Speaker 1: This is Dana Perkins and you're listening to Switched On.
Speaker 1: Each week on this show, we bring in different BNF
Speaker 1: analysts to talk about their research, and this week we're
Speaker 1: going to focus on grids, more specifically grid flexibility. It's
Speaker 1: no secret that power grids are strained in locations all
Speaker 1: over the world. Sometimes they're coping with aging infrastructure or
Speaker 1: additional capacity installations in the form of intermittent sources like solar,
Speaker 1: or changes to power demand resulting from more electric vehicles
Speaker 1: on the road, and often they're not very flexible and
Speaker 1: the technology to manage things can be lagging. In developed
Speaker 1: economies where blackouts are uncommon, we've come to expect access
Speaker 1: to power to be readily available whenever we want it,
Speaker 1: So today we're going to get into some of the
Speaker 1: things that utilities are doing to adapt and ensure that
Speaker 1: that remains possible. The solution being featured is the emergence
Speaker 1: of local flexibility markets. Sanjit Sangera leads bnaf's Grids and
Speaker 1: Utilities team, and he's joined today by Felicia Amanov, who
Speaker 1: is the lead author on a recent report titled Europe's
Speaker 1: Local Flexibility Markets aiding a strained grid BNF subscribers will
Speaker 1: be able to access the full report on BNF dot
Speaker 1: com or at BNF go on the Bloomberg terminal. If
Speaker 1: you want to hear more episodes or share this show
Speaker 1: with others, subscribe to this show and give us a review.
Speaker 1: But right now, let's start our conversation on local flexibility markets,
Speaker 1: what they are, where they are, and how significant of
Speaker 1: a solution they could become. Sanji, welcome to the show.
Speaker 2: Hi Danna, thank you for having me.
Speaker 1: And Felicia, thank you for being here.
Speaker 3: Great to be here.
Speaker 1: So we're here to talk about grid flexibility and some
Speaker 1: innovations on that side that have to do with markets.
Speaker 1: But before we get to the market flexibility end of things,
Speaker 1: we like to do a history lesson at the beginning
Speaker 1: of every show, which is how traditionally flexibility has been
Speaker 1: handled when it comes to the grid.
Speaker 2: Yeah.
Speaker 4: Sure, I think we need to maybe start with what
Speaker 4: the term flexibility means as well, because it's kind of
Speaker 4: an ambiguous term.
Speaker 1: Really, back to basics, Okay, here go, Yes, so.
Speaker 2: We'll start there.
Speaker 4: So, one of the critical challenges of operating a power
Speaker 4: system is balancing supply and demand. So an electrical power
Speaker 4: system has to be instantaneously balanced supply and demand all
Speaker 4: the time. And this is what a system operator, a
Speaker 4: grid operator, is spending much of their time doing.
Speaker 2: And they have to do this across all types.
Speaker 4: Of time ranges, so second to second, minute to minute,
Speaker 4: hour to hour, and they're looking even further out to
Speaker 4: make sure that they'll be able to do this. And
Speaker 4: they're also trying to do it both at a system level,
Speaker 4: so think of like the entire Great Britain power system,
Speaker 4: as well as at a kind of a local regional level.
Speaker 2: So they want to make.
Speaker 4: Sure that each region doesn't have too much power being
Speaker 4: produced or consumed, because what can happen then is the
Speaker 4: individual power lines supplying that region will get congested or overload,
Speaker 4: and that can cause issues with the failure of those equipments.
Speaker 2: So this is the game that we're in, right.
Speaker 4: We're trying to balance the power system cross time, cross space,
Speaker 4: and we're doing this constantly. Flexibility is the word that
Speaker 4: we use about how we're going to go about solving
Speaker 4: that problem, right, and so here we're talking about taking
Speaker 4: a generator and either taking its output the production of
Speaker 4: it up or down. We could take a point of
Speaker 4: consumption and maybe we could reduce it or even maybe
Speaker 4: ask it to be raised artificially at a point in time.
Speaker 4: And battery storage technology is in there too, somewhere in
Speaker 4: between generation and demand, and it could be charging or discharging.
