Towards a smarter and more flexible European energy system - A market study of commercial opportunity for demand-side flexibility and wider smart ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Towards a smarter and more flexible European energy system A market study of commercial opportunity for demand-side flexibility and wider smart energy system solutions in Europe
1. Contents — continued
1. Contents 6 Priority countries deep dive 31
6.1 Great Britain baseline 31
2 Abstract 5
6.1.1 Market trends in GB 31
3 Introduction 9
6.1.2 Accessing revenue through electricity markets 34
3.1 Current situation 9
6.1.3 Cost avoidance 37
3.2 Enabling factors 9
6.2 Germany 43
3.3 The UK — leaders in innovation and decarbonisation 11
6.2.1 Business model evaluation 43
3.3.1 Key differentiating features of the UK market 11
6.2.2 Opportunities for the energy market in Germany 44
3.3.2 Government support for innovation in the UK 12
6.2.3 Home Energy Management Systems in Germany 46
3.3.3 Industry landscape in the UK 13
6.2.4 Accessing revenue through electricity markets 47
4 Emerging business models for smart grids and flexibility 15
6.2.5 Cost avoidance for customers 49
4.1 Key drivers 15
6.3 Netherlands 55
4.2 The commercial model 15
6.3.1 Business model evaluation 55
4.3 Emerging business models 16
6.3.2 Opportunities for the energy market in Netherlands 56
4.3.1 Grid-connected battery storage 17
6.3.3 Electric vehicle charging and flexibility services in the Netherlands 58
4.3.2 Aggregators 19
6.3.4 Accessing revenue through electricity markets 59
4.3.3 Smart EV charging 21
6.3.5 Cost avoidance for customers 61
4.3.4 Home Energy Management Systems (HEMS) 23
6.4 Iberian Peninsula 64
4.3.5 Smart Local Energy Systems (SLES) 26
6.4.1 Business model evaluation 64
5 Methodology 28
6.4.2 Opportunities for the energy market in Spain and Portugal 65
5.1 Selection of the priority countries 28
6.4.3 Large scale solar and storage in the Iberian Peninsula 66
5.2 Analysing the priority countries 29
6.5 Spain 68
6.5.1 Accessing revenue through electricity markets 68
Core research team 6.5.2 Cost avoidance for customers 71
Ruth Babbington, Simon Briggs 6.6 Portugal 75
and Susanna Elks. 6.6.1 Accessing revenue through electricity markets 75
6.6.2 Cost avoidance for customers 77
Contributors
Abigail Mills, Arianna Griffa, 6.7 Belgium 81
Despina Yiakoumi, Sarah Keay-Bright 6.7.1 Business model evaluation 82
and Stuart McKinnon.
6.7.2 Accessing revenue through electricity markets 83
Reviewers 6.7.3 Cost avoidance for customers 86
George Day, Head of Policy 6.8 Denmark 91
Markets and Regulation 6.8.1 Business model evaluation 92
Paul Jordan, Business Leader Innovator 6.8.2 Accessing revenue through electricity markets 94
Support and International
6.8.3 Cost avoidance for customers 99
With thanks to 6.9 Priority country comparison 102
All the SME’s who took part in our 7 Annex 1: Overview methodology 108
research through surveys, workshops 8 Annex 2: Policy and Regulation for DSF 110
and interviews, particularly those who
8.1.1 Accessing revenue through electricity markets 110
provided us with case studies.
8.1.2 Regulatory arrangements for aggregators or DSR bidding into electricity markets 111
DIT posts in the priority countries,
smartEn and all of our colleagues at ESC 8.1.3 Cost avoidance 112
who shared their expertise with us.
Delta-EE for allowing us to reference
their research into HEMS.
2 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 3
2. Abstract — continued
2. Abstract
Figure 2 Influences on market landscapes across Europe
How do the landscapes differ across Europe?
Our study identifies six priority markets for smart systems and flexibility business opportunities Figure 2: Influences on market landscapes across Europe.
from 31 European countries. These markets were narrowed down through an analysis of all
31 markets. The results of this analysis are a series of market fact files that will be released
on the Energy Systems Catapult (ESC) Innovator Portal.1 The priority markets identified were Historical influences • On infrastructure and investment choices
Belgium, Denmark, Germany, the Netherlands, Portugal and Spain. Deep dive country reports
for these priority markets are found in section six.
• Municipalities
Political landscape • Liberal vs highly regulated
Figure 1: Priority markets identified through our research. • Monopoly vs growing levels of competition
1. Denmark
2. Netherlands • Environmental concerns
• Merchant mentality
Electric vehicle charging Consumer attitudes • Conservative/traditional values and mistrustful of innovation
1
3. G
ermany • Liberal
Home Energy Management
2 • Housing stock limitation
4. Belgium Renewable energy • Historical infrastructure (e.g. 97% homes gas connected)
4 3 5. Iberian Peninsular possibilities • Consumer acceptance
• Geography
Large scale solar and storage
• Driving vs being driven by change
• Independence from government or industry
Regulation • Implementation of EU directives
• Changing fast or beset by delays
The UK capabilities in each business model were measured against the policy
5 and regulation landscape in each priority country in order to give an idea of the
potential for export. Infrastructure and consumer trends were also taken into
account. The business models that this study considered are shown in Figure 3.
