Why Service Levels?
Overview
For more than a century, electricity systems were designed around a simple objective: supply every customer whenever they requested energy.
This was possible because generation was largely dispatchable.
Coal stations, gas turbines and hydroelectric plants could increase production as demand increased.
Consumers were passive.
Reliability was therefore treated as a universal engineering objective rather than an explicit market product.
Modern electricity systems are fundamentally different.
Increasing proportions of electricity now come from variable renewable generation, while millions of flexible devices actively participate in the operation of the grid.
Reliability can no longer be considered a single uniform service.
Instead, different electricity uses have different reliability requirements.
FP-AMM introduces Service Levels to make these requirements explicit.
Not All Electricity Uses Are Equal
Traditional electricity markets implicitly assume that every unit of electricity has equal value.
In reality, the consequences of delaying electricity consumption vary enormously.
For example,
a refrigerator requires almost continuous supply.
Medical equipment may require uninterrupted operation.
Lighting may be needed immediately.
By contrast,
an electric vehicle typically only needs to be fully charged before departure.
A battery can often delay charging for several hours.
A hot water cylinder can usually be heated at any point during the day.
These services possess very different flexibility.
Treating them identically leads to inefficient use of the electricity system.
Flexibility is a Valuable Resource
Flexible devices provide something that conventional electricity demand never could.
They allow consumption to move through time.
Instead of consuming electricity immediately, they can choose when to consume it.
This flexibility has significant value.
It allows renewable generation to be utilised more effectively.
It reduces congestion.
It improves network utilisation.
It reduces the need for expensive reinforcement.
However, flexibility can only be coordinated if it is explicitly represented within the market.
Service Levels provide this representation.
Reliability Becomes a Choice
Today's electricity systems largely provide the same level of reliability to every appliance.
This is simple to understand but often economically inefficient.
Many devices do not require instantaneous access to electricity.
Others do.
Rather than assuming identical reliability requirements for every device, FP-AMM allows reliability to become an explicit customer choice.
Consumers select the level of service appropriate for each participating device.
Higher service levels provide stronger guarantees.
Lower service levels allow greater flexibility in exchange for lower costs.
Reliability therefore becomes a transparent market product rather than an implicit engineering assumption.
Separating Essential and Flexible Demand
A fundamental principle of FP-AMM is that essential demand is not treated as flexible demand.
Essential household consumption continues to receive the level of reliability expected from today's electricity system.
Examples include:
- lighting,
- refrigeration,
- cooking,
- medical equipment,
- general household consumption.
These services do not participate in market coordination.
Instead, Service Levels apply only to registered flexible devices that voluntarily participate in the market.
Examples include:
- electric vehicles,
- household batteries,
- heat pumps,
- hot water storage,
- commercial flexible loads.
Participation therefore remains voluntary.
Customers retain complete control over which devices participate.
Reliability as a Market Product
Instead of purchasing electricity alone, customers purchase a combination of:
- energy,
- flexibility,
- reliability.
The energy component determines how much electricity is consumed.
The flexibility component determines when it may be consumed.
The service level determines the reliability with which that request will be satisfied.
This allows electricity supply to be tailored to the actual requirements of different devices rather than treating every request identically.
Supporting a Renewable Electricity System
As renewable penetration increases, periods of abundance and scarcity naturally become more common.
Some flexibility is therefore unavoidable.
The question is no longer whether flexibility should exist.
The question is how flexibility should be coordinated.
Service Levels provide a transparent and economically coherent answer.
Customers explicitly decide which devices may participate and what level of reliability they require.
The market then coordinates these requests using continuously evolving prices.
Preparing for Scarcity
Most of the time, the electricity system possesses sufficient resources to satisfy every requested Service Level simultaneously.
During these periods, Service Levels simply define the contractual guarantees associated with each participating device.
Occasionally, however, genuine scarcity occurs.
Generation may be insufficient.
Network capacity may become constrained.
Not every requested service can be delivered at the same time.
The electricity system must therefore decide how scarce resources should be allocated.
Making these decisions fairly requires more than prices alone.
It requires an explicit mechanism for balancing reliability over time while respecting the commitments made to customers.
This is the role of the Fair Play mechanism, introduced in the next section.