Speaker 4: And so these are the tools that we have at
Speaker 4: our disposal. And historically, you know, most of the flexibility
Speaker 4: was being provided by generators, and not even just generators
Speaker 4: large clustered like the large generator sitting in a single spot,
Speaker 4: and so flexibility was highly centralized and consolidated. This is
Speaker 4: now changing, Like you know we've spoken here before, generation
Speaker 4: fleet is changing, and also consumption patterns are changing, and
Speaker 4: so where we're going to get flexibility from will also
Speaker 4: have to change. And so the rise of markets come
Speaker 4: about as a means of solving this problem of taking
Speaker 4: flexibility from a vast number of distributed assets and being
Speaker 4: able to solve challenges of flexibility both at a system and.
Speaker 2: A local level.
Speaker 1: Well you're talking about system versus local. Let's define that
Speaker 1: even further as well, because when I think about the
Speaker 1: system level, the system itself is getting more complex. We're
Speaker 1: adding a wider variety of different energy sources onto it,
Speaker 1: and things are being put in various different locations. Are
Speaker 1: we still talking about creating flexibility and complexity at the
Speaker 1: local level when it comes to working with utilities. Are
Speaker 1: we actually talking about individuals, So I'm thinking of a
Speaker 1: home generator or a home power wall that would then
Speaker 1: give them backup power or does it really just depend
Speaker 1: on whether or not there's a lot of solar and
Speaker 1: a feed in tariff in that particular market structure.
Speaker 3: So yeah, I think we're talking about both really, But
Speaker 3: what we think is most exciting is the distributed small stuff,
Speaker 3: and that can be people's homes. It can be rooftop
Speaker 3: solar and batteries in people's homes. It can be an
Speaker 3: electric vehicle charger, and even at a slightly larger level,
Speaker 3: it can be things like in an individual public charging
Speaker 3: station for cars. That's where we come into these new
Speaker 3: types of flexibility markets. So local flexibility markets are these
Speaker 3: markets that are run by distribution grid operators. So distribution
Speaker 3: grid operators are the guys that run the local grids
Speaker 3: that bring in the power into our homes. And as
Speaker 3: there's now more and more new low carbon technologies connecting
Speaker 3: at the low levels of the grid, the operators need
Speaker 3: new tools to tackle this. So it's all the rooftop PV,
Speaker 3: all the evs and things like heat pumps that are
Speaker 3: replacing gas boilers, and a market is just a way
Speaker 3: of paying someone to behave flexibily. You can kind of
Speaker 3: get different types of flexibility also, for example through a tariff,
Speaker 3: so someone can have a flexible tariff where during a
Speaker 3: certain time of the day your price is lower. But
Speaker 3: by doing it in a market mechanism, you can do
Speaker 3: more complex things, so you can create these situations where
Speaker 3: you can have both demand side flexibility and generation side
Speaker 3: flexibility play against each other. So I think a good
Speaker 3: example is found in the UK where one distribution grid
Speaker 3: operator is running a market where you can pay people
Speaker 3: to actually increase their consumption in the middle of the
Speaker 3: day when solar generation is high. How that market solves,
Speaker 3: How that price solves. It turns out that it's more
Speaker 3: expensive to pay people to increase their consumption then you
Speaker 3: could also instead pay the solar plant to stop generating.
Speaker 3: So you kind of have these two alternative solutions competing
Speaker 3: against each other on price, and whoever can provide it
Speaker 3: the service at the lowest cost gets the contract.
Speaker 1: So that's a great example, And you brought up some
Speaker 1: of the mechanisms that can be used in order to
Speaker 1: bring this to life, so flexibility through tariffs and a
Speaker 1: local flexibility market. There are a few other ways though,
Speaker 1: and some of them used more historically where these kind
Speaker 1: of bilateral contracts and maybe no longer fit for purpose.
Speaker 1: Given how come flex the system is? Can you talk
Speaker 1: about the role though, of regulation in flexibility and how
Speaker 1: that fits in with this whole universe in terms of
Speaker 1: how this actually happens, how flexibility comes to life.
Speaker 4: Regulatory models for flexibility have existed for some time, right,
Speaker 4: and so this is I would say it, so you
Speaker 4: can mandate a certain amount of flexibility in grid codes
Speaker 4: that every single load customer that connects to a grid
Speaker 4: or any type of generator connection that connects to the.
Speaker 2: Grid will also have to follow.
Speaker 4: And so this would this plays a certain role, right,
Speaker 4: So this is kind of a minimum boundary of flexibility
Speaker 4: that everyone should have to provide if they want to
Speaker 4: be able to be part of the integrated system. So traditionally,
Speaker 4: for generators, this is kind of like it's a droop setting.