Each of these are areas where the UK is leading innovation globally. The business
Business modelling was undertaken for Germany, the Netherlands and the Iberian Peninsula, models are described in more detail in section four. The high-level findings from
as these were the most promising markets for specific business models. The Netherlands in our business modelling work in the six priority markets are shown in Figure 4.
particular was promising for several business models. In the Iberian countries, many business
Figure
Figure 3: The
3 The five
five smart
smart systems
systems and flexibility
and flexibility business
business models models
considered considered
in this study in this study.
models are limited by a lack of access to markets, however regulatory change is being
implemented rapidly and these markets are currently underserved. The study was limited to
selecting six priority countries, a number of others made the shortlist, including but not limited
to Ireland, Italy, Austria, and Switzerland. The reasons for eliminating these countries in spite
of their attractiveness was often a combination of factors, for example low ease of business
score combined with low forecasts for EV uptake and heat pumps (Italy), or fierce competition
Domestic SMEs Public Sector I&Cs Network Connected
combined with very high network tariffs (Switzerland). Even across such a small continent as
Europe, the market landscapes are incredibly varied. Grid Connected
Battery Storage
Aggregators
Smart EV Charging
Home Energy
Management
Smart Local Energy Systems
1
https://es.catapult.org.uk/service-platforms/innovator-support/portal/
4 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 52. Abstract — continued 2. Abstract — continued
To facilitate export of UK innovation it is necessary to understand the main barriers to Figure 5: Barriers to export learnt from our primary research with SMEs.
flexibility business models. We found that for the most part it is local electricity market
regulation that presents the biggest barriers. European-level directives are seeking to address
this across all member states however, so markets are changing very fast. This means market
analysis needs to be updated frequently. In addition, national-level problems such as weak
policy direction on the energy transition introduce uncertainty to business modelling. The Barriers Needs Enablers
Netherlands, Belgium and Denmark all rely on high levels of interconnection which reduces
Risk Business plan support Missions & innovation
the need for flexibility currently, but in the former two particularly this is likely to change as Suitable commercial Overseas contacts programmes
heat and transport are electrified and traditional energy sources are phased out. support Clarity on standards and certifications required Knowledge of
Lack of staff in-country language and culture
Knowledge of how international markets will change
Figure
Figure 4: Main
4 Main barriers
barriers to business
to business modelling
modelling across
across all allcountries
priority priority countries Regulations USP
Market research
Relationships Parent companies
Incubator and accelerator programmes
or partners
Slow uptake of EU directives – e.g.
Clean Energy Package
Fixed price or static ToU* pricing High levels of interconnection Figure 6 Key findings from the study overall
on supplier contracts Figure 6: Key findings from the study overall.
Low access to markets and Weak energy transition policy Market research to
happen alongside or be Research needs to be Cross-country Covid-19 pandemic
need for a BRP* at national level expanded and updated collaboration is effects likely to be felt
closely followed by
in-country engagement frequently necessary for some time to come
High network tariffs and network Complex arrangements between
tariff structure multiple TSO’s/DSO’s
Due to rapidly changing 1. We can learn from others through active engagement,
regulation landscape for example these countries have expertise in:
Net metering reducing consumer Applying to overseas Italy: Smart meter rollout
incentive to optimise demand incubators and accelerators
Estonia: Full digitalisation of civil service
*Time of Use (ToU), Balancing Responsible Party (BRP) Due to rapidly changing Sweden: Smart grids SME/export support
market dynamics (e.g. EV
France: Involvement in collaborative trials and demos,
market share)
showcasing French expertise
The need for a systematic analysis of European markets has been identified through our Denmark: Co-ownership and cooperative business models
Needs to cover more
extensive primary research with innovative UK SME’s. In surveys, one-on-one interviews and Reaching out to countries/regions and technical
government posts overseas specialities – guided by SME
through our SME workshops we have identified the following barriers to export of innovative feedback 2. Through participation in or membership
products. In one-on-one conversations it was particularly interesting to hear that most SME’s of European associations and projects:
who have successfully exported did so because they either had a genuine interest in and Needs to be accessible to
SMEs and investors
Projects TERRE, MARI, PICASSO
Horizon 2020
knowledge of their target market (including culturally), or because they had found a local Raising profile of UK expertise
Pan-European associations
partner, for instance through participating in an overseas accelerator program. This indicates and innovation with overseas
ESC’s assets are
Working groups, observatories, thought leadership groups,
industry partnerships with academia, government-industry events
that relationships are at the forefront of their needs as well as strong market research. being developed to host and
disseminate research …to name a few!
It is also apparent through our conversations with SME’s that often they do not have
the resource necessary to carry out extensive market research alongside product
A summary of the pros and cons of each business model for each priority country
development. This hinders the step from successful product development to successful
is found at the start of each country sub-section in section six.
overseas commercialisation and can add significant delays to the product design lifecycle.
The mission of the International and Innovator Support teams at the ESC is to assist to This report begins by describing the reasons why the UK is a world leader in smart systems
SME’s in making that step. and flexibility. It then presents the business models used in our study. A short explanation
The high-level recommendations for all stakeholders are shown in Figure 6. The main of our methodology follows, before the individual priority country analyses, beginning
message is that collaboration and communication are necessary at all levels. This also with a description of the UK baseline. The annexes hold a more detailed description of the
supports our research that relationships are just as vital as early, solid market intelligence. methodologies we used for our analyses, including an overview of the pertinent policy and
The ESC proposes that it could build on its strong rapport with SME’s and overseas network regulation that we took into account in annex two.
in becoming a hub for interaction between SME’s, government and overseas partners.
6 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 73. Introduction — continued
3. Introduction
3.1 Current situation The numerous provisions of the Electricity Directive and Electricity Regulation, which will
better enable DSF and that must largely be implemented by the end of 2020, are orientated
Smart systems and flexibility are a vital tool in the suite needed to reach net zero. As the around the following five key principles, well summarised by Delta-EE: 6
proportion of intermittent renewable generation increases, storage and grid balancing will
need to become more widespread and effective in order to avoid constraints and blackouts. 1. Open all electricity markets for all decentralised energy resources
Interconnection between regions alone will not be sufficient for most countries to achieve — Most undue barriers for market entry for decentralised energy resources have
grid stability and security of supply. been removed with the objective to create a level playing field with generation.
— The overall philosophy is for the new product design to be sufficiently small and
Traditionally the electricity systems of Europe have been strongly centralised. Power flowed trading as close to real time as possible.
down from large generators to passive consumers. This is all changing, as energy systems — The European resource adequacy assessment is introduced.
decarbonise in response to the threat of climate change and pressures on resources.
