DISTRIBUTED ENERGY RESOURCE FLEXIBILITY · with flexibility characteristics can be managed to take...

DR. GRAHAM AULT

DISTRIBUTED ENERGY RESOURCE FLEXIBILITY

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Copyright 2019 © Smarter Grid Solutions

A comprehensive update to our insights on the continued growth of Distributed Energy Resources (DER) flexibility with a focus on market trends, opportunities, customer requirements and perspectives and the requirements for DER fleet management.

Abbreviations/Terms: » Distributed Energy Management System (DERMS) » Distributed Energy Resources (DER) » Transmission & Distribution Utilities (T&D) » Electric Vehicle (EV) » Demand Side Response (DSR) » Distribution System Operator (DSO) » Independent System Operator (ISO) » Information Technology (IT) » Operational Technology (OT) » Artificial Intelligence (AI) » Virtual Power Plant (VPP) » Smarter Grid Solutions (SGS)

THE DECENTRALIZED ENERGY LANDSCAPE

SECTION 1.

The energy landscape has been changing rapidly with DER becoming a significant part of not only the system but also electricity consumer thinking and market dynamics.


Integration of DER into power grids and electricity markets is a core component of the ongoing energy system transition and the shift towards low carbon, customer driven, secure power. This phenomenon is global and evident across the spectrum of advanced economy power systems and developing grids - each seeing significant changes and structural challenges from the decentralization of energy. The role of DER flexibility has advanced considerably in the last year and is one of the prominent areas of development in distribution systems.

System and network operators seek to manage the grid economically within physical, technical and statutory limits. With fewer large scale conventional options in the wider system, they are turning increasingly to decentralized energy to provide the required flexibility to operate the system securely. Decentralized sources of energy are partly responsible for the greater system variability, but are also a valuable source of flexibility for system and grid operators. As decentralization and decarbonization of electricity supplies has gathered pace the need for, and sources of, flexibility have grown. Initiatives from system and network operators include new flexibility product definitions, flexibility service auctions, and emerging marketplaces for DER flexibility services.

DER in the form of diverse lower carbon generation, flexible loads and different forms of energy storage, including the emergence and adoption of electric vehicles, manifest themselves within the electricity system as diverse assets and fleets. DER has a spectrum of characteristics including location, customer, site specific issues, business models, scale, technology characteristics, diversity and clustering. Existing and planned energy assets with flexibility characteristics can be managed to take advantage of those characteristics, work around any limitations and access the system, grid, market and on-site value streams from flexibility.

Some tools for the management of flexibility already exist and are being extended (e.g. system operator balancing systems, aggregator platforms). It is becoming ever more evident that new tools are required as flexibility provision continues to extend from conventional sources to DER sources. Much attention has rightly been focused on the necessary commercial and market platforms to enroll, inform and settle flexibility delivery from DER providers.

We think that the ‘engineering’ platforms to forecast, notify, dispatch, arbitrate (between service conflicts and the multiple flexibility providing and receiving entities), monitor and remediate the delivery of flexibility from DER currently receives less attention but are an essential requirement for the effective delivery of flexibility from DER. It is in this context that market opportunities, new DER business models, flexibility services/products development, management and control requirements with their accompanying policy and regulation mechanisms for DER flexibility are quickly emerging.

These changes are not confined to any particular jurisdiction but are playing out with important local characteristics in many advanced power systems where there are strong trends towards decarbonization of energy, deployment of renewable and distributed energy, with supportive market and regulatory approaches.

DER FLEXIBILITY MARKET DEVELOPMENTS

SECTION 2.

Flexibility markets continue to experience a period of significant and rapid change including growing roles for DER. This takes the form of new flexibility service requirements, emerging value streams for DER, market structural changes, new participants with new business models, plenty of innovation and emerging signs of the longer term opportunity for DER.

The opportunities for DER operators from participation in flexibility markets have taken a much more tangible form in the last year with real contracts and real money changing hands and being reported openly. This section unpicks some of the important aspects of the DER flexibility and flexibility markets that are emerging and maturing.


There are multiple value streams from DER flexibility available to DER operators. Monetizing the value streams is significantly different across market jurisdictions but generalizations based on the fundamental principles of the power system and energy markets provide useful insights into current and future opportunities.

Wholesale Market Participants

Wholesale price arbitrage, wholesale imbalance management, and other market flexibility opportunities.

