Flexibility, the Gold Rush of the Energy Transition?

Flexibility, the Gold Rush of the Energy Transition?

Eric Morel 28/09/2018 2

Flexibility in different forms is at the forefront of energy publications and conferences. Fashionable for 10 years, the subject does not seem to run out of steam; better, flexibilities even appear today as an essential source of income. The fever of the actors in this area reminds us, to a lesser extent, of the gold rush.

But is this fever well justified? Are flexibilities the source of income that needs to be addressed first?

A bit of history: in the beginning, it was not yet a question of flexibilities but of peak load shedding to reduce peak consumptions. In the early 2000s, the US showed that they would not have the funds to build the power plants corresponding to the electricity consumption growth forecasts. As it was not possible to reduce the consumption fast enough, it was necessary to reduce the peak consumption. The aggregators were born, grouped in the PLMA (Peak Load Management Association).

Aggregators developed in many countries and their challenge became to multiply the sources of income and, for that, to detect all the emerging needs of flexibilities that could justify an attractive transaction: according to the countries and their regulation, participation in the balancing mechanisms, sale of demand response blocks of energy on spot markets etc …

Aggregations of consumption flexibilities are now moving towards an aggregation of production flexibilities (for distributed energy sources, too small to be, alone, attractive) or a mix of production and consumption flexibilities (in the context of Microgrids or of Virtual Power Plants).

Does this bubbling development reflect the good health of the aggregators’ activity and the unconditional interest in valuing flexibilities?

The different business plans established by consumers show that:

  • European spot markets remained for long months at low, unattractive price levels.
  • The remuneration of tertiary reserves (the maximum accessible ranging between 10,000 and 35,000 € per year and per MW, depending on the country) is suitable for large installations or flexibilities that are very easy to value and activate. The revenue get for a flexibility of less than 1 MW is often insufficient to capture the interest of consumers: the cost of the first meetings necessary to understand the offers and to evaluate their potential already consumes the income of several years!
  • The remuneration of primary reserves (up to 160-180000 € per MW) is more attractive but presupposes the perfect understanding of the processes and to have efficient aggregation mechanisms.

Remunerations are therefore rarely appealing.

The size of the markets on which flexibilities are valued is also very variable:

  • Not all spot markets are accessible to blocks of flexibilities: for example, the UK market is not open.
  • Reserve markets are very small. If all flexible processes participated, they would be saturated very quickly. The success of the aggregators’ offers would have inevitable consequences on the remuneration levels and therefore on the technologies whose cost of participation would be compatible with these levels of remuneration.

In the balancing markets, lower remunerations would lead to a decline in the interest of many participants, be they producers or consumers, as well as, in some cases, to insufficient competitiveness of some producers, who are historical and reliable participants and, certainly , to the decline in the quality of the service provided by aggregators, of which only the cheapest and, often, the least competent could survive.

The energy systems of tomorrow, however, need strong, competent operators of flexibility: it is essential to reserve a path of viable evolution that does not scare investors. The valuation of flexibilities is therefore a business to consider; at the same time, it gives birth to useful offers: but I do not agree to the blind enthusiasm that it generates. In the meantime, the worst gift that could be made to the aggregators would be to rush massively on their offer.

Read other articles of the same author by visiting www.smartcitiesbymachnteam.com

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  • Lucas Hahn

    Useful read

  • William M Vida

    Clear and concise, thank you.

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Eric Morel

Energy Expert

Eric Morel is a worldwide recognised expert of energy transition and digitalisation. In the past, he has served as VP Corporate Business Strategy and VP Global Smart Grids and Energy Efficiency at Schneider Electric as well as CEO of Ilevo, a telecommunication start-up. He is a founding member and a former Board member of the Gridwise Alliance, the main professional private/public association dedicated to Smart Energy.

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