Vast improvements in communications means that complex multi-directional flows of power 2. Effective price signals at wholesale and retail level
in a decentralised system can be monitored and balanced. — Price caps have been removed to increase efficiency in the markets with
derogations only being for specific reasons and time-limited.
The increased involvement of active consumers and prosumers (those who both consume and — Consumers should be able to choose dynamic prices and should have
produce electricity) in demand and supply can be seen as democratisation of the energy system. access to smart metering.
— Network charges shall be cost-reflective and support overall system efficiency.
3.2 Enabling factors 3. Provide fair market access for active customers and aggregator
An involved public is an enabling factor in the development of more sophisticated flexibility — Independent aggregators don’t require prior consent from suppliers
models. Subsidies have enabled many European households to install solar PV arrays on their to engage with the final customer.
rooftops, and in many countries renumeration schemes or net metering have enabled them to — Customers cannot be subject to discriminatory technical or administrative
feed electricity into the grid and receive payments. Community energy schemes are gaining requirements and charges from their suppliers, to engage with an aggregator.
prominence and moving beyond pioneering towns such as Freiburg and Bristol.
4. Relevant data access for all service providers
Furthermore, progressive regulatory change at EU level is filtering down to member states. — Based on customer consent, any third party shall have non-discriminatory
For EU countries, the evolution of their policy and regulatory frameworks and electricity access to the final customers’ data.
market rules will be strongly influenced by the recently adopted Clean Energy Package for All — Customers will receive their consumption data free of charge once
Europeans.2 While the package introduces numerous new EU laws, the most relevant to the every billing period.
promotion of demand-side flexibility (DSF) are the Electricity Directive 3 and the Electricity — A common European data format and framework will be developed, to facilitate
Regulation.4 These two pieces of law aim at driving further integration of the EU electricity interoperability and data access between different Member States.
markets towards a single energy market 5 and reformed electricity market design adapted to
the new realities of the market, better able to integrate a greater share of variable renewables. 5. Use all decentralised energy resources by system operators
The topics covered by the legislation include market competition, network tariffs, capacity — The Directive requires standardised and streamlined product definitions
mechanisms, balancing services and empowering consumers, among others. for the procurement of flexibility by DSOs and TSOs.
— The objective is to avoid market fragmentation and too specific products
tailored to certain types of generation.
This report bases its assumptions on those of the European Commission and
implementation of EU law.
2
https://ec.europa.eu/energy/topics/energy-strategy/clean-energy-all-europeans_en
EU Directive 2019/944 on common rules for the internal market for electricity and amending Directive 2012/27/
3
EU – must be transposed into national laws by 31 December 2020. https://eur-lex.europa.eu/legal-content/EN/TXT/
PDF/?uri=CELEX:32019L0944&from=EN
EU Regulation 2019/943 on the internal market for electricity – takes direct effect in Member States. https://eur-lex.europa.eu/legal-
4
content/EN/TXT/PDF/?uri=CELEX:32019R0943&from=EN
The EU Network Codes are also of major importance relating to market integration and some of the codes have relevant to enabling
5
DSF and revealing flexibility value e.g. Demand Connection Code; Electricity Balancing Guideline (related are initiatives to integrate
ancillary services markets: PICASSO, MARI and TERRE https://www.entsoe.eu/network_codes/eb/) For more info on Network Codes: 6
https://www.delta-ee.com/downloads/1-research-downloads/40-system-flexibility-research/2379-the-2019-eu-
https://www.entsoe.eu/network_codes/ market-monitor-for-demand-side-flexibility.html
8 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 93. Introduction — continued 3. Introduction — continued
3.3 The UK – Leaders in innovation and decarbonisation 3.3.2 Government support for innovation in the UK
3.3.1 Key differentiating features of the UK market The UK scores ninth in the Global Energy Innovation Index,7 with its final score pulled
Innovation tends to occur to fulfil local need. Therefore, innovation by UK companies will down by a lower component score for scaling up. It ranks seventh in the world for “option
inevitably be done in the context of the UK energy system and the challenges posed by it. generation” and third for “social legitimation”, which reflects the ambition of its policy and
This context is defined by aspects of market arrangement, regulatory environment, climate diversity of energy R&D.
policy, public and private investment, early adopter market, academic research and even
The UK government has instated a legally binding target to reach ‘Net Zero’ carbon emissions
geography. We assessed how the UK system stacks up against the other countries in Europe
by 2050. This will require electricity generation to be decarbonised long before this and is
and found that its suitability to smart system and demand side flexibility is above average
likely to drastically increase the electricity demand on the grid through the, at least partial,
when compared to the other European countries. The UK also scores highly on its need for
electrification of transport and heat provision. The ESC’s ‘Innovating to Net Zero’ report 8 sets
flexibility services.
out many of the potential system implications of achieving this target.
The UK has the relatively unique feature of being largely islanded from the rest of continental
Alongside this, the UK Government’s Industrial Strategy has ambitious aspirations to make the
Europe’s electricity system. Although there are interconnectors to other markets, these have
UK the world’s most innovative economy and to increase competitiveness internationally. Part
significantly lower capacity than those between other markets in Europe. This creates a need
of the overall Industrial Strategy is focused on clean growth. This Clean Growth Strategy 9 and
to balance supply and demand internally, which is a growing challenge with an increasing
the associated Clean Growth Grand Challenge have been put in place to ensure increased
share of intermittent renewables.
preparedness for the UK’s energy system transition, through the development, manufacture
UK market overview (note regulation for GB market only).
and use of low carbon technologies, systems and services. Smart systems and demand side
flexibility form a pivotal role in this transition to a low carbon system.