Speaker 4: So this is maybe a bit of a technical term,
Speaker 4: but generators have this droup characteristic such that if they're
Speaker 4: connected on the power system, their output has to be
Speaker 4: able to slide up and down based on the frequency
Speaker 4: of the power system that they're connected to, and.
Speaker 2: This was the way.
Speaker 4: This is a certain type of flexibility that they every
Speaker 4: single generator that's connected to the system to.
Speaker 2: Be able to provide.
Speaker 4: Otherwise the system is just not reliable. But this was
Speaker 4: quite significant when you'd have large consolidated generators providing this
Speaker 4: type of service, and it's diminished over time as we've
Speaker 4: gone to more distributed resources, and so you end up,
Speaker 4: you know, is regulatory mandated grid codes the right way
Speaker 4: of getting flexibility on a system as we move forward,
Speaker 4: right because you know, we can talk about it being
Speaker 4: contracted through these codes, through tariffs, and through markets. So
Speaker 4: I think a blended approach is ultimately what we're seeing evolve.
Speaker 4: Like different markets have gone down different paths, and markets
Speaker 4: are kind of a newer form of bringing flexibility to
Speaker 4: the system that we're seeing used more and more.
Speaker 1: So the market's this newer form of getting things done
Speaker 1: in this space. Let's talk about some examples. So you
Speaker 1: brought up the UK. Where else is this being done
Speaker 1: and how are they implementing it?
Speaker 3: So the UK has been one of the first European
Speaker 3: countries to start implementing this concept, so already in twenty nineteen,
Speaker 3: local distribution grid companies here we're running trial tenders to
Speaker 3: get these contracts in place, so for example, sign a
Speaker 3: contract with a number of electric vehicle charging operators to
Speaker 3: get those chargers to turn down stop charging at times requested.
Speaker 3: But we're seeing this increasingly in other countries as well.
Speaker 3: So the Netherlands is an example of a distribution grid
Speaker 3: that is already facing a lot of grid congestion, so
Speaker 3: that means that a lot of the time there is
Speaker 3: more power trying to flow through those lines than the
Speaker 3: lines can physically accommodate. So then to keep the grid
Speaker 3: in a safe state, they needed solutions, so they started
Speaker 3: implementing a type of local flexibility market which was actually
Speaker 3: tied to the wholesale market for power, but the design
Speaker 3: of this market was actually again more geared towards large
Speaker 3: established whether it was generators or consumers such as industrial consumers,
Speaker 3: and we haven't seen that much small, local, even residential
Speaker 3: stuff being contracted through this market. But last year they
Speaker 3: changed their policy and now we're starting to see more
Speaker 3: flexibility contracts being implemented in the Netherlands as well. In
Speaker 3: the Nordics, so mainly Norway and Sweden, they're also running
Speaker 3: local flexibility markets there. The challenge is more on cold winters,
Speaker 3: so you have a lot of electric heating in Norway
Speaker 3: and Sweden, and as people are also now starting to have,
Speaker 3: say an EV charger, you want to make sure that
Speaker 3: they're not running their heat pump at max capacity at
Speaker 3: the same time as they're charging their EV. So in
Speaker 3: the Nordics, these markets are typically contracting for just a
Speaker 3: few months a year, and in many places in Europe
Speaker 3: what's becoming a real challenge is how to manage the
Speaker 3: peaky generation of solar and in particular rooftop solar. If
Speaker 3: people are not at home in the middle of the
Speaker 3: day and all this power is blasted into the distribution grid,
Speaker 3: you kind of want to have some market mechan to
Speaker 3: incentivice that either being stored in batteries or that your
Speaker 3: neighbor can consume that that's soldar.
Speaker 1: So to put in context, and because you said this
Speaker 1: is a newer market, so we're just kind of getting
Speaker 1: started here about how much of power demand is actually
Speaker 1: being treated this way in Europe when it comes to flexibility.
Speaker 4: So currently the volumes dispatched are quite small. It's about
Speaker 4: six gigawatt hours of flexibility in a twelve month period
Speaker 4: stretching across twenty twenty two and twenty twenty three when
Speaker 4: we kind of pull the data for each of these
Speaker 4: markets that are doing it, and so to put that
Speaker 4: into context, that's zero point zero zero one percent of
Speaker 4: annual power demand in the countries that are actually doing
Speaker 4: this flex But thought of another way, you know, they're
Speaker 4: probably around twenty thousand assets that have been activated to
Speaker 4: provide flexibility over the course of the year. And so
Speaker 4: these are these are small markets today, and especially if
Speaker 4: you compare them to the size of like the transmission
Speaker 4: congestion markets that are much more developed and have been
Speaker 4: around for a while. They are small, but they are growing.
