BEF 2023: Flexibility services are business opportunity for renewables producers

Amid the massive deployment of solar and wind power plants, there are huge hurdles to integrating them into the electricity system – production varies as it is sensitive to weather changes. Still, regulators and transmission and distribution system operators are developing solutions along the way for flexibility and digitalizing the environment. At the same time, demand and supply of services in the domain are emerging and are being regulated, which is becoming a more and more appealing opportunity for investors in renewable electricity plants and energy storage units. It is the main takeaway from a panel on flexibility and digitalization that was held at the Belgrade energy forum.

The electricity system of the future is several times more complex than the conventional, one-way route from the producer through to the consumer. With the strengthening role of renewable sources and primarily because of the variability inherent to wind and solar power, it has become much more difficult to balance shortfalls in production and surpluses in electricity supply. Participants in a discussion held within the Belgrade Energy Forum – BEF 2023 presented the roles of flexibility and digitalization in decentralized production and consumption.

They pointed to the markets that are emerging in the segment and to the business and income opportunities within new platforms. The solutions to the increasing challenges in technical and legislative terms are being developed in parallel with the introduction of the latest technologies for purposes like energy storage, aggregation and demand response, the panelists said.

The discussion was moderated by Elena Boskov Kovacs, Managing Director of Blueprint Energy Solutions and Chair of the working group for the digitalization of the electricity system and customer participation within the European Commission’s initiative ETIP SNET (European Technology and Innovation Platforms – Smart Networks for Energy Transition). She explained that the panel was organized to shed light on the trend evident from digitalization and the new flexibility platforms and explain its significance for Southeastern Europe as well as for the European Union.

Aggregator is central figure for small producers

Flexibility services are completely undeveloped in the Western Balkans, according to Marko Janković, Head of Electricity Market Department at CWP Global. Renewable electricity producers need the segment to optimize their activities, but it is also an opportunity for them to provide the services and participate in multiple markets in the sector, he asserted.

Flexibility is generated by users within the electricity system, Janković explained. Small participants contribute little, so the aggregator, a pooling intermediary, becomes the central figure in the segment.

Participants from the transmission network will also be able to provide flexibility services

“The time has come to include the biggest group of users: the ones connected to the distribution system. It draws the question of what they provide to us. They are buyers, above all, then there are small power plants and the entire distributed production, within the distribution system, and batteries as well. Can they reach the markets by themselves? Can they actually trade their flexibility? The answer is yes. Flexibility is a way for them to shift away from a conventional way of operating. What does it mean? Until now the end user was a passive participant as it was consuming electricity. The possibility appeared for it to passively inject energy into the network and contribute to flexibility through inaction i. e. by not acquiring energy,” Janković stated.

Flexibility is usually associated with distribution, but it doesn’t mean that any participant on the transmission network won’t provide flexibility services, he told the audience. Janković said CWP needs to be oriented toward hybrid projects. They provide flexibility, he explained.

Electricity consumption will need to adjust to production

President of the Association of Energy Sector Specialists of Serbia Nikola Rajaković agreed with Janković.

“I haven’t lately seen any good solution in energy that is not a type of hybrid. The centralized way of production remains dominant but the decentralized one is emerging that way and becoming influential so much that it surprises me. According to utmostly serious scientific views, we can see over there in the perspective far away that this segment will make up approximately 20%, 25% and maybe even 30% of the gross final energy consumption,” the expert said.

The distribution system is Serbia’s weak link – smart grids are missing and the share of smart meters is negligible

In his words, demand response is the cheapest flexibilization technology – it costs less by two orders of magnitude than pumped storage hydropower plants. The distribution system is Serbia’s weak link, he warned, arguing that smart grids are missing and the share of smart meters is negligible.

“Smart grid technologies must be highly developed for us to be able to speak at all about this and implement it,” Rajaković underscored. Small power plants and micronetworks of small entities are opening unthinkable opportunities, especially for small and undeveloped economies, he claimed. The systems like the ones for remote management and small hardware can be produced by utterly small firms, workshops, and any good electric engineering university graduate will get the hang of the job after just a week of practice, the association president believes.

Consumption will have to react in line with the state of production capacities, he noted.

Entering flexibility platforms to pay off for companies in several ways

Chief Executive Officer of KOER Marko Lasić went further to estimate that the industry would take a lot of time to accept the new paradigm of consumption adapting to production. The industry must realize that it would be the most expensive for it to consume whenever and however much it wants, he concluded. KOER lauched Croatia’s first virtual power plant a year ago.

There was no legal framework in the country for the introduction of an aggregator or any kind of new players in the market, but certain individuals in the independent Transmission System Operator in Croatia (HOPS) showed understanding, Lasić said. They started consumption management pilot projects and worked on adjusting the market design, he noted. The people in HOPS were proactive in the creation of players and the market, aware that the European Union’s new regulations will have to be implemented, KOER’s boss asserted.

