Trading platforms and virtual power plants are growing rapidly in advanced electricity markets in Europe, writes energy expert and author Fereidoon Sioshansi. According to Sioshansi, the first successful platforms may be able to make enormous profits as they corner the market. Courtesy EEnergy Informer.
As the electricity sector is digitalized over time, it will make sense for all sorts of trading to take place among and between consumers, prosumers and prosumagers. Platforms, which are basically electronic market places that bring buyers and sellers together, will make this possible and provide the means for such transactions to take place cheaply and with relative ease. For those who succeed before others catch on, the profits could be enormous.
Piclo Flex has developed an online marketplace in the UK for Distribution Network Operators (DNOs) who wish to procure demand-side flexibility to reduce congestion on the electricity grid
If the experience of other industries such as Airbnb, Uber, food delivery or flower delivery business is anything to go by, platform operators who can amass sizeable scale can enjoy profit margins in the 20-30% range. Not bad especially considering how little investment is required given that such businesses are asset light and operate with little labor. And once successful, they can be scaled up quickly and easily.
The promise of fat margins is attracting lots of start-ups who are beginning to make inroads into the electricity sector. Piclo Flex, previously called Open Utility, one UK startup, for example, has developed a platform for auctioning flexibility services (visual below) on congested distribution networks – say those with heavy concentrations of EV and/or PVs in particular neighborhoods.
Piclo Flex has developed an online marketplace in the UK for Distribution Network Operators (DNOs) who wish to procure demand-side flexibility to reduce congestion on the electricity grid. According to research by Imperial College and Carbon Trust, a smart and flexible grid could save UK customers £17- 40 billion by 2050 – not exactly small change.
Electricity North West, one of UK’s DNOs, has recently announced that it will add their areas of need onto Piclo Flex to highlight where they are looking for flexibility services to better manage the network.
Following the decision to test the Piclo Flex platform, Cara Blockley, Central Services Manager at Electricity North West said: “We are delighted to join the Piclo Flex consortium. An online platform could lower barriers and increase participation in this important new service needed by the industry.”
VPPs need virtually no assets, have little risk exposure and virtually no labor costs while enabling customers with flexible loads to participate in markets with variable renewable generation
“Our energy landscape is evolving at a rapid pace and as an organization, we are absolutely committed to the transition to a low carbon economy and as such, it’s vital that we play a central role in facilitating this transition both in the North West and across the UK.”
Electricity North West has joined 2 other UK DNOs, UK Power Networks and Scottish and Southern Electricity Networks, to trial the platform. Once a platform succeeds to deliver as promised (visual below), others are likely to join, making it more difficult for newcomers to enter the occupied space. First mover advantage is of enormous value in electronic platforms.
James Johnston, CEO and co-founder of Piclo said: “We hope to demonstrate how better visibility of flexible assets and streamlining of procurement processes through our platform can lead to better outcomes and more efficient operation of the grid.”
Another promising area with significant growth opportunity is virtual power plants or VPPs, which are well suited for a future with a high concentration of variable renewable generation and flexible customer loads.
VPPs may be another form or type of platform business that aggregates large numbers of buyers and sellers with flexible load and generation and allows them to efficiently transact as a group with each other or with the network operator with the help of an enabling aggregator.
As is true for platform operators, VPPs need virtually no assets, have little risk exposure and virtually no labor costs while enabling customers with flexible loads to participate in markets with variable renewable generation.
To be successful in this space, as in the case of platforms, the VPP needs to gain massive scale to be profitable. All platforms benefit from the so-called “network effect” – which means that the ones that attract more customers, more traffic and massive scale, become more valuable, more useful, attract more users, and become more dominant, as in the case of Facebook or Airbnb. Once they are successfully established, newcomers will have a tough time to compete or replace them. The network momentum gets harder to compete with as they grow in size.
Next Kraftwerke, a VPP company based in Cologne, Germany, for example, has over 4.5 GW of flexible load/generation under management from over 5,400 participants on its network. By sending signals to its participating members, it can save them money by lowering their energy costs while getting paid by the grid operator for providing much needed capacity, ancillary services, flexibility, voltage support and other tangible services.
Recently, Next Kraftwerke announced that it was adding storage to its portfolio of assets to offer enhanced frequency control in the Belgian market, one of the countries it has expanded into beyond its German home base.
The company has teamed up with sustainable energy company Eneco Belgium and battery supplier Alfen to integrate a 2 MW battery, which is remotely monitored, into its portfolio (photo). The battery provides frequency control reserve (FCR) to the Belgian grid operator.
According to Paul Kreutzkamp, Co-Founder and Co-Manager of Next Kraftwerke Belgium, the operator can constantly measure the grid’s frequency, allowing the battery to counteract frequency deviations from 50 Hertz in real-time. The response time of the battery is much faster and more accurate than any other technology delivering FCR to the grid.
Similar claims have been made by Tesla, which has been operating a much larger 100 MW battery in South Australia since last year.
Next Kraftwerke announced that it was adding storage to its portfolio of assets to offer enhanced frequency control in the Belgian market, one of the countries it has expanded into beyond its German home base
Next Kraftwerke also manages charging and discharging of the battery to maintain synchronous 200 mHz FCR product to the Belgian transmission system operator. The battery’s charging strategy takes into account other assets in the portfolio and combines their flexibility with that of the battery to maximize availability and security of supply. Moreover, all assets in the portfolio are operated in such a way as to maximize the overall value of the portfolio.
In a later phase, the battery will be integrated with 2 wind turbines on site. When there is excess wind generation, the battery will store the energy while discharging some of the stored energy for later use, thus increasing the customer’s ability to self-consume and take advantage of price differentials at different times.
Clearly, many combinations of load, generation and storage are beginning to emerge including those that can power fast-charging electric vehicle stations, facilitate energy trading, offer balancing and flexibility services as well as provide a clean alternative to diesel generators at outdoor festivals and events.
Fereidoon Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. This article was first published in the August 2018 edition of EEnergy Informer and is republished here with permission.