Speaker 1: So that's the question, it's how is it going? Is
Speaker 1: this going to be something that other countries are looking
Speaker 1: at and then going to in theory adopt in the future,
Speaker 1: because really that's it's a bit of an experiment, right
Speaker 1: and that is what happens. The first movers essentially work
Speaker 1: out all the kinks and uncover the things that need
Speaker 1: to be fixed and have we gotten through the working
Speaker 1: out the kinks phase or have there been a number
Speaker 1: of things that kind of come up in these different
Speaker 1: countries that you think will stand in between wider adoption.
Speaker 3: First, I think we haven't still quite gotten over the
Speaker 3: part where all the kinks are being worked out, but
Speaker 3: there's like constant improvement. And in the markets where this
Speaker 3: has been done for a number of years, such as
Speaker 3: the UK, we've seen the volumes increasing every year and
Speaker 3: also the design of the contracts changing. And yeah, one
Speaker 3: of the things that's been happening is in the first
Speaker 3: trial runs they put in these really long term contracts
Speaker 3: so you would get kind of security for five years
Speaker 3: forward that if you were an EV charging operator and
Speaker 3: you've responded to the calls to provide flexibility, you would
Speaker 3: get paid a certain amount. But that turned out to
Speaker 3: be quite hard to navigate, both from the distribution grid side,
Speaker 3: who's the buyer of the service, and from the EV
Speaker 3: charging provider side, because the EV charging provider doesn't know
Speaker 3: exactly how many chargers and where they will have them
Speaker 3: in five years, and the grid operator might not know
Speaker 3: exactly which power line can be congested. So I think
Speaker 3: that's like a big challenge on how to design a
Speaker 3: good local flexibility market is how do you define how
Speaker 3: local you should go, Because if you're on just one street,
Speaker 3: it's probably a bit too small. And if that's one
Speaker 3: street is so congested that you can't deal with it,
Speaker 3: you probably just need to put in a new power line.
Speaker 3: But when we're talking like a slightly larger area, say
Speaker 3: a neighborhood, you could already start having enough assets that
Speaker 3: can compete against each other and provide flexibility at a
Speaker 3: sensible price. But in Germany, when they try local flexibility
Speaker 3: markets in twenty twenty one, they didn't see high enough
Speaker 3: volumes to become comfortable that these markets could work. So
Speaker 3: what they saw was that only a small number of
Speaker 3: assets bid in. So whether that's small batteries or again
Speaker 3: my favorite example, electric vehicles, if you have just a
Speaker 3: couple of them, they can essentially dictate the price and
Speaker 3: it ends up not being the most cost effective solution.
Speaker 3: I personally think that was just kind of feature of
Speaker 3: it being so new, and I think click Germany maybe
Speaker 3: gave up a little bit to it too early. And yeah,
Speaker 3: it would be interesting to see if they they give
Speaker 3: local flexibility markets a chance at some later point. Overall
Speaker 3: EU legislation is kind of pushing towards this direction because
Speaker 3: it's seen as a fair way of remunerating either people
Speaker 3: or companies who contribute to the sustainable operation of the
Speaker 3: power grids. And I think a last challenge to really
Speaker 3: get those volumes and get that competition, I think need automation.
Speaker 3: So especially when you're relying on the really small stuff
Speaker 3: like residential flexibility, Like you don't want to force people
Speaker 3: to like sit in the dark or go hungry to
Speaker 3: provide flexibility you want to have, Like I think just
Speaker 3: an EV charger is just the perfect thing because your
Speaker 3: car is just going to be plugged in for so
Speaker 3: long anyways. And if you have software controlling the charging
Speaker 3: and you put in a time when you want your
Speaker 3: car to be fully charged, you don't really care when
Speaker 3: that's happening. You don't have to worry about it, and
Speaker 3: your car can just help the power system, you can
Speaker 3: get a bit of money back, and your life isn't
Speaker 3: disrupted in any way. So I think that type of
Speaker 3: automation is where we need to move forward this to
Speaker 3: really work out.