T&D Grid Operators

Constraint/congestion relief, flexible customer interconnection, grid upgrade investment reduction, and technical services such as reactive power. The clarity between a flexible DER connection, flexible grid operation and customer provided flexibility service is now becoming clearer.

Retail Electricity Consumers

Site peak import (or export) reduction, site self-sufficiency, maximized use of on-site energy assets, transmission and distribution tariff reduction, management of volume, and timing of consumption against energy supplier tariff.

System Operators

Capacity, reserves, frequency regulation/response, and other technical services essential to support economic and secure grid operation.

SYSTEM STAKEHOLDER FLEXIBILITY VALUE

Assessment of the main system stakeholders who place value on DER flexibility points to the types of flexibility products and services that are emerging and the associated financial value:


Energy Retailers and Aggregators

Recruit, retain and provide customers with specific flexibility service offerings for DERs such as fleet renewables, flexible loads, smart devices such as smart thermostats/heating, and behind the meter solar and storage. Often these offerings are bundled as a Virtual Power Plant (VPP) solution.

Renewable Generators

Augment energy offtake, green certificate and other primary reven-ue streams with one or multiple stacked flexibility revenues.

Infrastructure Utilities & Public Services

Utilize existing and new energy assets to manage energy costs, create value and streamline pricing service provision within regulatory and public service constraints, taking advantage of and managing flexible energy asset operation.

Storage Operators

Build investment cases, deploy assets and optimize operations to exploit one or multiple flexibility service value streams.

There are many innovative new business models and concepts that blend and extend these objectives and service models. For example, specialist energy solutions providers may service many or all of the customers types and objectives above. Likewise, Microgrids are built and offered in various forms to meet a wide range of customer objectives but often focused around self-provision and resiliency and able to meet the objectives set out above.

It is clear that different DER stakeholders and technologies are able to embrace the different flexibility value streams to varying degrees. Generally, the more responsive and flexible the DER asset then the greater the value attainable.

Industrials and Commercials

Leverage existing and new on-site flexible energy assets to exploit available flexibility revenue streams while maintaining focus on achieving primary business goals.

Electric Vehicle Charge Infrastructure Operators

Fully embrace grid flexibility services and energy market opportunities in building out EV fleets, charge infrastructure and new business models with flexibility built in natively.

DER FLEXIBILITY OBJECTIVES BY DER CUSTOMER GROUP

Specific flexibility product or service technical and commercial requirements impact eligibility and overall value quite significantly.

The ability of DER to provide any of the flexibility services and value streams must align the DER asset operator’s business objectives with flexibility delivery dispatch mechanism and the criticality of flexibility service delivery to the recipient. Contracting for these services can occur up to years ahead of actual dispatch so commercial tie-ins and any delivery penalties are important considerations.

In addition to the system stakeholders (flexibility recipients), each of the following types of DER owner operators (potential flexibility providers) has specific DER flexibility opportunities and constraints. This points to a heightened interest in the technical and commercial solutions to manage and optimize the value of flexibility from their DER assets.


Real-time control dispatch

Real-time response to system status (seconds) for instantaneous load relief, reactive services, and other corrective system and market actions.

Pre-notified system and market services

Market bidding and scheduling phase for capacity provision, reserve acquisition, peak lopping scheduling and demand charge reduction (days to hours ahead).

Fast real-time control

Delivery of system critical, automated, fast response to frequency deviations (sub-second to seconds) and resilience delivery (e.g. in microgrid applications).

Near real-time market activation

Post market gate (or operational plan) closure but before physical delivery for capacity dispatch, short term reserve dispatch, imbalance dispatch, network constraint relief call off and price arbitrage. (hours up to minutes)

DISPATCH ARRANGEMENTS FOR FLEXIBILITY SERVICES

The established systems and tools to harness flexibility were based on automated and manual dispatch of a small number of large flexible thermal generating units complemented more recently by growing demand response programs and management systems. Those conventional means of managing flexibility have now been stretched by much greater flexible demand (and behind the meter generation resources) but also by the growth of new merchant DER assets and many more behind the meter DER assets. Our view is that as the transition away from fossil fuel sources and towards low carbon distributed energy continues, the scale, type and location of the energy assets expected to provide flexibility with the required characteristics presents challenges to the systems that manage flexibility.


EMERGING TRENDS

The markets for system flexibility and the value streams available for DER flexibility are impacted by significant and ongoing trends.

