the product choice, offered capacity (MW), pricing (e.g., availability payments and/or utilisation payments depending on product), and operating constraints (e.g., service windows). FSPs must carefully match asset capabilities to each tender’s technical requirements before submission. To do so effectively, it is essential to understand the five standardised flexibility products around which the DSO flexibility services are structured. These products are governed by ENA’s Common Product Parameters (CPP) framework, which was developed during 2023-2024 to eliminate cross-DSO inconsistencies in flexibility procurement. GB DSOs began implementing the five aligned flexibility products in 2024, superseding the historical Sustain, Secure, Dynamic and Restore taxonomy. These products have been detailed in Table 2‑2 below.

Table 2‑2: Standardised DSO Flexibility Products, Use Cases and Payment Structures

All products are technology-agnostic, enabling participation from battery storage, generation, demand response, and aggregated portfolios, though certain technologies naturally align better with specific products based on response characteristics.

2.6. Bid Assessment and Contracting

Once the bidding window closes, DSOs assess all submitted bids against defined criteria, evaluating the overall value of service offered. The aim is to ensure optimal value for end customers by selecting the least-cost, technically feasible mix that meets each zone’s requirement, while maximising the value of deferring reinforcement within set budgets/ceiling prices. Assessment methods include the CEM tool for comparing flexibility against reinforcement costs, technical assessments, cost-benefit analyses for EHV/132kV interventions, and linear optimisers for LV/HV interventions. Since no single tool captures all criteria such as deliverability risk, DSOs combine these tools collaboratively. Upon successful bid selection, DSOs formalise agreements with flexibility providers using a standardised contract framework. All GB DSOs currently utilise the Standard Flexibility Services Agreement, which has evolved through successive iterations based on market experience and stakeholder feedback. Contract standardisation significantly reduces transaction costs for FSPs operating across multiple DSO regions by enabling efficient portfolio management.

2.7. Dispatch, Measurement, and Settlement

When network conditions require flexibility activation, DSOs issue dispatch or utilisation instructions to contracted FSPs. The dispatch channels include automatic API integration (preferred for large-scale operations), direct alerts through the DSO’s procurement platform, or phone communication for ad-hoc requirements. The choice of dispatch mechanism varies by product type and provider preference but increasingly relies on automated systems for scalability and efficiency. Upon receiving dispatch instructions, contracted FSPs must acknowledge receipt, confirm capability, execute the required response, and provide real-time monitoring data.

Delivered flexibility is measured against a baseline – the counterfactual consumption/generation profile that would have occurred without flexibility activation. Accurate baselining protects both providers (ensuring full payment for delivered services) and DSOs (preventing overpayment for undelivered flexibility) and is thus crucial for fair settlement. Settlement is the financial reconciliation process through which contracted FSPs receive payment for delivered services. Payment structures typically comprise two components:

• Availability payments: compensate FSPs for maintaining capability during contracted periods (regardless of actual utilisation); provide revenue certainty
• Utilisation payments: compensate FSPs for flexibility delivery when dispatched; calculated by comparing measured delivery against baseline, the contracted rate, and the delivery duration.

Billing cycles vary by DSO and contract terms, but typically occur monthly following validation of performance data. The payment calculations incorporate parameters, such as grace factors and penalisation multipliers, which are designed to encourage reliable delivery while recognising operational realities. While grace factors represent a tolerance band within which FSPs receive full payment even with minor under-delivery, delivery below this tolerance band triggers penalisation multipliers that result in payment reduction. For instance, a 5% grace factor and a 3× penalisation multiplier (typical for Scheduled Utilisation product), delivering 85% of contracted capacity would result in a 30% payment reduction: (95-85)% × 3 = 30%, meaning a £1,000 expected payment becomes £700. Understanding these mechanics is essential for operational planning, revenue forecasting, and product selection based on asset reliability characteristics.

2.8. Market Coordination: Primacy and Revenue Stacking

As flexibility markets mature, assets increasingly participate in multiple services simultaneously, creating complex coordination requirements. Market coordination addresses two critical questions: which services can be offered together (stackability), and which system operator (DSO or NESO) has dispatch priority when conflicts arise (primacy). Stackability determines whether a FSP can contractually offer the same asset capacity to multiple services for overlapping timeframes. These rules apply at the procurement or pre-procurement stage and guide the FSP decisions about portfolio optimisation. Primacy rules apply during real-time or day-ahead operational dispatch and establish which system operator has priority to dispatch a service when multiple instructions conflict. These rules protect both system operators and flexibility providers by creating clear operational hierarchies.

3. Who Can Participate in DSO Flexibility Markets?

DSO flexibility markets are designed to be inclusive and technology-agnostic, welcoming participation from a diverse range of market actors. Whether you’re an individual household or a major industrial facility, there are pathways to engage with these growing markets. Eligible participants include:

• Residential customers with smart technologies like EV charge points, heat pumps, and home battery storage systems, can participate through their Suppliers or third-party Aggregators.
• Industrial and commercial sites that can adjust their electricity consumption patterns, particularly those capable of reducing demand during peak periods or shifting operations to off-peak hours. This includes major energy users such as factories and supermarkets, which often have significant flexible load from refrigeration systems, HVAC systems, and other controllable processes.
• Owners and operators of storage and generation assets, including battery energy storage systems, gas turbines, biomass facilities, solar farms, wind generators, and other flexible generation technologies.
• Aggregators who pool smaller assets into larger portfolios, enabling participation from resources that might not individually meet minimum capacity thresholds.
• Energy efficiency providers who can deliver long-term, sustained demand reductions that align with network peak periods.

The minimum participation threshold varies by DSO, but many require at least 10kW of flexibility. This can be achieved through a single asset or by aggregating multiple smaller assets within the same constraint management zone. Some DSOs, like UKPN, allow domestic customers with sub-10kW capacity to participate through third-party aggregators, who combine multiple small-scale resources into viable commercial portfolios.

4. Your Gateway to DSO Flexibility Markets

Participating in DSO flexibility markets involves navigating a complex landscape of technical requirements, procurement processes, contract structures, and market coordination rules. Whether you are a first-time market entrant or an experienced flexibility provider looking to expand your portfolio across multiple DSO regions, expert guidance can make the difference between success and costly missteps.

At Blake Clough Consulting, we specialise in supporting clients across the entire flexibility services journey. Our team combines technical knowledge of GB power systems with practical experience in regulatory compliance and market participation strategies. For instance, when clients want to simultaneously access transmission-level flexibility products, we design a revenue stacking plan that includes NESO’s Demand Flexibility Service (DFS) and Local Constraint Market (LCM) where permitted. Thus, whether you are taking your first steps into flexibility markets or seeking to optimise an existing portfolio, our team is ready to help you navigate this rapidly evolving landscape and unlock the full commercial potential of your flexible assets. Visit our Electricity Market Services webpage to discover how our team can help you successfully participate in GB’s rapidly growing flexibility markets.