Speaker 1: So I see how this works with the owner of
Speaker 1: the EV hypothetically, so this person who's trying to figure
Speaker 1: out when to charge their vehicle. And I certainly understand
Speaker 1: it from the utility level because it decreases the peak
Speaker 1: amount of supply that you actually have to produce. But
Speaker 1: what I really want to know is who's making money
Speaker 1: out of this.
Speaker 3: So currently in the UK, where we have a data
Speaker 3: on who's making money, it's been utilities with residential consumers,
Speaker 3: so Octopus energy is a big one. And then we
Speaker 3: have some virtual power plants that aggregate many small things
Speaker 3: like batteries and EV chargers and in some cases even
Speaker 3: things like a really small gas turbine that's sitting at
Speaker 3: the distribution level. At the moment, the amount of money
Speaker 3: to be made is it's not huge volumes yet because
Speaker 3: the overall contracted volumes are quite small. But we are
Speaker 3: seeing that in comparison with, for example, the payments that
Speaker 3: the transmission system operator are doing to tell wind power
Speaker 3: to shut off. This is happening in the UK and
Speaker 3: also in Germany, where there's at times so much wind
Speaker 3: generation that there's not enough capacity on the power grid
Speaker 3: to transport it, and the wind farms are being paid
Speaker 3: quite a bit to be turned off. And if we're
Speaker 3: comparing the price of that with the price of these
Speaker 3: local flex ability solutions, it's competitive, so we think there's
Speaker 3: room for that to grow and can help both with
Speaker 3: managing the grid and also with absorbing renewables locally so
Speaker 3: you don't have to always transmit them over such long distances.
Speaker 4: I think ultimately the goal here is to find more
Speaker 4: economic outcomes for a system, right, and so curtailing renewables
Speaker 4: is one tool we have in the toolbox, but it's
Speaker 4: not always the most economic thing to do, and like
Speaker 4: it could be that turning up load is actually a
Speaker 4: more economic way of managing the system, and so having
Speaker 4: that it actually will result in rates going down for consumers,
Speaker 4: even though there will be other people who are making
Speaker 4: money off of this. The other thing to note here
Speaker 4: is fundamentally we're sitting in a power grid that needs
Speaker 4: to be expanded basically across Europe. So we've done some
Speaker 4: analysis internally we think that the capital expenditures on an
Speaker 4: annual basis in Europe basically need to double by twenty thirty,
Speaker 4: in large part to integrate a bunch of renewables, but.
Speaker 2: Also to support an electrifying load.
Speaker 4: So the buildout of this grid, you know, it's a
Speaker 4: very difficult thing to do, and on the transmission system
Speaker 4: we need to do it. We also need to do
Speaker 4: it on the distribution grid. On the distribution grid, this
Speaker 4: is in cities. We're talking about digging up every single
Speaker 4: city street in some places, right in order to accommodate
Speaker 4: heat pumps and evs like. This is quite an undertaking,
Speaker 4: and so the role that flexibility can play in being
Speaker 4: able to provide another tool other than putting.
Speaker 2: In a power line is crucial.
Speaker 4: And so part of what this is is deferring that
Speaker 4: spend or maybe even foregoing the spend entirely in certain
Speaker 4: regions if you can have a baseline of flexibility in
Speaker 4: a larger region. And so, yes, like there's cash flows
Speaker 4: that will go in different pockets, but fundamentally, right pairs
Speaker 4: stand to benefit from a more efficient system that can
Speaker 4: use flexibility comprehensively.
Speaker 1: As we go about doing this and creating this more flexible,
Speaker 1: more dynamic space for the grid, there's a necessity for
Speaker 1: more enhanced technology and those companies are new entrants into
Speaker 1: this space. Can you talk a little bit about the
Speaker 1: different types of technology that are really going to be
Speaker 1: required in order for this to really take off.
Speaker 2: Yeah, that's a great question.
Speaker 4: So doing all of this requires new technologies, right, and
Speaker 4: control centers.
Speaker 2: Are already quite modern places.
Speaker 4: And like there's a certain prudence that's needed in modernizing
Speaker 4: a control center because ultimately these are costs that get
Speaker 4: again passed down to rate pairs, and so each expenditure
Speaker 4: is incurred slowly. But there's a number of systems that
Speaker 4: are needed to really realize this new form of flexibility
Speaker 4: that's so decentralized.
Speaker 2: And so like the way I'd like to think about it.
Speaker 4: Is, instead of wrestling like a one ton elephant, you're
Speaker 4: actually wrestling like one ton of mice, right, And so
Speaker 4: you need different tools to be able to.