Large number of households with high energy
consumption, a relatively large EV fleet and high 5/5 The strategy includes significant commitments on public investment in smart energy
Market size
consumer interaction with smart gadgets. innovation. One example of this is the £100 million available to industry and research from
the Prospering From the Energy Revolution (PFER) challenge. This aims to “create more
Relative to other countries there is a high EV rollout
efficient energy systems and benefit the UK economy from global uptake”. The fund will
Policy landscape ambition, consumer support for energy transition and 5/5 support organisations in designing and demonstrating smart local energy systems (SLES)
an above-average intermittent renewables target.
with the hope that they can take advantage of the huge international market opportunity,
estimated at $2 trillion 10 annual investment in global energy infrastructure. The ESC’s Energy
Regulation There is high market participation and moderate Revolution Integration Services (ERIS) programme is playing a strong supporting role in the
3/5
landscape
upcoming changes. Some ancillary markets are PFER programme.
accessible.
Alongside the Industrial Strategy sits the Smart Systems and Flexibility Plan.11 The objective
Market Comparatively speaking there is a high of this is to push the UK energy system capability forward to meet the challenges of future
contract switching rate, and a low market 4/5
competitiveness share of the largest generator.
energy system transition. Focusing on smart technology, this plan outlines 29 actions
that government, regulator and industry should take to remove barriers (such as market
arrangement and regulation), to enable smart homes and businesses (through improving
The UK has a high proportion of generation from
Flexibility profile intermittent renewables and one of the greatest 5/5 interoperability and ensuring cyber security), and to improve access to markets for new
minimum to maximum peak demand ratios. technology and business models. The UK was a relatively early mover 12 in recognising the
need for these actions in order to create an attractive market for innovation and enable
system transition in an affordable way. As such the UK is now well placed to begin exporting
some of the resulting innovations, although it will need to keep up momentum or will risk
stagnating and become a follower rather than a leader in smart system solutions.
7
http://www2.itif.org/2019-global-energy-innovation-index.pdf
8
Energy Systems Catapult, Innovating to Net Zero, March 2020
9
BEIS, Clean Growth Strategy, Oct 2017
10
https://www.iea.org/reports/world-energy-outlook-2018
11
BEIS, Upgrading our energy system: smart systems and flexibility plan, July 2017
12
smartEn, The smartEn Map – European Balancing Markets Edition, 2018
10 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 113. Introduction — continued 3. Introduction — continued
The UK Government has also commissioned an Energy Innovation Needs Assessment (EINA).13 In October 2019, the ESC drew from the SCD and published a map of the UK Digital Energy
This identifies energy innovation priorities for the UK and opportunities to gain significant Landscape.14 This identified 212 companies operating in this fast-growing sector. It included
global market share. The work covers a broad range of energy system topics, but of those businesses spanning digital platforms, services and physical assets, with the aim of identifying
relevant to this work, smart systems equipment (including Vehicle-to-Grid [V2G] and smart opportunities and gaps for innovators to capitalise on. This was carried out across residential,
charging infrastructure), battery storage systems and smart network equipment are seen commercial, industrial and grid markets. It provides a basis to bring innovative companies
as big potential export opportunities. The priority innovation areas identified in the work together to identify gaps in the market and synergies in their offerings, to deliver the
are digital optimisation, design and AI (to optimise the electricity system), and innovation in integrated solutions that will benefit customers.
storage systems and supply chains. Services, such as aggregation, but also consultancy, are
also identified as key opportunities. The focus of the work is the position in 2050, but it gives The ESC plans to complete more landscape scoping for other technical sectors,
insight into direction of travel and priorities for investment. which will increase their visibility.
In broader terms, looking beyond technology innovation in the energy sector, the results Figure 8: The ESC's Digital Landscape infographic (showing sectors only).
of the EINA report reflect the fact that the UK’s advantages lie in high value services, e.g.
legal, financial, IT & telecoms and engineering services. The most important innovations are
not just with assets and equipment, but also system design and operation, business model
development, communications infrastructure, and the service platforms that enable them to
work efficiently and offer a route to market.
In conclusion, the innovation is there and the support for it is strong, but success for the UK Residential and public Commercial and Industrail DNOs/DSO, TSOs, ESO
depends on effective commercialisation and scaling up.
3.3.3 Industry landscape in the UK Services Consumer Services
In order to map out the UK capabilities and activity happening today, the ESC maintains an
energy system Supply Chain Database (SCD). This provides analytical support to our activities
Decision Support
and is also a way to directly notify SME’s of funding calls, incubator and accelerator programs,
events and opportunities, in the UK and overseas.
Figure 7 A breakdown of firms on the Supply Chain Database maintained by the ESC (in May 2020) Transaction
Digital
Figure 7: A breakdown of firms on the Supply Chain Database maintained by the ESC (in May 2020). Platforms
Asset Control Management
Supply chain Percentage of companies in each technical
database sector on the supply chain database
Local Energy System Data
Benefits: Industrial process and energy efficiency
Customer side of meter
• Identification of UK
Energy storage
innovation capabilities Assets Asset Operations and Data
Low emission vehicles
• Understand innovation Distributed generation
barriers and gaps
Energy service providers
• Identification of high potential Digital energy platforms
On-site generation Centralised generation
and new growth markets Other energy system components Domestic batteries, EVs, smart (CHPs, back-up generators), (coal, hydro), distributed
• Identify priority policy areas Building fabric energy appliances and solar PVs chillers, heat pumps and energy generation (wind, solar) and
Biomas storage assets large scale generation
• Link innovators to new
District heating and cooling
opportunities
Distribution and transmission network components
• Develop consortia and Mini/Microgrid
collaboration partners Low-carbon finance and funding
Fuels and gases, carbon and use or storage
0% 2% 4% 6% 8% 10% 12% 14% 16%
13
BEIS, Energy Innovation Needs Assessments, Nov 2019
14
https://es.catapult.org.uk/brochures/uk-digital-energy-landscape-infographic/
12 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 134. Emerging business models for
4. Emerging business models for smart grids and flexibility — continued
smart grids and flexibility
4.2 The commercial model
The commercial drivers for smart grids and flexibility are usually either maximising value
4.1 Key drivers or avoiding cost. Maximising value means waiting to deliver a service (such as increasing
Current market conditions are perfect for the development of smart grids and flexibility. generation or reducing consumption) when it is needed most, delivering to wholesale or
Traditional energy supply business models have high levels of customer dissatisfaction and a network markets when they value it most. These markets can be open and in response
perceived lack of value for money. Retailers are struggling to turn a profit and investment is to market price signals, or encouraged through regulatory instruments to manage
moving into other areas. specific system constraints (e.g. a sudden drop in generation or peak congestion).
