Could you sell the lack of power? – Virtual power plants and demand response
In many European markets, the mechanism for selling lack of electricity is already in place. Read more to learn what this means and how it works.
For the readers from energy market players: If you are only interested in learning about practical ideas for EV charging and demand response, feel free to skip here, I trust you will already know everything before that.
The electrical system is an astonishing machine, probably the biggest ever built, consisting of trillions of components: panels, turbines, cables, transformers and - equally importantly - our everyday electrical devices. For most, treating the entire electrical system as a single machine is both useless and counterintuitive, but for the organisations tasked with keeping the electrical system in balance, it's absolutely essential. Conventionally, balancing means ensuring that at every moment of every day, enough power is produced to cover the demand; Somehow the different parties need to make a continuous and coordinated effort to produce precisely the right amount of power not only in different companies and organisations but also across national boundaries. As an energy consumer, have you ever given thought to how the energy system will adapt to you turning the sauna on? That all this works at any level is amazing, the fact that it works so well that most people never think about it in their lives is breathtaking.
The energy system is a peerless marvel of human ingenuity and collaboration.
This marvel is, as most marvels are, very complicated, so I have taken a few liberties in the following and focused on a nordic perspective as most European countries either already have or are currently modelling their energy markets in a similar fashion.
The fundamental force behind the energy system's success is the market mechanism, where energy resellers purchase power from the market, and producers offer capacity. At the time of writing, the bulk of the bidding is made on an hour-by-hour basis, once per day. Knowing the precise energy consumption and production for every moment for the next day is impossible so further adjustments are made in the intraday market and finally on a moment-by-moment basis in the reserve markets. The reserve markets work in time scales from a few seconds to an hour, but still, fundamentally ensure that production meets, and does not exceed demand.
The practical way of balancing the energy system is usually to plan production to account for demand. Some energy production methods are better suited to this than others: there is no way to make the sun shine at night and although technically possible, it is usually not financially sensible to use nuclear power as adjustable power generation capacity. The traditional way has been to use gas turbines, coal or other fossil fuel generators to cover variability in demand.
But what if we did the opposite?
What if, instead of increasing production, we decreased demand?
Some large-scale processes already do this: factories might plan their high-energy processes to be run when power is cheap. Grid batteries, pumped hydro and other energy storage methods can store energy and release it later, but couldn't we just... Turn some things off for a bit.
The concept might sound odd, turning your lights out and TV off for 15 minutes to save a few coins would be absurd, but not all energy processes are so time critical. We ran a test with an old house during the winter and it took 2 hours of no heating before people noticed. A modern fridge or a freezer can go several hours without food safety becoming an issue – given that it's not opened.
Similarly, electric vehicle chargers at home are connected to the car for a median 14 hours/day (on the days they are plugged in) and only require a median of 2 hours of charging at typical home charging currents. On most days, for most people, it really matters very little when exactly their vehicles are charged as long as it's done by the next morning.
Theoretically, it would not be a major inconvenience to call up the energy market and say, I'm willing to reduce my energy consumption for a few hours if needed, but what about practically?
In many European countries, including all Nordics, the market mechanism for this is already in place. In Finland, the party operating the energy grid called TSO or Transport System Operator already trades consumption adjustments in several different markets collectively termed Demand Response markets. The theoretical value of an 11kW home charger in these markets is about 13 cents per hour, which translates to 5€/month. Taking Finland as an example, the addressable market when the transition to electric is complete in commuter vehicles is over 100 million euros/year, so the market is there. I'll share the math and assumptions in another article, so be sure to keep an eye out for that.
Before diving into the commercial opportunities this creates, I'll take a little detour to introduce the energy market players, so we can evaluate the market effects from each of their viewpoints. It's not uncommon for one company to perform more than one of these roles.
TSO or Transport System Operator we already know. They are responsible for operating long-distance transmission lines, and maintaining grid balance in their grid region. In Finland, we have only one TSO called Fingrid. Many other countries are divided into TSO regions.
DSO or Distribution System Operator is the market player responsible for getting the power to the end user. They typically operate short-range high voltage lines, medium and low voltage lines, the transformers between lines and generally ensure that users get reliable, high-quality power.
Power generator: The companies operating power plants, who actually generate the goods to be sold.
Power retailer: The brands selling electricity to end customers, the ones we all have contracts with.
Power consumers: Individual households, commercial entities and generally everyone who buys power from the grid for purposes other than resale.
At the level of an individual consumer, 5€/month is not much, but integrating this income stream into a larger EV charging offering might actually change the game significantly – selling chargers at a substantial discount is no longer infeasible.
Power retail companies could take this concept a step further: Offer EV charging power at a lower rate for consumers, if they also have a residential power agreement. In addition to profiting from the demand response market, they can reduce customer churn by reducing the financial incentive to compare energy contracts.
A lot of people assume that the end user should be monetarily compensated for their participation in demand response. The monetary value of a single consumer's electrical load is relatively low and a few euros/month makes no difference for most people. More efficient use of the money is to spend it on making the service better, for example by financing the initial investment for chargers on the customer's behalf or covering the running costs of the operation.
Some fairly knowledgeable people have argued that the DSOs will not be interested in demand response-related concepts, because the regulatory environment encourages them to over-invest in the grid. I am not familiar enough with DSO accounting practices to draw conclusion from regulations, but I will counter this with some words from the horses mouth; "We actively investigate and pilot new possibilities to implement demand response in distribution networks."
The quote is from a 58-page strategy document titled Distribution Network Development Plan published by Caruna Espoo, a regional subsidiary of the largest DSO in Finland just last week. The document mentions demand response-related terms 46 times, and the low voltage network (the bulk of the DSO's responsibility) 42 times.
My argument is that they are interested.
Downsides, threats and limitations
So far demand response in EV charging may sound like the perfect opportunity: all involved players are happy and make money with few downsides. There are, however also negatives that I feel we need to point out
- Public charging, and especially high power charging is a poor fit with demand response, as the drivers expect to get high power, and the time they remain charging is unpredictable.
- Electric vehicle chargers are better at turning power down, than up. For some demand response markets, loads which can also be turned up are also needed to capture the full value (there are ways around this, but the value that can be captured is reduced)
- The value of the market is not fixed, and it's hard to predict which way it will turn. On one hand, the transition to renewables will make production much more volatile (which increases the price), but on the other numerous technologies are trying to address this and the proliferation of network connectivity in electrical devices vastly increases the number of potential market participants
- Some chargers can't be used in a virtual power plant or demand response solutions. Check with us and we'll help.
- The minimum amount of loads that can be traded on many markets is often between 100kW to 1MW, so an aggregator partner with an existing market presence is needed
- Practical participation in the market requires a relatively complex software system, a connection and contracts with the TSO of the market and a team experienced with programmatic trading
The last two points are why we work with partners on demand response - we are only experts in electric vehicle charging after all.
What should you do as an energy company? My recommendation is to simply start moving. Choose a site and provide it to demand response markets via an aggregator to start learning. We can help you find a way to rapidly trial your own virtual power plant.
Based in Helsinki, Finland. We believe that eMobility is the way forward, having worked in the industry for over a decade and we see a great boom in eMobility. We’ve also seen many platform providers develop closed ecosystems and realized that there’s a need for a more flexible solution that focuses on end-user experience.
That’s why we decided to build an open platform that lets you integrate your EV charging data into any existing systems, please contact us.