Relevant highlights from some of the more developed energy markets and distributed energy penetrated systems point to the significance of the changes and the developments in the last year:

United States

Mature demand response programmes already in place have established some of the mechanisms required for DER participation. The participation in grid flexibility of aggregated solar PV (e.g. ISO New England) and the introduction of FERC Order 841 to introduce new market rules for storage participation (e.g. New York ISO storage market participant class and NY REV energy storage trials) point towards greater DER participation in flexibility services. Operational DER flexibility schemes such as Green Mountain Power (Vermont) using battery storage for peak avoidance (wholesale/generation and network capacity value streams) and the California Demand Response Auction Mechanism (DRAM) enabling DER to contribute to utility resource adequacy requirements are viewed as successful early implementations of DER flexibility.

United Kingdom Numerous system services market changes underway with some new flexibility services for smaller scale DER introduced by the Electricity System Operator (ESO). New load relief flexibility services contracted from DSR and DER by the DSOs for delivery in winter 2019/20.

Germany

Flexible operation approaches in place already in a highly renewable energy developed grid, with dynamic/negative wholesale prices providing flexibility incentives and the ‘feed in management’ mechanism also ironing out local network congestion. Greater demand side flexibility, storage and DER measures are planned, and needed, with coordination across the hundreds of municipal utilities also required.

Australia

High penetrations of wind power and solar (including a high volume of behind the meter PV in domestic settings) have prompted market changes enabling aggregation of DER to contribute to ancillary and frequency response markets.


More generally, the headline changes that we think are significant across the markets and jurisdictions include:

» Continued growth of DER creates the need and opportunity for flexibility

Motivated by financial objectives, available incentives, energy self-sufficiency and environmental sustainability there is significant activity by energy consumers and energy market participants in developing distributed energy. The result of this is a growing and increasingly diverse aggregated capacity of decentralized energy assets able to contribute to on-site, grid and market operations. The past year has been characterized by continued growth of wind and solar power, with battery energy storage emerging, attention turning increasingly to EVs and with electric heating starting to receive attention.

» New DER asset and fleet operators are adapting business models for flexibility

The developers, owners and operators of the new DER assets and fleets are creating and adapting new business models that exploit currently available flexibility value streams aligned with their business objectives, as well as anticipating future flexibility market opportunities.

» Flexibility market changes and defined flexibility products are enabling participation of new types, smaller unit sizes and aggregations of DER

Flexibility market changes are opening opportunities for aggregations, new technologies such as energy storage, smaller unit sizes and new participants. As well as addressing loop holes, entry barriers and unintended consequences across flexibility services, the ongoing market changes are already creating new levels of DER participation in flexibility and the environment for further growth in the coming years.

» Advancing DER, control and market platform technologies are providing a wide range of integration and business models for flexibility.

The transition from early system operation, demand response and aggregation systems towards more sophisticated DER management and flexibility market platforms creates a variety of complementary means of implementing DER flexibility to address multiple current flexibility opportunities and adaptability to future directions.

» Coordination of flexibility.

The need for clearer and more efficient allocation of responsibilities, rights and coordination between the multiple providers, users and any intermediaries of DER flexibility has emerged as a pressing issue. Policy and regulatory bodies are currently challenged with the need to make changes to industry structures and operating models but with the disadvantage of few precedents for the pace and scale of change from an energy system in fast transition.

The growth in market participants with diverse DER asset and fleet flexibility, along with the legacy systems for managing grid and market flexibility and the drive for new value streams, is creating a vibrant and challenging DER flexibility landscape. Our view is that new DER flexibility management platforms and systems are essential to fully harness the new value streams while maintaining the integrity and efficiency of energy and flexibility services markets, all while keeping the grid secure and stable. DER flexibility platforms need to create visibility to multiple stakeholders (of current state, future deliverability readiness and delivery reporting) while providing tight dispatch and control of DER assets to serve the grid and market but also to maximize the value to the DER asset operator. Such DER flexibility management platforms also must be able to adapt to new use cases, applications, users and flexibility needs, at scale.


DER FLEXIBILITY PRINCIPLES

From the ongoing transition into open markets and networks for DER and flexibility, we have observed, captured and adapted some of the growing flexibility domain:

» Tangible roles for DER flexibility through their mandatory consideration as alternatives to network investments and conventional/centralized flexibility solutions.

» Clear responsibilities, boundaries and interfaces between DER flexibility market participants and stakeholders (and their systems) to address the need for efficient and effective coordination of flexibility.