Lasić: The industry must realize that it would be the most expensive for it to continue consuming whenever and however much it wants

Entering flexibility platforms to pay off for companies in several ways, not just from income from ancillary services but also through the opening of possibilities in the market with excess energy and low energy prices, he said. Such firms will be more competitive than the ones consuming energy in the old way, Lasić stressed.

From the digitalization perspective, transmission and distribution system operators (TSOs and DSOs) must modernize to observe the inputs from virtual power plants, he said. HOPS can’t process data in the scope that virtual power plants require as by doubling the virtual power plants’ capacity the amount of data grows exponentially, so the state-owned company is handling the issue “semi-manually” until it sets up a platform, Lasić revealed.

Energy efficiency was the main focus for a long time, but excess energy can actually become the bigger problem as the capability to sell and consume surpluses is smaller, he pointed out. As for other hurdles in the transformation of the market, he drew attention to the fact that businesses now must deal with energy and their procurement chiefs must become experts in the sector. They are now signing power purchase agreements (PPAs) worth millions and for as much as ten years as well as determining the required size of energy storage units, Lasić added.

Constantinescu: Hundreds of gigawatts from renewable sources have to be integrated in EU

Norela Constantinescu from the European Network of Transmission System Operators for Electricity (ENTSO-E) highlighted the size of the new capacities that need to be integrated into the system, implying full adjustment.

The European Union is planning to have photovoltaic systems of 600 GW in total in 2030 as well as 100 GW in offshore wind power, mostly in the North Sea. The latter segment is then planned to be tripled by 2050, Constantinescu noted. She is the head of innovation in ENTSO-E.

Heating and transportation are driving the demand increase

The combined capacity of solar and wind will grow ten times, Constantinescu asserted. It requires huge investment as well as innovations. The power interconnection capacity needs to be doubled to 180 GW, she underscored. When it comes to demand, it grows from the current 2.2 PWh to 5 PWh by the end of the decade and reaches 8 PWh per year in 2050. It clearly shows the challenges that transmission operators face, the official from ENTSO-E observed.

There is a role for energy efficiency, but the demand increase will be driven by heating and transportation including heavy vehicles, Constantinescu said. It means TSOs and DSOs must maintain the security of supply and at the same time integrate electric vehicles, heat pumps, batteries and other devices into the system.

One of the options is flexibility. Ancillary and balancing services are part of the spectrum. But other kinds of solutions are needed as well, like capacities for covering weekly or seasonal changes and for cases when there is not enough wind and solar irradiation, Constantinescu explained.

Ancillary services market must be adjusted to let in solar, wind, battery storage

Solar power is intermittent, but it is not uncontrollable and it can be used for flexibility, said Robert Szabó, Director of Smart PV Solutions in the Huawei Serbia & Hungary Digital Power Business Department.

Robert Szabó from Huawei said his company provides fast telecommunication systems and enables prompt response

Still, it isn’t easy to integrate photovoltaics into the ancillary services market, as it is meant for gas power plants and hydropower plants, he noted. It is necessary to regulate the space to introduce solar and wind power plants, storage and new technologies, in Szabó’s view.

“We provide technology and communication for virtual power plants, aggregators, TSOs and DSOs” that need fast communications and response abilities, Huawei’s representative specified. For instance, the need to upgrade a substation on a distribution level to support voltage can be avoided by installing an energy storage system, he said. Szabó argued that solar inverters and wind inverters can react to the changes in demand in the secondary market, adding that storage would expand the capability in the segment.

Cost-effectiveness from investments in electricity distribution systems is uncertain

On the electric power distribution investment front, the targeted areas and amounts must be carefully weighed, Jurij Curk warned. The consultant to the management of Elektro Ljubljana clarified that it is often a challenge to explain to decision makers how the electricity system actually works. Elektro Ljubljana is one of the five power distribution firms in Slovenia.

Network investments aren’t paid by banks or financial institutions or developers, but by consumers

Most consumers don’t really need a smart meter, Curk claimed.

“The main task is still to distribute electricity with the right quality and capacity parameters and with as little interruption as possible. Next are network development and investment. There is a lot of talk about how capacities will be installed on the distribution level in the gigawatts. How much we need to invest in the distribution network is a matter for discussion. In any case, it’s not banks or financial institutions or project developers that pay for the network; it’s consumers. How much they are willing or capable to pay is up for debate,” Curk stated.

The representative of Elektro Ljubljana highlighted the shortcomings of his country’s official electricity balance report, saying it is just one balance report for one year. If reports were produced for every hour, and it can even be done for 15-minute intervals, more realistic initial positions could be determined toward the achievement of the goals from the national energy and climate plan, he pointed out.

Aggressive flexibilization campaign is needed

Concluding the discussion, Rajaković stressed there is sufficient knowledge to start “a major offensive” toward flexibilization and decentralization of power production. The solutions for optimal integration of renewables into the grid can be reached in cooperation with the distribution system operator, he said.

“Do we know all the solutions? No. But will we find them along the way? Yes. I deeply believe in technology development and I believe in the development of humans and us engineers,” Rajaković stated.