Digitalisation of energy interactions allows insight into when, where and why energy is Cost avoidance is usually driven by managing demand for energy, for the benefit of the end
used. When publicly available, better data will enable innovators to develop innovative new customer or for the network. For customers it is usually about managing energy down at
business models that are more tailored to customer needs, whether that customer is upstream the point at which energy is expensive, possibly due to high wholesale prices but more often
(networks, generators) or downstream (homeowners, businesses). due to high network charges. For the networks, the need to decarbonise and ultimately
electrify demand could potentially require significant extra investment. In the UK by 2050 an
Figure 9: Key enablers in the transition to a smarter energy system. estimated £40bn 15 could be saved by making the system smarter and more flexible rather
than upgrading. Therefore, many distribution network/system operators (DNOs/DSOs) are
What will drive the change to new business models exploring the potential of managing network demand rather than reinforcing the grid.
System operators ultimately act as a market makers. They use market-based mechanisms
Energy Products Technologies enabling connectivity
such as auctions or tenders to procure services that can be delivered by flexible energy
resources when the network needs them.
2.6–4m Electric or PHEV Smart meter roll out at
cars on the road by 2030. 30% penetration today.
Some of the relevant markets in GB and Europe for flexibility include:
(ESC net zero report) 45–52 million smart meters
(85–100% penetration) — Wholesale market (day-ahead and intraday)
by 2023. (Baringa & NAO) — Ancillary Services
— Capacity Market
— Balancing mechanism (frequency related ancillary services)
0.8–2m heat pumps Real time energy data and
by 2030. (ESC and CCC) 3rd party data services a
possibility through Consumer
The markets are described in annex two. The ESC has also published reports
Access Device. (CAD) that explore the value sources and nature of signals in the GB market which can
be downloaded from our website.16
The business models for smarter grids and flexibility try to deliver benefits to as
~100K residential batteries 50% of homes will have a many markets as possible. This is commonly referred to as “revenue stacking” though
by 2023. (Delta-EE) connected home product regulatory requirements and market rules often create barriers to entry. EU legislative
by 2023. (Statista)
reforms, however, should help unlock some revenue streams over the next few years.
4.3 Emerging business models
Flexibility can be delivered anywhere within the electricity system. The solutions will differ
depending on the energy resources and stakeholders involved but ultimately the same
value is delivered; real-time balancing of supply and demand. This must be achieved as cost
effectively as possible without impacting the end-user experience and whilst delivering on
public policy objectives. The following sections explore the five emerging business models
considered in our European research.
15
https://www.carbonbrief.org/in-depth-how-smart-flexible-grid-could-save-uk-40-billion
16
https://es.catapult.org.uk/reports/towards-a-new-framework-for-electricity-markets/?download=true
14 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 154. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
4.3.1 Grid-connected battery storage The business model relies on “revenue stacking”, utilising the battery capacity for multiple
Figure 10 Grid-connected battery storage value flows Revenue services such as the capacity market, balancing mechanism, ancillary services and trading on
Figure 10: Grid-connected battery storage value flows. Cost
the wholesale market. The asset owner will discharge the battery at different points within
a day depending on their existing contractual arrangements or when it is most lucrative to
Energy supplier (BRP)
Generator TSO DSO trade. Competitive advantage comes from the quality of trading and forecasting algorithms.
or trader
Grid-connected battery storage is usually situated in the distribution network although
it provides services to the TSO/ESO. The supply chain is split between the finance and
development of the project, and the operation and maintenance of the battery. Included in
Revenue
operation is the delivery of flexibility to the customer (generator, TSO or DSO). Increasingly
Asset development Asset management
Cost
storage is also being used to trade on wholesale markets or in bi-lateral agreements when
co-located with renewable generation. In the UK there is a strong mix of battery owners
and operators (e.g. Zenobe, Pivot Power, Anesco) as well as software providers for asset
optimisation and trading (e.g. Habitat Energy, Upside). There is also significant investment
from international players like EDF and RedT.
Figure 51 Revenue stacking estimates from
Battery
Capital investor Battery storage Management Timera Energy
Figure across
12: An the different
example markets
of revenue stacking.
facility System
Embedded benefits
100
Ancillary services
Margin requirement (£/kW/yr)
80 Wholesale and balancing
A storage asset can be connected to the transmission network, distribution network or co-
Capacity market
located with renewable generation. Grid-connected battery storage is one of the fastest 60
growing business models for delivering flexibility, with lithium-ion being the fastest-growing 40
model in the UK. A battery is categorised based on its rated power (i.e. how much power
20
it can deliver) and discharge time (i.e. how long can it deliver that power for). In the UK the
rated power most commonly ranges from 10 to 50 MW, influenced by National Infrastructure 0
Battery Engine
planning regulations for projects above 50 MW.
Figure 13: Companies active in utility scale battery storage.
There are also other forms of storage being explored including pumped hydro, flywheels and Capacity market
compressed air, as well as innovations in gravitational energy storage. Wholesale and balancing market
Ancillary services Flexibility aggregator Open Energi and storage operator
Embedded benefits Zenobe Energy have struck a deal to trade output from
Figure 11: Zenobe site.
a 9.8 MW/12 MWh Tesla battery at Hill Farm.
Pivot Power today unveiled plans to build a world-first 2 GW
network of grid-scale batteries and EV charging stations across
the UK. Pivot Power plans to develop 45 sites around the country,
installing grid-scale 50 MW batteries at electricity sub-stations
connected directly to the extra-high-voltage transmission system.
redT energy plc is pleased to announce that we have signed an
exclusivity agreement with Energy System Management GmbH
(ESM), a German energy development company part of WWF
solar, to deliver two 40 MWh grid-scale energy storage projects
in Germany as a first phase deployment, with plans to roll out a
further 690 MWh of projects in the future.