» Transparency of DER flexibility opportunity (in planning timeframes), transparency of activation and utilization (in operational timeframes) and transparency of outcomes (in settlement timeframes) enabling learning, improvement, market growth and efficiency in the long-run.

» Multiple paths into DER flexibility markets addressing the diversity of scale, DER technology capabilities, flexibility service types, intermediary roles, and remuneration mechanisms through tariff, procured and market based approaches.

» Coordinated and specific flexibility products to enable DER providers to select and stack flexibility service and revenue opportunities and provide needed services to multiple recipients.

» Neutral flexibility market enablement by monopoly network operators using ‘administered’ and market-based commercial mechanisms and secured communication and control.

» Aligned incentive mechanisms for all stakeholders to deliver efficient outcomes for the system and fair outcomes for customers.

» Initially low, but graded, entry requirements to DER flexibility markets including equipment specifications, test requirements and financial liabilities to enable wide participation.

ProblemAs part of the EU-funded Horizon 2020 OPTIMISED project, Laing O’Rourke required a real-time DER management platform to be integrated into their smart factory systems in order to monitor and control flexible demand as well as integrate new generation and energy storage and to manage these flexible DER assets to reduce consumption and improve energy efficiency.

SolutionThe SGS ANM Strata software platform deployed at the Laing O’Rourke factory performed local site integration and optimization; through a private cloud instance of ANM Strata for aggregated demand side response and DER flexibility management.

ResultLaing O’Rourke obtained complete visibility of energy consumption across its factory site including carbon impacts. They identified energy efficiency opportunities, enabled their factories to participate in demand response markets and demonstrated the flexibility management mechanisms required to add DER at their factory facilities.

SGS CASE STUDYINDUSTRIAL AND COMMERCIAL DER FLEXIBILITY


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Monitor and control the delivery of DER flexibility, activate procured flexibility, provide backups to tariff based customer response and procured flexibility as well as execute firm responses for secured system events (e.g. frequency response, emergency states). We believe that a direct DER monitoring and control layer is required.

From a customer perspective, self-management and on-site, behind the meter DER flexibility will be implemented in response to fixed and dynamic tariffs for both electrical energy and network (capacity) usage. When these tariffs are set effectively and efficiently by network and retail utilities, then the required customer response to both predictable system and network peaks (and other managed events) as well as faster responses to less predictable events (e.g. renewable variability, weather driven loading events) will be managed by the customer in response to economic signals. Many existing customer focused DSR programmes exist in this area and could usefully be extended to smaller scale DER, both front of meter and behind the meter.

The residual flexible response requirement (e.g. due to forecast error, lack of self-managed customer response) with any necessary backup purchased through existing and new flexibility market mechanisms. New DER flexibility platforms and market places along with new network operator flexibility products are required in this layer of the flexibility management hierarchy.

High quality open access to flexibility data and information is an essential foundation for any system and market participant to plan, invest and operate DER more flexibly.

FLEXIBILITY MANAGEMENT HIERARCHY

We think that the mechanisms to manage the growing requirement for flexibility from DER will include four tiers in a hierarchy. This addresses an escalating need for specific assets in specific locations to play increasingly more specific grid securing roles. The hierarchy is founded on information and transparency and builds through energy and network tariffs to flexibility market mechanisms and control.

DER FLEXIBILITY MANAGEMENT

SECTION 3.

As new DER flexibility business models are implemented, new DER platform capabilities are required by DER fleet operators and utilities. DER management platforms and systems must deliver new functionality to enable DER operators to meet their business goals through effective integration into and participation in flexibility markets. Utilities also need to operate network and market platforms to manage DER flexibility. DER management platforms must enable DER to take advantage of emerging and future flexibility opportunities, so an understanding of the functionality to do this is and a range of open integration options is essential. Integration of network operation, flexibility market operation and DER control systems has become better defined and demonstrated in the past year.


The high level requirements for DER management systems to enable access to the flexibility value streams and manage DER flexibility as highlighted in this white paper, includes addressing specific DER customer, utility and market objectives. Common high level DER management requirements are presented to illustrate the necessary features of DER management platforms that DERMS providers must now supply.