Speaker 2: Take on this challenge.
Speaker 4: So one of which is an advanced distribution management system.
Speaker 4: It's commonly termed as an eighty m ASS. So this
Speaker 4: is in a control room. Imagine, you know, you need
Speaker 4: some sort of blackscreen software like the Bloomberg terminal, but
Speaker 4: this is what they're using to look at the distribution
Speaker 4: grid and a lot of data is flowing into it,
Speaker 4: much like the Bloomberg terminal itself, and people can and
Speaker 4: observe what's going on and make decisions. Now within that
Speaker 4: there is a specialized application called distributed Energy Resource Management
Speaker 4: systems or dorms, and that's one such technology that's integrated
Speaker 4: on an ADMS that allows these operators to control and
Speaker 4: operate the great and use flexibility. So it's like a
Speaker 4: function maybe on a Bloomberg terminal. And so the building
Speaker 4: up of these software over time has really come from
Speaker 4: the outside. There's been a lot of outside players that
Speaker 4: have pioneered some of this software, and then over time
Speaker 4: there's been acquisitions and a lot of the larger industrial
Speaker 4: companies that have the credibility in the control room have
Speaker 4: acquired and built.
Speaker 2: Up this expertise themselves.
Speaker 4: The other piece of technology that's crucial here is the
Speaker 4: tendering platforms themselves. And rather than having like a single
Speaker 4: tendering platform that everyone has anchored onto, there is a
Speaker 4: sea of tendering platforms. Like in Great Britain there's a
Speaker 4: number of them, the largest of which is peak Low,
Speaker 4: which covers about sixty percent of the flexibility tenders, and
Speaker 4: it has expanded to Italy and Portugal. Goal in Norway
Speaker 4: and Sweden there's a platform called nodes which facilitates most
Speaker 4: of the tenders. In July twenty twenty three, expand it
Speaker 4: to Poland and the Dutch DSOs and TSOS developed a
Speaker 4: platform called go packs in Enodies the French dso there's
Speaker 4: another one there. So you have a number of these
Speaker 4: kind of platforms that have evolved either within the utility
Speaker 4: or outside of the utility framework itself. These platforms are
Speaker 4: used to figure out what type of flexibility is needed,
Speaker 4: what that product is, and then attracting the providers of
Speaker 4: that flexibility to the utility to solve the problems.
Speaker 3: I think it's interesting to compare the tendering platforms that
Speaker 3: have been developed in house by utilities, where the French
Speaker 3: distribution gride operator en IT this is one example, and
Speaker 3: then compare that with for example, Pichlo in the UK.
Speaker 3: And we've seen that Enidis was trying to in some
Speaker 3: ways like reinvent the wheel and do some of the
Speaker 3: things that the UK had already sort of stumbled on,
Speaker 3: and they kind of went through that same pro and
Speaker 3: in their first attempts of tenders they didn't get much
Speaker 3: participation at all, and part of it was because the
Speaker 3: way to sign up to these tenders was just so
Speaker 3: complicated that you didn't get the participation. Then, on the
Speaker 3: other hand, actors like PICCLO and nodes have kind of
Speaker 3: learned a good way to run these tenders in one market,
Speaker 3: and then they're like exporting that technology platform and also
Speaker 3: the knowledge about how to run these tenders and markets
Speaker 3: to other countries. And yeah, we've seen that as a driver.
Speaker 1: How important are the tenders and kind of how much
Speaker 1: of the market are they actually involved with.
Speaker 3: I think the tenders are the start of the market, right.
Speaker 3: So typically we sometimes use the word tenders when we
Speaker 3: mean longer term contracts, and then we use the word
Speaker 3: market when we're talking about trading say one day ahead
Speaker 3: or one week ahead. But overall, in some sense is
Speaker 3: the same thing. It's just the timeframe of how long
Speaker 3: you lock in a price for. But in any case,
Speaker 3: for a flexibility market to work, you need some type
Speaker 3: of marketplace where all these different players can look at
Speaker 3: what's offered in terms of contracts, in terms of locations,
Speaker 3: in terms of kind of size of the units you
Speaker 3: need to have, and then in an easy way bid
Speaker 3: into that. And I think that's sometimes a challenge for
Speaker 3: the new types of service providers in the flexibility space,
Speaker 3: for example, the virtual power plants, is how to navigate
Speaker 3: these type of markets in many different countries if everyone's
Speaker 3: kind of doing it in their own way. So at
Speaker 3: the transmission grid level, so much of this has been
Speaker 3: standardized through many years of collaboration between transmission system operators
Speaker 3: in Europe, but at the distribution grid level, in many ways,
Speaker 3: everyone is kind of still doing their own thing, and
Speaker 3: I think for this to really scale in like a
Speaker 3: smooth way, some type of standardization would make things a
Speaker 3: lot easier for the industry.
