As a result of local, residential photovoltaic (PV) and large offshore wind farms, power production has become more decentralized, increasingly unpredictable and geographically dependent. Take the example of German transmission system operator (TSO) Tennet, whose network spans the entire length of the country and is heavily dependent on steady winds from the North and Baltic seas. A lull in the wind can send ripples down the whole of Germany.
The impact is not limited to TSOs. It extends to balance responsible parties (BRPs) too. These parties trade energy using forecasts based on long-term standard patterns of usage at the residential level, now disrupted by local PV installation. In cases where PV production is netted with consumption on a yearly basis, BRPs may earn very little from the residential household and also run a large imbalance risk. On the distribution system operator (DSO) side, as the volume of locally installed PVs increase, local production can cause local network congestion.
Flexibility to address electric vehicles (EVs) and grid imbalances
Decarbonization, rising numbers of EVs and electrical heating further exacerbate these issues. The large-scale rollout of EVs could drive up carbon pollution by as much as 30% as peak consumption patterns will require massive on-demand electricity production that renewable sources cannot provide at the moment of use. It will also further strain the electricity grid and increase congestion at the medium and low voltage levels.
The effective application of energy flexibility is needed to address these issues.
What is energy flexibility? Flexibility refers to how much a power system can modify the production or consumption of electricity in response to expected or unexpected variability.
Tapping into energy resource flexibility is not new; system operators and BRPs are already doing it at industrial levels. However, it is still based on relatively slow-moving, predictable differences in the energy balance. As the volume of renewables increases, so will the reserve of fossil fuel production, leading to cost inefficiencies and higher levels of carbon pollution. This scenario can no longer be addressed by a limited set of existing, large industrial flexibility resources, particularly as the adoption of new technologies such as EVs grows.
Flexibility is being progressively sought by a growing number of smaller energy consumers and producers. Currently, market parties are looking to address the flexibility needs of medium-sized enterprises, such as greenhouses and large refrigeration facilities. However, longer-term, flexibility must be tailored to an even higher level of granularity—at the residential market level.
For this to be possible, flexibility must become a commodity.
How can flexibility be commoditized?
Enabling flexibility in the residential market requires a shift in responsibilities. The flexibility provider in the non-residential market will want to be actively engaged in decisions and outcomes involving flexibility, while for the residential flexibility provider (consumer), the focus will be on convenience. In addition, the financial benefit for each residential consumer is likely to be limited. For most consumers, the effort to keep an eye out for the best energy price at which to plug in their EV or run the dishwasher is far too much compared to the return. Flexibility must be provided with as little consumer effort as possible.
Enabling effective flexibility – key questions to ask, and answer
To address these challenges and enable effective flexibility requires answering some important questions.
|The decision to provide flexibility will need to be taken by a market player, usually referred to as the “aggregator.” The aggregator combines the flexibility of a large number of small residential resources into one or more large flexibility resources and activates it when needed.|
|In liberalized markets, the aggregator has a commercial role and consumers must have the freedom to switch between aggregators. In most European countries, central markets facilitate day-to-day processes such as switching, moving in/out, metering and settlement. These services can be easily extended to support local production and flexibility demanded by consumers.|
|To do so efficiently, the aggregator needs to standardize the various aspects of flexibility including availability and administration, operational activation and financial settlement. A central market system provides aggregators with standardized, administrative processes to support competition and ensure an open market and level playing field.|
Central markets already manage contract and master data such as metering point characteristics and contracts and could easily manage flexibility resources (such as EVs, air-conditioning units and heating) and customer preferences. All this information can be linked to existing metering points and the associated processes for switching and metering by extending the domain model; something that the European forum for energy Business Information eXchange (ebIX) is working to deliver.
Central market solutions to support transformation
A market-based solution will provide the right conditions for the most efficient utilization of flexibility (provided enough flexibility is locally available). In such a market, aggregators will compete to provide flexibility services to other market parties like BRPs, DSOs, and potentially even TSOs. Independent of the specifics of how this market will work exactly, a central market solution will play a vital role in publishing available flexibility and bringing together flexibility supply and demand.
A market-based solution can support flexibility by:
- Providing transparent access to all levels of available flexibility resource—the so-called Flexibility register—such that the commercial market can provide competitive offers for this flexibility and the network operator can assess network vulnerabilities.
- Facilitating the exchange of information related to available capacity and utilization, consumption and production forecasts, and available and activated flexibility
- Enabling the creation of an appropriate consumer behavior-driven tariff structure to incentivize the use and increase the value of flexibility
Central markets are ideally suited to connect market parties and facilitate this exchange of information. However, this is not an easy task. Current central market solutions are typically aimed at transactional administrative processes and bulk settlement processes. They will need to evolve to cater for the near real-time nature of flexibility. CGI’s Central Market Solutions (CMS) and approach helps clients address these challenges and meet the needs of the transformative changes taking place in the energy system. To learn more, do get in touch with us.