A business case for flexibility

A flexible energy sector need not involve massive infrastructure investment or subsidies for novel technologies, says David Hill, who advocates demand-side response and energy storage.

The move to a low-carbon economy, coupled with rapid advances in technology and innovation, are transforming electricity supply and demand. Grid agility and flexibility are essential as we move away from models of centrally dispatched generation and incorporate more intermittent renewable energy generation onto the system.

This flexibility can be realised in a variety of forms, from demand-side response (DSR) and energy storage to new-build gas generation. However, a clear merit order emerges when the carbon and consumer cost of these offerings is considered. For this merit order to play out, a technology-agnostic approach to the energy system is required, free of subsidies and long-term contracts that prevent these solutions from competing on an equal footing.

The National Infrastructure Commission’s Smart Power report reveals the shift in thinking that is necessary to unleash flexibility and shore up energy security for the UK. The conditions are right for innovation, and innovation is about being able to run systems effectively at tighter margins with no impact on reliability or risk through storage and invisible, automated and no-build DSR.

Demand-response technology is, at its core, an intelligent approach to energy that enables aggregators to harness flexibility in our demand for energy to build a smart, affordable and secure new energy economy. True DSR technology invisibly increases, decreases or shifts users’ electricity consumption, enabling businesses and consumers to save on total energy costs and reduce their carbon footprints, while at the same time enabling National Grid to keep capacity margins in check. Although in its infancy, the UK’s demand-side response market is a reality, delivering flexibility today.

Research by Open Energi, National Grid and Cardiff University published in October 2015 illustrates that smart demand-side response technology can already meet the UK’s crucial grid-balancing requirements faster than a conventional power station. Added to this, using new-build gas to provide flexibility in a renewables-based system is counter-intuitive. Demand-side response technologies are already working for the UK. They ensure the UK grid is flexible, but at a lower cost per megawatt than either batteries or gas.

This is why National Grid has established its Power Responsive campaign. It is a practical platform to galvanise businesses, suppliers, policymakers and others to seize the opportunity to shape the growth of demand-side response collaboratively, and deliver it at scale by 2020.

There are many reports that electricity margins are tighter than they have been for a number of years, and National Grid issued a notice of insufficient system margin in late 2015. Knee-jerk reactions to this are to incentivise infrastructure investment in power stations with long-term contracts, but this is inefficient and costly.

The £18 billion Hinkley Point project is a case in point. Looking at future demand curves, once the plant is up and running, there will be periods when its supply exceeds demand for power across the whole of the UK. The UK should capitalise on smart options for delivering flexibility that can be implemented faster and more cheaply than traditional infrastructure projects. Behind-the-meter solutions are much more empowering to consumers.

Innovation is about running systems effectively at tighter margins with no impact on reliability or risk. This is possible using storage and DSR. In this year of innovation, disruptors must be able to implement their solutions on a free-market basis, without guarantees and subsidies for certain technologies that block competition. If government is to achieve flexibility goals, it must be technology agnostic.

US regional transmission organisation PJM is a useful case study, with its real-time and near-term energy markets that incentivise the best and cheapest technology at any given time. Innovative flexibility solutions have proliferated under PJM’s approach, accompanied by falling costs for customers. According to ABB, two-thirds of the 62MW of storage deployed in the US in 2014 was in PJM territory. Market intervention is not necessary for energy system innovation to flourish. In fact, PJM shows the opposite is true.

National Grid is already on the case with its enhanced frequency response auction, and 63 generators, energy storage companies and DSR aggregators have pre-qualified to bid for contracts that will make it easier to manage the system.

Demand-side response is part of a wider energy market picture that must focus on flexibility and achieving the lowest cost for consumers. If just 5 per cent of peak demand was met with flexible power, the response would be equivalent to the generation of a new nuclear power station, without the huge costs to consumers.

Government must recognise that gas sits at the bottom of the flexibility merit order. Storage will undoubtedly play an important role, but Rudd’s pledge to explore long-term storage incentives to get the battery market moving are anti-competitive, not to mention unnecessarily costly for consumers.

DSR technology is already working today – not only to reduce electricity load at peak times, but also to increase load when demand is low and support National Grid’s second-by-second frequency-balancing needs. And this is happening at both national and local scales.

This year must be the year of flexibility, and to achieve this we need consolidated markets that are technology agnostic. An energy department that styles itself as pro-innovation must send clear signals to innovators that it doesn’t pick winners.

David Hill, business development director, Open Energi