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Actions to prevent the West European electricity from getting 'blown' out of balance

With surging levels of intermittent renewable energy sources coming online in Western Europe, market parties are struggling with their grid balancing responsibility. In energy-only markets balancing responsibility can be commercialized on the day-ahead, intraday and ancillary services market, in addition to providing reserve and regulation capacity to the TSO. In order to stay in business, forecasting and optimization processes should be under control. Moreover, additional business case opportunities lie in demand response and storage techniques as well as in capacity markets.



Increasing intermittency makes grid balancing the "hot potato"

A key issue with renewable energy sources - mainly solar and wind energy - is its intermittent character. With the West European countries well underway to achieve their renewable energy targets, as part of the 20-20-20 package, solar and wind energy generation in these countries is surging. Weather condition is the main influence factor dictating the output of such assets. The power production "uncertainty" for these so-called non- (or limited) steerable assets has multiple implications for the different actors in the electricity value chain; the main one being grid balancing. In this article we will address this point from the point of view of various actors.

  • Impact on grid and system integrity - Transmission system operator point of view
  • Impact on balancing production and demand - Balance responsible party point of view
  • Impact on capacity adequacy for reliability and security of supply - Public policy point of view

Scope of this article is the West European (WE) power market, including The Netherlands, Belgium, France, Germany and the United Kingdom.

Intermittent sources gaining market share

Solar and wind production has gained a substantial proportion in the electricity mix over the years in West Europe (figure 1) where the 10% threshold has been breached in 2014. Mainly thanks to the "Energiewende" in Germany (figure 2), solar and wind power has surged incredibly in WE, causing substantial spill-over effects on its neighboring countries, listing record high exported volumes affecting the whole WE market in terms of capacity and price.

Figure 1: Total percentage of intermittent electricity generation in the WE market has been increasing significantly over the past decade until now

Source: Eurostat (2015)

Figure 2: Germany taking the lead in the uptake of wind and solar power in the WE markets, the other countries follow on a considerable distance

Source: Eurostat (2015)

How to keep the grid balanced?

Transmission system operator point of view - Assuring system integrity and stability

  • Curtailments and local constraints

System operators may curtail or locally constrain variable generation sources in order to keep the grid balanced. Particularly in regions with higher congestion risk due to limited transmission capacity. To illustrate, curtailments in the UK are already cutting off 2% of their time online.

  • Balancing and ancillary services market

The ancillary services market is a concept that refers to a range of services that system operators can offer in order to ensure system integrity. There are several services that can be contracted by system operators from power producers, like:

  • Fast Reserve to provide additional power when needed
  • Frequency Control by demand management
  • Frequency Response to maintain the system frequency (at 50Hz)
  • Reactive Power Provision and Absorption, to balance the Volt-Ampere phase
  • Contracting regulation and reserve capacity

System operators can facilitate a market for regulation and reserve capacity to balance the grid. Such a marketplace should offer the possibility to market parties to bid for up and down regulation of their assets, during the day.

Balancing Responsible Party point of view - Exploiting market possibilities

  • Short term forecasting

The largest uncertainty in the forecasting activities of wind and solar is of course the dynamic weather influence on supply. Looking at balance management on the intraday market, feeding the latest short term (i.e. hourly) weather forecasts in the forecasting engines provide utility companies the possibility to eliminate any foreseeable deviations between demand and supply. These intraday forecasts can be used for optimizing the asset portfolio and as input for the dispatching processes.

  • Short term asset optimization

Renewable assets can be combined with controllable generation units to optimize and to minimize imbalance risks on the day-ahead market. One of the examples is to combine intermittent generation assets with dispatch generation units such as CHPs or others into virtual power plants.

  • Dispatching & direct marketing of renewable assets

In increasing numbers, also wind and solar generation units become remotely steerable to be used in dispatching activities. In fact, as from April 1st 2015, all German renewable energy assets have to be operated by remote control for direct marketing purposes in order to be able to receive the (subsidized) market premium, instead of the fixed feed-in remuneration.

  • Demand response

Having a flexible proportion of demand in the customer portfolio can be extremely helpful for peak shaving and frequency control purposes, which can be offered to the balancing and ancillary services market of system operators.

  • Power storage

Intuitively, power storage is the most obvious solution to balance supply and demand when both are dynamic and have an intermittent character. One of the storage technologies that is expected to grow enormously in the next years is battery storage. Besides pumped hydro storage, battery storage will play a particularly important role in the transport industry but also other storage technologies such as power-to-gas are expected to take up as well. These technologies can play a role to deliver several ancillary services to balance the grid and as an alternative to (distribution) grid infrastructure investments.

Public policy point of view - Market model redesign

Currently the dominating EU "Energy Only market" is under debate in a number of member states, at least in its existing form. Sometimes such a market is complemented with strategic reserve capacity on national level as a measure of last resort. However, some countries have added a capacity market as a liberalized model for holding domestic strategic reserve at commercial market participants, like in the UK.

Applying balancing techniques in the WE market

At Sia Partners, we believe that the initiated trend of increasing intermittent renewable sources in the West European market is unstoppable. In this transition phase, energy companies need to reconsider their business model. This can be done by keeping track with the early "renewable energy adopters" and ensure a fast growing renewable portfolio. Having established that, the economical optimization and balancing of such portfolio will be considerably different in terms of processes, data and models required to:

  • Plan and optimize the portfolio on the longer term
  • Ensure the right short-term production forecast
  • Optimize the "multi-asset" dispatch based on market price signals

For system operators, a common European approach is required in terms of ancillary services and transmission constraints offered to the market participants to ensure system integrity. Best practices from each European member state need to be recognized and adopted. The regulator needs to act as facilitator by adopting flexible and effective network codes.

Sia Partners has extensive knowledge and a track record in each of these areas. We help our clients overcome and anticipate on these challenges by leveraging our experience in this area and assuring high quality results.

Sia Partners

A longer version of this article is available here.

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