Speaker 1: We've gone through a lot of examples that are all
Speaker 1: based in Europe. Is there anywhere else in the world
Speaker 1: that's looking at this or is this is Europe essentially
Speaker 1: the sandbox for everybody else right now?
Speaker 3: So we've looked at this closely for Europe. But we
Speaker 3: also know that Australia is doing quite a bit on
Speaker 3: local flexibility markets. They have, again a lot of distributed
Speaker 3: solar resources, which makes it a good good market to
Speaker 3: do this kind of thing. Piclow has also expanded their
Speaker 3: services to the US, so they're running some tenders in
Speaker 3: New York. So Europe is not the only place where
Speaker 3: it's being done. But we see these markets starting to
Speaker 3: pop up in places where you're starting to have a
Speaker 3: lot of distributed resources. So in countries that have been
Speaker 3: a bit slower with moving with their energy transition or
Speaker 3: they're just relying on you know, old fashioned hydro power
Speaker 3: to decarbonize, there's not as much need for this type
Speaker 3: of innovation.
Speaker 1: I keep asking questions about how it's going and for examples,
Speaker 1: and what I really want to know is what's going
Speaker 1: to hap and in the future. So how big could
Speaker 1: this get and how important of a role could it
Speaker 1: really play in optimizing our energy system.
Speaker 4: So we've done some analysis at b and EF using
Speaker 4: our net zero scenario, and so I mentioned that today
Speaker 4: it's about zero point zero zero one percent of annual
Speaker 4: power demand. Based on the amount of flexibility we see
Speaker 4: being necessary in our net zero scenario, we think that
Speaker 4: these markets could be zero point one to zero point
Speaker 4: two percent of annual power demand by twenty thirty.
Speaker 2: So that's not too far away. So it'd be ten
Speaker 2: times the current levels. That's like somewhere between.
Speaker 4: Four to eight tarrawa hours rather than the six gig
Speaker 4: of what hours that I had mentioned earlier, with.
Speaker 1: That net zero scenario essentially operating under the premise that
Speaker 1: we reach at zero by twenty fifty. So what must
Speaker 1: be true in order for us to get there and
Speaker 1: kind of seeing that path forward.
Speaker 4: Yeah, so the scenario is a fairly ambitious scenario that's
Speaker 4: paras aligned. It reaches less than two degrees sea of warming,
Speaker 4: and what it really does is also have a steep
Speaker 4: rise in renewable deployment this decade. And what accompanies that
Speaker 4: is a need for this flexibility, because as you scale
Speaker 4: up wind and solar projects, you end up creating a
Speaker 4: need for flexibility that needs to be met elsewhere, both
Speaker 4: at a system level because of the intermittency of this
Speaker 4: power generation, but also at a local level because you
Speaker 4: often end up putting these facilities in locations that are
Speaker 4: clustered together. So think of the north of the Great Brittain,
Speaker 4: Scotland in the north of Germany. So you end up
Speaker 4: with these clusters of wind projects and then creating congestion
Speaker 4: issues that need to be resolved, and this form of
Speaker 4: flexibility is part of the toolkit that can help solve
Speaker 4: those problems. So this is a net zero scenario output
Speaker 4: that shows kind of a bookend of how large this
Speaker 4: market could get in the near term. Even then, like
Speaker 4: it's still less than the size of the transmission market today.
Speaker 4: So these numbers aren't unfathomable, so to say that the
Speaker 4: local flexibility on the distribution grid is still less than
Speaker 4: but getting into the realm of the transmission congestion market.
Speaker 1: So keeping on thinking about the future, as this is
Speaker 1: a space that is is actively changing, what are some
Speaker 1: of the ways you think that these markets might evolve
Speaker 1: as we go forward.