Sources: The Energyst, Current+ and Engerati
16 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 174. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
4.3.2 Aggregators The aggregator service pulls together many energy service threads, which creates variations
Figure 14 Aggregator value flows Revenue of the business model. Aggregators can deliver value downstream to the consumer and
Figure 14: Aggregator value flows. Cost
upstream for network/system operators through the flexibility markets. For consumers, the
aggregator can manage on-site consumption to limit exposure to wholesale price fluctuations
Revenue
or “red band” charges from the network. If there is any remaining capacity from on-site assets
On-site Cost
optimisation
like battery storage, it can be utilised upstream in other electricity markets.
Energy
For the business model the aggregator requires a thorough understanding of customers’
trading/suppliers load profiles and supply contract terms. Competitive advantage is established through
(BPR)
software and data science that can intelligently manage and optimise a site to deliver the
I&C customers Aggregator
TSO
right benefit when it is most valuable.
Many aggregators work in partnership with an energy supplier or Balancing Responsible Party
DSO (BRP), for example EDF’s partnerships with Anesco and Upside Energy. Some aggregators act
independently from suppliers, offering services direct to companies looking to reduce costs
Energy assets Connectivity/
hardware or play a more active role in managing energy. It is not always possible to access the markets
without a BRP in all countries, although this is changing in line with EU regulation.
Figure 16: Upside Energy case study.
The aggregator business model involves being able to monitor, control and optimise
flexible energy loads and assets on behalf of a customer or a portfolio of customers.
To achieve maximum value the aggregators usually focus on high energy users and
arge sites where there is greater potential for managing demand down or building
flexible generation assets on site. Upside Energy are a software as a service (SaaS) In 2018 they signed a major deal with EDF Energy
provider that allows their customers to monitor, to use their platform in combination with EDF’s
Figure 15:
Figure 15 Example
Examplerevenue streams
revenue available
streams to aggregators
available in GB
to aggregators in GB. analyse, optimise and control their energy PowerShift flexibility platform, to give customers
assets. The platform analyses both assets onsite access to markets in which to sell their excess
Energy systems and markets upstream and will make intelligent energy. They have also signed a direct deal with
decisions for customers allowing them to manage Vertiv to help optimise their portfolio of energy
Recently the minimum BM threshold is lowered costs and access new revenue streams. assets which need to provide uninterrupted power
Balancing
from 100MW to 1MW.
Mechanism (BM) supply to critical data infrastructure.
Virtual Lead Parties (VLPs). Upside were founded in 2013 as part of a Nesta
Dynamic Demand Challenge, a competition The business is now focused on delivering and
e.g. Short Term Operational Reserve (STOR): looking for new products and services that growing partnerships for larger scale energy
Reserve Accessible service to new providers, with a 3MW entry
used data to reduce carbon emissions. Further assets. However, the software is capable of
capacity and extended response time of 20 minute.
projects with Innovate UK and Climate KIC providing demand response from over 100,000
Opportunities for aggregators
helped develop the platform further, until 2016 units in parallel. It may be used for wider
Dynamic Firm Frequency Response (min 1MW) is
suitable for aggregators: continually responding when Series A funding brought investors like applications in future like smart car charging
to system frequency pre-fault. Legal & General and SYSTEMIQ on board. or home energy management.
Frequency response
They originally started out as an aggregator
Enhanced Frequency Response (less than
interfacing with customers directly but
1 second response).
201MW of battery storage procured during the tender. increasingly have been selling SaaS to asset
owners or energy suppliers.
System security
e.g. capacity mechanism Demand Side Response share: 7.6%.
Any new balancing
Stability, Voltage and Constraint Management services.
services
18 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 194. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
4.3.3 Smart EV charging There is a range of target markets for these solutions, including commercial fleets, work-
place charging, public charging and domestic charging. Value is delivered to customers by
Figure 17:Smart
Figure 17 SmartEVEV charging
charging value
value flowsflows. Revenue decreasing the cost of charging EV’s by charging when electricity tariffs from energy suppliers
Cost
are cheapest or by accruing additional revenue through the provision of flexibility services.
Revenue
Cost EV charging can be managed to provide flexibility services to the grid, including:
Roaming and — Ancillary services to the energy system through DSF and V2G
Public charging
clearing centre — Electricity arbitrage services to capitalise on wholesale price fluctuations or
Energy trading “red band” charges from the network
— Load balancing services to reduce need for expensive reinforcement to electricity
Workplace charging
network and manage peak load from EV charging locally.
Energy supplier
Fleet charging
Charge point
TSO markets
Managing EV charging can play into multiple energy markets, including energy, capacity,
operator balancing, non-frequency ancillary services and congestion management. It is likely that
Aggregator public and fleet charging represent the biggest opportunity for flexibility services in the short
Home charging
term. There will be a higher proportion of fast or rapid chargers (i.e. >20 kW) that will be more
responsive and have greater capacity to discharge, and greater opportunity to reduce costs
Car manufacturers and DSO markets
distributors
to ensure electrification investments are viable. However, system operators still need evidence
that a car battery can be a reliable source of power when it’s needed, given its mobile nature.
Customers also need confidence that there will always be enough charge in their battery to
Charge point Charge point installer
not disrupt their intended use of the car.
provider and maintenance
The EV supply chain is still fairly immature and fragmented across Europe, although there
is some consolidation as charge point operators and software companies are acquired by
energy majors. BP, Shell, EDF, Engie and E.on have all made acquisitions in the last two years.
