As first seen in Energy Global, grid software acts as a modern-day map, helping to chart and navigate today’s energy grids; software engineers are tasked with carefully delineating how each region’s energy markets operate. However, looking more closely at energy markets makes clear how unique each market is – each defined by different topography, resources, and histories. The UK proves to be one of the most complex markets. Its design presents both an island story and an energy trading story and underscores the value of locational energy, contracted revenues, energy trading and energy arbitrage.
With a population of 67 million, the UK generated 26% of its electricity in 2019 from solar and wind. This is compared with the global average of 9% of electricity generated from solar and wind. The UK is crossing impressive renewable thresholds and aims to continue with a goal to get to net-zero emissions by 2050 as part of its green industrial revolution plan. These clean energy accomplishments are made possible by the region’s ability to leverage new energy markets and activate flexible generation for customised support. Value streams flow from local grid needs, so understanding how and why the UK energy markets work helps better inform and design flexible power to provide grid support.
Islands are all about locational value
While energy can trade to and from the UK and European markets, the UK is inherently limited by the size of the transmission infrastructure to supply that power; therefore, congestion defines the UK market, similar to other island grids such as Australia and Texas, US. With an islanded grid, the locational value of energy is important to manage congestion and keep costs low. Therefore, for some grid services in the UK, a power plant must be in the UK to provide them. These UK-centric, locational services for batteries are driven by physics; for example, with frequency response, batteries measure the frequency of the grid, and when the frequency dips below a threshold, the battery quickly provides power to stabilise the grid. Wärtsilä’s energy storage project in Scotland provides spinning reserve capacity, which saves fuel, and helps integrate more wind energy.
Wärtsilä’s project in the UK with Pivot Power provides strong locational value. Firstly, the Pivot Power projects provide retail power to end users. Acting as an infrastructure and capacity supplier to electric vehicle charging (EV), two 50 MW / 50 MWh systems provide essential capacity for rapid EV charging hubs.
By providing the infrastructure to accommodate projected growth in EVs throughout the UK, the projects are supporting the grid by helping prevent system peaks and minimising strain on transmission and distribution infrastructure. It offers the project owner a contracted revenue stream from the EV charging customers. Wärtsilä’s GridSolv Max systems’ modular structure is helpful in locating storage closer to service demand in city centres where space may be limited.
The Pivot Power projects also offer grid-balancing services to ensure the reliability of electricity generation and supply across the UK. Wärtsilä’s solutions optimise a fleet of assets for best results and can be dynamically adjusted according to the demands of the markets across multiple revenue streams. They deliver frequency response, electricity market trading, reactive power, and EV charging services.
Trading as a currency
The UK energy market has a strong culture of energy commerce, which is reinforced by the many different types of available energy markets. The UK maintains a day-ahead market and real-time market. Additionally, EU countries can sell power to each other, which opens up many cross-border trading opportunities. The EU is made up of strong supply and demand markets with large renewables adoption and closely-located and densely-populated city centres.
UK regulation allows bilateral agreements – or power purchase agreements (PPAs) – that happen completely separate from trading markets. Therefore, it is common to see batteries dedicate a certain percentage of their energy to performing one grid service and another percentage to other services. A battery could fulfill a PPA obligation during part of the day, selling energy to France on a wholesale market during another part of the day, and provide frequency response to the UK grid at night.
The UK also has a culture of innovation with competitions for new smart grid technologies and solutions, and grid operators are constantly developing new markets. To help account for the diminishing energy demand during the initial stages of COVID-19, the UK market implemented a new market called Optional Downward Flexibility Management (ODFM). There are also other recently created markets such as Firm Frequency Response.
The large amount of opportunities in trading, however, can create a run on the market; therefore, the UK does face integration challenges as countries in the region see surging renewables output. At one point at the start of COVID-19, Germany paid approximately £800 000/hr to export 10.5 GW of electricity. During diminishing demand from COVID-19, the UK paid a nuclear power station approximately £73 million to halve its output over the initial lockdown. These scenarios make energy arbitrage compelling.
Energy arbitrage is when energy is purchased off-peak at low-cost and then sold during periods of high prices. It is a valuable revenue stream for energy storage and flexible resources in active and engaged energy markets such as in the UK and Europe. Wärtsilä’s project in Cremzow, Germany delivers frequency regulation and energy arbitrage for other markets in the region.
Value streams and revenue stacking in grid storage includes the whole set of customised revenue opportunities that independent power producers can offer as a project owner or operator. Value streams are critical to driving returns and value creation and are established through offtake agreements, regulatory conditions, and merchant markets. Digital platforms will play a critical role in enabling the growth in renewables by connecting energy assets to energy markets and helping open and unlock these value streams.
Software brings into the equation the market access and trading capability, while also providing a flexible power plant more levers with which to play. Optimisation of assets extends beyond market trading to include managing and operating them to maximise economic return, such as operating under a specific energy scenario, and a stable energy supply. With more customised software that understands market dynamics and leverages assets to their full extent, more active participation and bidding by distributed energy resources will be the new standard.
Jeff Damron, Director of Global Business Development, Proposals & Marketing, Energy Storage & Optimisation, Wärtsilä Energy
View the original article in Energy Global
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