Expert Interview – „Need for Flexibility Will Increase Dramatically“

Expert Interview – January 18, 2022

Interview with Arndt Börkey from the German Association of Energy Market Innovators (bne) about the flexibilization of the electricity market

There is no question that we need a more flexible electricity system in order to relieve grids, as more and more renewable energy is being fed in and the electrification of the heat and transportation sector continues. Where does the greatest flexibility potential lie and how can it be tapped into as quickly as possible? Arndt Börkey, Director of Power Markets and Regulatory Affairs at the German Association of Energy Market Innovators (bne), shares his thoughts.

Arndt Börkey, Director Power Markets and Regulatory Affairs at the German Association of Energy Market Innovators

Which types of flexibility options are there in the power grid?

When it comes to the application of flexibility, we need to differentiate between market, system and grid oriented flexibility. Market and system oriented flexibility primarily refer to different time frames. For example, operating reserves for the provision of balancing power, which can be activated at very short notice, are considered a form of system flexibility. That’s why I don’t think the term market oriented flexibility is ideal, since it is also about maintaining system balance at all times. In fact, it is by far the biggest contributor to balancing feed-in and output. Flexibility which contributes to grid stability however is about managing grid congestion, including at local level. In general, any flexible plant or installation, large or small-scale, can cover any of these types of flexibility.

Which flexibility potential can be tapped into both quickly and efficiently?

Large power plants are being shut down one at a time now – although not straight away – and gas-fired power plants, which could be operated with hydrogen in the future, will remain on the market for quite some time. In this sense, it is primarily combined heat and power plants that will have to become more flexible. These are already being complemented by flexibly used hydroelectric power plants, and increasingly by biomass power plants, which do not yet exploit their full flexibility potential. On top of that, there are the consumers who collectively have a high potential. And we mustn’t lose sight of the expansion of European power grids either – this also holds great potential to use the flexibility of neighboring countries.

Especially the flexibility of consumers could be activated quickly and cost-effectively, and the potential of large, industrial consumers can be leveraged particularly quickly. These consumers already have energy management systems in place, but in Germany there are currently no incentives for them to provide flexibility using these. In fact, it’s quite the opposite – they are encouraged to maintain their consumption as consistent as possible.

The bne particularly calls for more flexibility in terms of electricity demand. Which consumers do you have in mind for this?

The flexibilization of demand is a crucial aspect of future power supply. This would dramatically reduce the need for adjustable power plants to ensure there is sufficient supply and at the same time, allow weather-dependent electricity from PV and wind power sites to be used more efficiently. Additionally, it would slightly reduce the need for grid expansion. As a result, the costs of the electricity system would fall significantly compared to a system with inflexible consumers.

There are already a number of possible suppliers – ranging from large industrial consumers to commercial enterprises and even individual households. The potential of households will quickly rise in coming years thanks to e-mobility and the increased use of heat pumps. Additionally, new players such as storage system operators and hydrogen electrolyzers are entering the market, meaning overall, there will be great potential for flexibility in the very near future.

Nonetheless, the framework conditions must be set so that this potential can also be used. And if we take into account a control solution using aggregators when transitioning to e-mobility and introducing new technologies such as storage systems and electrolyzers from the very start, we will quickly be able to exploit this potential. The technology is available, it is just not being installed all the time yet.

Why is Germany still lagging behind in the respect?

We have yet to witness a high demand for additional capacity, as conventional power plants still provide surplus capacity. But demand will quickly increase now, and since the activation of flexibility potential requires time, we’re lagging behind. It is mainly regulatory issues which are keeping both large and small-scale consumers from providing flexibility.

Real hurdles for using flexibility lie in the structure of grid charges, in surcharges, levies and taxes, in particular for large consumers with grid charge exemptions. And another hurdle is the fact that electricity balancing markets do not properly accommodate the capabilities of consumers, meaning that it is additional effort for them to participate. Here, the pre-qualification conditions for participation in the electricity balancing markets in particular need to be reviewed. Last but not least, we lack rules for the procurement of flexibility services by grid operators on the market. The foundations for these were established in 2021 with the new Section 14c of the German Energy Industry Act (EnWG) but the specifics still need to be worked out.

The misguided digitalization is a problem for small consumers in particular. Current smart metering systems do not have a control unit, are expensive to purchase and operate, and the additional data needed to control the systems can also not be communicated through them. We need to be careful that we do not overload these metering systems with standards, since that would cost both time and money, as well as reduce innovation.

In 2020, the bne proposed a quota model for more flexibility in the distribution grid. Flexibility should be encouraged, but not forced. Could you describe the model to us in more detail?

The model addresses flexibility which contributes to the stability of the grid at all voltage levels of the distribution grid. In our model, the participants receive an annual payment if they reduce their maximum grid output, for example from a wall box, by a previously communicated percentage, i.e. the quota, at certain times. The time frame for this is scheduled and communicated to the participants up front by the grid operator. The time frame in which the reduced power will come into effect is clearly stated and the customer is also allowed to determine a minimum level that they can definitely use. Such a model could be implemented very quickly since digitalization requirements are low. This solution could even be quickly implemented in the low-voltage grid where most grid operators are currently nearly not digitalized at all. With this model, the suppliers could adjust their supply in good time and consequently meet their balancing group responsibility. Another plus is that the model isn’t prone to being exploited strategically by suppliers.

Ideally, this model would be linked to a restructuring of grid charges to strengthen both grid and market oriented flexibility. The laying of power lines makes up for the majority of grid costs, meaning they are primarily fixed costs and not dependent on consumption. From our point of view, it would therefore also make sense to generally turn grid charges into fixed infrastructure fees. This would enable additional consumption that is beneficial for the system balance, i.e. consumers could directly benefit from favorable market prices. They would be able to fill their storage systems when market prices are low, and sell the power to the market again at a higher price. At the moment, that doesn’t make sense from an economical point of view since grid charges per kilowatt hour and all surcharges, levies and taxes must be paid when filling the storage system.

The interview was conducted by Simone Pabst.

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