The UK has a strong emerging market for charge point manufacturing, operation and service
Electric Vehicle (EV) business models providing flexibility services are still nascent. The primary
providers. Software solutions from Pod Point, Driivz and Chargepoint (amongst others)
methods for delivering flexibility are through new innovations in charging infrastructure already exist for fleet charging. For other charging uses in the public and domestic sectors
that can intelligently manage the car battery for the benefits of the networks. The two main there are companies like Evergreen and EO.
business models are smart/managed charging, which can provide Demand Side Flexibility
(DSF) by shifting, interrupting, fluctuating or ramping demand up or down, or Vehicle-2-Grid Figure 18: Examples of smart EV charging business models in the UK.
(V2G) which uses the car battery to export power to the grid.
UK based energy storage company Moixa, together with
Figure 16: EV charging from Ovo, Kaluza and Pod Point (photo from Energyst). automotive giant Honda, have launched a vehicle-to-grid
(V2G) project that will help to provide constraint management
for the building, as well as facilitate a switch to electric vehicles.
They have installed five bidirectional V2G chargers at Islington
Town Hall, North London, which can charge the council's new
Nissan e-NV200 electric vans.
EDF Energy is announcing a partnership with a leading
green technology company, Nuvve, to install up to 1,500
Vehicle to Grid (V2G) chargers in the UK. The chargers will
be offered to EDF Energy’s business customers and will
be used at its own sites to provide up to 15 megawatts of
additional energy storage capacity.”
Sources: Energy Storage News, Edie
20 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 214. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
Using EVs to deliver flexibility is starting to become more commonplace. Over time we see 4.3.4 Home Energy Management Systems (HEMS) Revenue
Cost
the most value in the market in services, whether that be the charge point operator delivering
it directly or an energy supplier or aggregator delivering it across a range of charge point Figure 20: Home Energy Management Systems (HEMS) value flows.
operators. Interoperability is an important factor in opening up EV services and improving Data
customer experience, and there are already attempts in Europe to look at how roaming or Revenue
clearing centres can allow that. Ultimately the main value to customers is in their car and the Cost
experiences that offers, and there are opportunities for manufacturers to play a larger part in
HEMS
energy (e.g. VW’s creation of Elli). However, energy/mobility specialists are likely to be needed
to capitalise on markets upstream or help manage network constraints. Energy trading
Figure 19: Kaluza case study.
Energy supplier
Flexible
Gateway Homes TSO markets
Energy Assets
Aggregator
Kaluza, OVO Group’s intelligent platform Kaluza’s technology is also optimising the world’s
business, operates as an independent largest rollout of V2G devices, in partnership DSO markets
‘Software as a Service’ solution helping energy with OVO Energy and Nissan. Hundreds of
suppliers and network operators deliver a chargers have been supplied and installed, at
smarter and more flexible energy system. no cost to the customer, with the aim to validate
the technical and commercial potential for a
An AI and machine learning flexibility platform,
domestic V2G charging solution. The technology
Kaluza has the ability to connect, control and
is capable of providing flexibility services to
optimise millions of smart domestic devices.
electricity networks and bring added benefits to
The platform integrates with industry-leading The role of the Home Energy Management System (HEMS) is to connect, control and optimise
the device user through a bespoke mobile app.
hardware, from electric vehicle (EV) chargers,
flexible energy assets in the home. This could be a range of appliances such as electric
domestic batteries to smart heaters. Kaluza Kaluza is focused on supporting energy suppliers
already has thousands of connected smart optimise the supply of their domestic customers
heating, thermal storage, solar power, battery storage or electric vehicle charging.
devices on its platform, including Dimplex by helping them effectively trade in short term
electric heaters, sonnen batteries, Powervault markets. As the number of devices and partners Much like an aggregator they deliver benefits both downstream and upstream. Upstream,
batteries, OVO Group’s proprietary smart increase, the platform will be able to optimise HEMS can ramp demand up or down in a home in a way that can follow wholesale market
EV chargers and Vehicle-to-Grid (V2G). across multiple flexibility revenue streams to prices or be tendered into balancing, capacity and ancillary service markets. Extra solar or
further support the local network operators. battery storage capacity can also be exported with similar benefits. Downstream is where the
At the forefront of the UK’s ‘flexibility through
smarter charging’ market, Kaluza helps support The platform is also working with other partners similarity to the aggregator business model starts to diverge.
the grid by shifting charging away from peak including Western Power Distribution to provide
times, when energy is subsequently cleaner and local flexibility through sonnen batteries, UK In the industry and commercial (I&C) market an aggregator is usually interfacing with an
cheaper. It enables its energy retail partners, such Power Networks to ‘shift’ charging patterns energy or asset manager whose job is to maximise value from energy. Most domestic users
as OVO Energy, to offer their customers dynamic across 300 EV smart chargers and EDF & are far less likely to participate in providing flexibility if the value exchange is purely financial.
tariffs that include smart hardware, helping reduce Dimplex to deliver smarter electric heating.
Turning the heating off when we want it, or not having a car charged when we want to use it
household energy bills and carbon emissions.
are highly emotive and disruptive services. Where there is an energy asset in the home which
carries less emotional value (like solar, storage), a HEMS can be used to maximise customer
value in terms of bill savings. Where there is not, the HEMS is likely to have to partner with (or
become) an energy service provider that offers additional benefits like improving comfort,
convenience or control in their home.
22 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 234. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
The HEMS must be much more adaptable both in terms of analytics and product Figure 20: Examples of HEMS in the UK.
integration. Software and data science are key so that it can adapt to different
circumstances in the home. The HEMS provider, usually in partnership with an In 2019 Shell launched the B-snug system, which involves the
energy supplier or aggregators, will need to prove they can reliably deliver flexibility supply of energy, hybrid heating and home energy management
services upstream without impacting on the customer experience in the home. system in partnership with PassivSystems. The B-Snug system uses
machine learning to automatically switch between an air source
The business model for HEMS in these early stages usually focuses on a mix of hardware heat pump and traditional boiler.
and software. Hardware includes more advanced heating controls, charge points
or battery storage, like those produced by Social Energy, PassivSystems and Green
Energy Options. These are connected to a wider HEMS platform that can integrate
other products in the future. There are some HEMS providers focusing on software
only (e.g. Kaluza) that can integrate with any service provider and any product. In
either case, partnerships are necessary to make the business model work and there In 2019 Social Energy partnered with Duracell’s home energy
storage team to produce a new tech platform that meets National
is still some way to go to understand how to share revenue across the supply chain
Grid’s FFR standards, allowing homes to trade energy at times
without a number of exclusive and unscalable commercial arrangements. of peak demand. Using Duracell’s domestic batteries and the
AI-powered ‘Social Energy Hub’, the system can predict home
energy usage patterns and optimising the times at which homes
draw from the grid, while also enabling the set-up to “uniquely
optimise between multiple grid trading opportunities.
