The energy crisis precipitated by the war in Ukraine, following hot on the heels of the coronavirus pandemic has created unprecedented volatility leading to high energy prices and worries about energy security. All of this is happening against the background of trying to move the economy towards net zero carbon emissions. The resulting transition from fossil fuels to intermittent renewable sources and the shift from centralised energy generation to decentralised has increased the likelihood of supply interruptions and increasing bottlenecks locally.
To keep the grid reliable, efficient, and stable, the generation and load (supply and demand) needs to be balanced, every second of every day. As we replace large-scale generation units with more and more renewables, these new sources of power generation are being attached to the distribution network. Through increased monitoring and control, the development of artificial intelligence and the increasing utilisation of data, flexibility can be harvested from distributed generation, storage and demand side management. This has increased the opportunities for end users to become market participants in a system that moves further away from one provided by generators connected to the transmission system.
The result of which is an efficient energy system with engaged consumers at its core. All consumers, be they domestic or industrial, should be empowered to participate and help accelerate the energy transition.
New market design structures and changes in the regulatory framework encourage the development of flexibility and value-added services to support the transition to this new eco system. These technologies also stimulate opportunities in the operation of both the transmission system and the distribution system, allowing for the greater inclusion of renewables and small-scale generation.
Flexibility can be used to defer capital intensive grid expansion or re-enforcement projects, avoid unnecessary regulatory interventions, and contribute towards resolving congestion issues by providing greater transparency towards grid flexibility availability and scarcity.
Trading flexibility at a local level
With around 80% of the distributed energy resources connected to the distribution system, the increased availability of these resources is creating new opportunities for the management of the electricity system. Enabling the DSOs to manage congestion at the local level and in isolation to the overall electricity network, removing some of the challenges facing the TSO as it struggles to balance the network with a decreasing number of large-scale generators that it traditionally called upon for help.
However, we see increasing amounts of government interventions to address the immediate challenges facing society this winter, from the solidarity payment in central Europe to the Energy Price Cap in the UK, coupled with further uncertainty around windfall taxes and short term bespoke arrangements being created, creates a recipe for uncertainty around future investment as the industry struggles to make sense of these changes and their impact on the market fundamentals.
The creation of more locational signals within the energy system can help create a better understanding of the future network needs and investment. Better price discovery within the lower levels of the grid will help provide transparency to industry as they look to determine where to locate Distributed Energy Resources (DERs) in the future, as well as helping grid owners and operators identify where flexibility exists within the grid.
Through the creation of better location signals within the grid, we can start to unlock the value of assets willing to adjust their generation or consumption profiles to help resolve congestions in both the distribution system and the transmission system whilst also being compensated for their actions.
By creating an independent market for trading flexibility, we can bring together the regulated monopolies of TSOs and DSOs with the commercial entities offering the flexibility, through a common platform with a standardised set of rules by which all parties agree to abide. The idea is that an integrated energy marketplace will be able to unlock the value of local flexible power resources to support the drive to a sustainable, emission free future.
NODES, an independent market operator, is addressing key trends and challenges in the energy system such as increased share of renewable power production, decentralised generation and the rapid change of the customer behaviour.
Trialling local flexibility markets
To prove the concept to grid owners, producers and consumers of energy to trade decentralised flexibility and energy on NODES’ platform, NODES has embarked on a series of projects in Central Europe, Sweden, Norway, UK and Canada.
In the Norwegian flagship project, Norflex, NODES has worked with two regional DSOs and the TSO to establish a close to real-time market place for trading flexibility. This project has seen unsold local flexibility sold into the TSOs reserve market, creating for the first time, value stacking opportunities for asset owners as they offer their flexibility in to different markets. This also showed how, through a market place, the TSO and DSO can coordinate on buying flexibility in the different layers of the grid, without infringing on each other.
In the Swedish project sthlmflex, NODES has operated the market place, where the surrounding DSOs servicing the needs of Stockholm can actively buy flexibility during the cold winter months. Alleviating congestion in the local area. For the first time we saw the sector coupling between heat and electricity providing flexibility to the grid operators.
In the UK, NODES has been working with Smart Grid Consultancy and NGED (formerly WPD) to create a close to real-time market for flexibility. The results of which were compelling as we saw price competition between different asset types, competing to provide flexibility to the DSO. As a result, we say price for flexibility drop as competition developed, which ultimately would have a positive impact on consumers.