» User Portal for active participation and management of DER assets, scheduling and monitoring of flexibility delivery and commercial settlement

» DER scheduling and arming to enable pre-set flexibility market participation and contract delivery

» DER real-time dispatch to provide automated response to monitored grid and market states

» DER local control to provide faster control modes (e.g. frequency) and fail-to-safe features

» DER set-point coordination to arbitrate and deliver prioritised flex services from the available revenue stack

» DER status and performance reporting to support DER fleet O&M and settlement processes

» Market interfaces to ISO, DSO, wholesale market and other commercial counterparties to ensure commercial delivery compliance and settlement obligations

» Multiple flexibility service application configurations to deliver and manage the available and changing flexibility value stack

» Integration options for diverse DER fleets and IT/OT systems to bring all target DER units under management

FEATURES FOR DER MANAGEMENT PLATFORMS

DISTRIBUTED ENERGY RESOURCE MANAGEMENT SYSTEMS

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See our full list of recommended DERMS features Download our DERMS whitepaper here

» Business model implementation for a wide spectrum of DER owner operator types and flexibility service market opportunities

» Advanced application hosting and integration to enable on-board and third party value adding capabilities such as forecasting, analytics and AI opportunities

» Scalable and extensible platform to meet current, emerging and future flexibility opportunities

Our work with DER fleet operators alongside the grid and market operators is delivering these flexibility management requirements while aligning our platform technology with the wider DER and DERMS market. We believe that strong customer engagement and an open-standards approach to DER management best serves the diverse customer groups and the changing landscape in the DER flexibility market.

CONCLUSIONSECTION 4.


Decentralization of electricity assets and changes in the wider system and market are creating new DER flexibility opportunities. The market and value for these flexibility services are being rolled out with specific regional power system and market mechanisms that enable or inhibit market participation and revenue stacking to varying degrees. There have been significant developments in the last year.

The value of such DER flexibility is estimated to be around $50k-100k/MW per year. Lower values result from immature markets (i.e. few opportunities), highly competitive or saturated markets (i.e. more DER capacity than flexibility requirement) or market rules that prohibit stacking of multiple services. Higher values (greater than $200k-300k/MW per year) are reported for specific applications such as behind the meter demand (peak) charge reductions in specific highly congested zones in certain markets.

Flexibility markets are still subject to significant structural and rule changes in the US, Europe, the UK and Australia. These markets are likely to continue in a state of transition as already committed and new developments work their way into reality. Other countries are also starting to develop DER flexibility programmes as energy storage, renewables and consumer power all continue to grow. We expect to see more aggregated domestic DER, flexible EV charging as well as more battery, PV, wind and flexible load participating in flexibility markets in the coming years. These ongoing changes present challenges for DER and network investment cases where DER flexibility value streams are considered. There is a need for an agile approach (or ‘flexible flexibility’ as some say) to DER flexibility strategies.

This paper also highlights some significant trends and issues for DER management platform providers. DER management platforms need to address multiple flexibility services and value streams to harness the full value available for the connected DER assets. Platform flexibility and extensibility are essential attributes if these DER management platforms are to cope with the changing DER landscape, and the full range of current and future flexibility opportunities. The ability to revenue stack and optimize the flexibility continuously in operation maximizes the overall DER flexibility value. Easy on-boarding of customers and DER assets of different types with the necessary platform and application configurability enables tailoring to diverse customer objectives, constraints, and market and systems changes over time.

At Smarter Grid Solutions, our DER management platform technologies and products have always been carefully aligned to multiple specific DER management applications. Our operational DER management systems implemented for customers in the US, UK and Germany have created tangible value in different system and market contexts. Our delivered projects, operational systems, and customer reference list attest to this. We believe that putting the power of our platform in the hands of our customers builds their in-house capability to manage DER fleets while retaining the flexibility value streams for themselves, all with our support and new product features to ensure ongoing value creation.


Graham is a co-founder of Smarter Grid Solutions and has leadership responsibilities spanning new business development, marketing, consulting, customer delivery, operations and IP. He has a reputation for thought leadership and his contributions to energy system thinking include assignments for Institution of Engineering and Technology, Ofgem, BEIS, Scottish Government and the Energy System Catapult in the UK and the Department of Energy in the US.

He is a Fellow of the IET, Senior Member of the IEEE, CEng (2000) and has PhD (2000), BEng (1993) and PGCert (2004) from Strathclyde University where he was also Professor of Power Systems until 2016.

About Smarter Grid Solutions

Smarter Grid Solutions (SGS) is a leading provider of distributed energy resource management system (DERMS) software with the company about to exceed 1.3GW of renewable generation, energy storage and flexible load under control through 2019. With offices in New York, Glasgow, London and San Francisco, SGS is a global solutions provider to distribution utilities and distributed energy resource operators.

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