Speaker 4: I think the price of local flexibility is an interesting
Speaker 4: thing to think about. So presently it can vary quite
Speaker 4: a bit, right because these markets aren't necessarily deep, and
Speaker 4: so we've seen prices ranging on a monthly basis between
Speaker 4: sixty four to sixteen hundred dollars per mega wad hour,
Speaker 4: so it's quite a wide range. I think the average
Speaker 4: was around four hundred if you took every single monthly
Speaker 4: data point. Over time, we think prices will be pushed
Speaker 4: down as the number of resources become available to markets
Speaker 4: become more rich, and the price of flexibility could be
Speaker 4: much lower than one hundred dollars per mega wild hour.
Speaker 4: One other thing that we kind of notice about the evolution,
Speaker 4: and we've kind of alluded to this, is that the
Speaker 4: role that ebs will play, and we think electric vehicles
Speaker 4: are going to be important part of the future flexibility landscape.
Speaker 4: So it's interesting because fossil fuels are competing against electric
Speaker 4: vehicles on the road, but they're also going to ultimately
Speaker 4: compete against them in the flexibility landscape because right now,
Speaker 4: the king of flexibility is actually a gas turbine on
Speaker 4: a power system. That's where most markets are getting their flexibility.
Speaker 4: But if we start shifting towards electric vehicles, you know,
Speaker 4: there's one more thing that vehicles are kind of coming
Speaker 4: after gas with. And so when we look at the
Speaker 4: data from the UK, which again is you know, it's
Speaker 4: still early data, what we found was that the electric
Speaker 4: vehicles held the largest amount of the flexibility contracts in
Speaker 4: terms of capacity. So there's about five hundred megawatts of
Speaker 4: flexibility contracts awarded to electric vehicles, and if you look
Speaker 4: at how much are they being used, then yes, you'll
Speaker 4: see that gas is actually being called on more regularly
Speaker 4: than evs, even though more evs.
Speaker 2: Have been contracted.
Speaker 4: And that's partly because gas is just available when you
Speaker 4: need it, it's up and running, it's reliable, and with evs,
Speaker 4: even though you've contracted them, you're not guaranteed that you're
Speaker 4: going to be able to deliver the flexibility when you
Speaker 4: need it from that capacity. But as the fleet of
Speaker 4: evs grows and becomes you know, these kind of mind
Speaker 4: boggling numbers of capacity that we expected be that will
Speaker 4: only make it a more deeper resource that can be
Speaker 4: drawn against to provide that flexibility. So we think that
Speaker 4: this is going to be an important resource to watch
Speaker 4: as we go forward.
Speaker 1: I mean, because evs are ultimately batteries, and I do
Speaker 1: expect that that predictability is really important. So then are
Speaker 1: they contracting mostly with companies who actually have fleets of
Speaker 1: commercial vehicles or is it in consumer isn't trying to
Speaker 1: do the price signals there, So.
Speaker 3: Usually the DSO is unlikely to contract directly with the consumer,
Speaker 3: so it would be done either through their utility so
Speaker 3: their electricity supplier, or through a separate charging operator.
Speaker 1: So that's pretty unpredictable because you don't know how people's
Speaker 1: preferences will change, or there could be holidays in there.
Speaker 1: I guess you have to look at the entire year
Speaker 1: and see how people move around and have all that
Speaker 1: backward looking data.
Speaker 3: Yeah, exactly, And I think again that's where to some extent,
Speaker 3: having large enough numbers, so as electric vehicles become more
Speaker 3: and more popular, at some point there will be so
Speaker 3: many of them that even if one doesn't show up,
Speaker 3: you reach a point where it's sort of like statistically
Speaker 3: quite likely that enough of them will show up. And
Speaker 3: that's why it makes sense to operate chargers as a fleet.
Speaker 3: And it gets technically challenging, of course, to do that
Speaker 3: with so many different chargers. So I think we looked
Speaker 3: at the five hundred megawatts that Sanjeet was talking about
Speaker 3: in ev charging, I think that means something like forty
Speaker 3: two fifty thousand electric vehicles, depending a bit on the
Speaker 3: assumptions you make about the size of the charger. So
Speaker 3: that's already a lot of coordination, and that's why you
Speaker 3: need sophisticated technological solutions and software to make that possible.
Speaker 3: But we're already seeing that happening to some extent.
Speaker 1: So just another example of all of the different ways
Speaker 1: that the different facets of the energy transition, all these
Speaker 1: different industries really are coming together. Senji Felicia, thank you
Speaker 1: very much for joining today.
Speaker 3: Thank you for having us.
Speaker 2: Thank you.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
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