Flexibility should be framed as a key component in delivering Net Zero, according to Vincent de Rul, director of energy solutions at EDF Energy.
“If you are a provider of flexibility, there is significant cost reduction and revenue potential. But the wider picture is the contribution of flexibility to the low carbon economy – and that it is a critical situation.”
He says that message should be emphasised by all parties: “By businesses, by government, by regulator,” says de Rul, “there is much more to be done.”
He cites progress on single use plastic by way of example. “That is changing because people feel uncomfortable. So regulations are changing, businesses are changing, supply chains are changing – and that is all driven by public sentiment. If we can harness that with flexibility, it would definitely increase uptake.”
De Rul believes valuing and stacking non-energy benefits would help in that regard. “We need to be able to put numbers on carbon benefits, on air quality and health benefits – and be able to monitor performance” he suggests. “Also, to be able to quantify the impacts of not [bringing forward flexibility]. Then the business case becomes much more interesting.”
Risk versus reward
For now, de Rul says perception of risk versus reward remains a key challenge in signing up new flex providers. Falling prices in some contracted products have impacted the business case, but de Rul says DSR remains attractive for those that can access all available income streams.
“Where is the value? For me, in the capability to access all opportunities. There is no one scheme you can rely on. You need to have access to the capacity market (CM), frequency response, Triad, the balancing mechanism (BM) and wholesale markets – because there is a degree of uncertainty attached to all of them,” he says. “So you need to stack all the revenue streams – and the agility to adapt to change – which our PowerShift platform enables while leaving users in control of their assets.”
Certainty and support
While further change is inevitable in an evolving system, de Rul says some certainty – or at least better visibility – would bring forward more flexibility.
“A long-term vision would help address some market challenges. Triad has been a good stepping-stone into DSR, but it is disappearing. Frequency response is becoming a more merchant product. The CM offers relatively small value. There is little clarity around when Ofgem’s Targeted Charging Review (TCR) will become what it will be,” says de Rul.
To try and rebuild investor confidence, he suggests policymakers and regulators outline a long-term vision in which flexibility is a cornerstone of a decarbonised system.
“We recognise that it is complex; there are a lot of involved parties and it is not easy to find a perfect solution. But perhaps it is better to do something that is not perfect, but is in place, is relevant and keeps people on the hook,” says de Rul. “It is important [for businesses and investors] to understand what we believe needs to happen, will happen.”
Targeted support may demonstrate commitment to flexibility, de Rul suggests, but would require careful design to avoid backfiring.
“Incentives can be a good thing; incentives drove solar capacity and in doing so reduced the capital costs of the technology. But they are not always the answer, because if they are not designed in the right way, you lose the value and the understanding,” he says. “And incentive is by definition a short-term instrument, a transitory intervention; when it ends, if there is not a proper transition, that can cause a lot of business issues.”
De Rul believes electric vehicles and vehicle-to-grid will start to become “vital” sources of flexibility within the next few years. After gaining experience with EVs as aggregated small assets, EDF Energy aims to bring households into flexibility.
In the meantime, he says it is vital to breed confidence in the industrial, commercial and mid-markets. One factor is to keep building case studies that demonstrate operational risk is minimal, the other is to help mitigate price risk for businesses. De Rul points to the multi-year floor price it has agreed with Anesco at its co-located Clayhill Farm solar-storage facility as an example.
“That is a very strong proposition,” says de Rul, suggesting that EDF Energy may roll out the model more broadly – potentially to even the SME and mid-markets:
“By analysing historic data, using AI and machine learning and backing our capability across all markets, we should be able to guarantee revenue for smaller assets.”
This article was written for The Energyst’s 2019 DSR Report: Shifting value, of which EDF Energy is a sponsor.
The report provides a comprehensive snapshot of the DSR market, a survey of DSR providers and qualitative interviews with industrial and commercial firms, plus views from National Grid ESO, distribution network operators, consultants and other market actors.
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