4.3.5 Smart Local Energy Systems (SLES) Revenue
Figure 22 Smart Local Energy Systems (SLES) value flows Cost
Figure 22: Smart Local Energy Systems (SLES) value flows.
Figure 21: PassivSystems case study.
Local Energy Market National Energy Markets
Local energy
users
Aggregator 1
Energy trading
PassivSystems was founded in 2008, initially Although the market is still in its infancy,
exploring better measurement and monitoring PassivSystems are a leading voice in energy Local energy
DSO (Grid
Flexibility Exchange Management
of home solar and heating. This led to the market reform and in particular the use assets
Platform)
creation of their smart thermostat product in of home energy management and DSR to
TSO markets
2010, and they are now the leading solar deliver flexibility services.
monitoring and data management company
They have led pioneering demonstration
with over 40k homes on their software platform.
projects such as Freedom in South Wales,
Aggregator 2
The company has since been at the forefront of looking at how smart controls can simultaneously
the UK’s developing home energy management deliver benefits to both the consumer and the Local energy
market. Their open Internet of Things (IoT) network. They are also involved in a number users
platform is able to integrate monitor and optimise of BEIS demonstrations of the potential for
a number of in-home energy assets for their DSR, and the Smart Hub SLES demonstration
Data flows Revenue flows
partners that include EDF, E.on and Engie. of a smart local energy market in West Sussex.
24 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 254. Emerging business models for smart grids and flexibility — continued 4. Emerging business models for smart grids and flexibility — continued
Traditionally the energy system and the markets that support it are centrally designed Both the end users and the networks need a mechanism where the energy being generated
and regulated. However, the decentralisation of the energy system creates local network can be dispatched to where it’s needed. This could be just virtually matching supply and
constraints, and that is causing a revaluation of community energy projects. Community demand, or physically controlling assets to deliver benefit to a local network. Piclo Flex and
energy projects have been around for a while but are currently attracting more interest, with Cornwall LEM are developing examples of how this interface between generators, users and
further innovations on the concept enabled by digitalisation. The variety of models can be network providers can be managed, which will be critical to the commercial growth of SLES.
loosely grouped into a concept called Smart Local Energy Systems (SLES).
Finally, the SLES could be much more loosely defined as pulling together energy assets into a
There is no simple definition of a SLES but for the most part they: virtual community. Peer-2-Peer trading platforms like sonnen in Germany and PowerPeers in
— Are designed to benefit the local area first, whether through reduced Netherlands allow users to trade energy with each other. The community is less about smartly
costs for bill payers or other benefits to the local community managing local network constraints and more about disrupting the traditional energy supply
— Allow low-carbon technology to get onto the local system faster and more cost effectively model that will encourage more renewable generation to be built and used.
— They operate in a “smart” way using data science and software
Figure 23: SmartKlub case study.
A SLES usually involves multiple organisations working together to deliver these objectives.
It will also involve a number of the business models already outlined and can resemble a
market in its own right. However, there are unique attributes to a SLES that means it could be
considered a business model, with specific platforms and services that enable its development.
There are three business models that are starting to emerge that bring this concept to life:
SmartKlub is an Energy Services Company All energy bills related to individual household
1. Micro grids (e.g. Brixton, Nottingham Trent Basin) (ESCo) and a leading partner in Project SCENe meters from the nominated licensed energy
2. Local Energy Markets or Exchanges (e.g. Piclo Flex, Cornwall LEM) (Sustainable Community Energy Networks) in supplier are invoiced to SmartKlub. They
3. Virtual community (e.g. Sonnen, Powerpeers) Nottingham Trent Basin housing development. then bill the occupants minus any surplus
They are trialling new commercial propositions from trading the battery in various balancing
for domestic energy at a community level. services markets. SmartKlub underwrites
Micro grids enable a group of users to benefit from an energy asset like wind, solar or battery
the savings to the community, assuring the
storage located in the area. In some cases this is a physical connection, using private wire or Solar PV panels are currently installed
scheme will deliver cheaper energy tariffs.
a heat network to distribute the energy to users. In other examples the grid is commercially on homeowners’ roofs in the Trent Basin
development, which are owned by SmartKlub. The project has an Ofgem derogation to trial the
connected. Users benefit through commercial agreements where the energy is virtually
new billing structure which shares the benefits of
shared rather than physically connecting them to the power source. The solar panels are connected to a 2 MW
locally generated energy and the flexibility from
community battery, which is then used to supply
the community battery with the community.
As a SLES grows in size it can be much more ambitious, pulling together a range of users, the homeowners in the community and trade
some battery capacity in balancing services.
energy assets and market mechanisms. The model will potentially contain elements of the
This commercial model has been based on
previous business models; decentralised energy resources, aggregators, smart EV charging research that demonstrates improved techno-
and home energy management. What makes this business model unique is how all these economic benefits from single, communal
components fit together into a functioning market, that delivers value for customers battery instead of individual domestic batteries.
downstream through optimising the use of local energy assets and upstream by delivering
value to the local network and wider system. The recent Innovate UK programme Prospering
From the Energy Revolution (PFER) is funding several designs and demonstrations that are
proving how they can be run as a commercial reality.
26 Towards a smarter and more flexible European energy system Energy Systems Catapult Energy Systems Catapult Towards a smarter and more flexible European energy system 27You can also read
