Energy Digitalization: will it take to a consumer-centric market?
The 2021 is the year when the majority of the EU Countries will turn on the Demand Management Market, according to the EU Directive 944/2019.
The EU showed explicit willingness to put Consumers in the heart of the Energy Market: so, the Energy Transition passes through the Demand-Side participation.
This means that the Consumers are allowed to sell their most precious asset, the consumption, in terms of energy flexibility, as the capacity to adjust consumption according to market price signals and the Infrastructure needs.
The Energy Market value chain
The value chain of the Electric Market is simply showed by the following picture:
where the key actors are:
- TSO (Transmission System Operator) and DSO (Distribution System Operator) are responsible for constraint management operations, as to fix congestion and to manage the Grid capacity;
- TSO is responsible of for the balancing services, as Replacement Reserve (RR), Frequency Restauration (aFRR and mFRR), as well as for Frequency Containment (FCR). So, its is accountable to keep the Grid always balanced;
- TSO and BRP (Balancing Responsible Party) are both responsible for strategic reserve, national capacity and capacity payment;
- finally, BRP is responsible for supply cost improvements in wholesales services and pays for the operations in the Energy Market.
So far, it is clear that TSO and BRP are the 2 players accountable to pay for Energy Market participation to allowed Operators.
Nowadays, local Policy Makers and Regulators define who can or will operate in the Market.
In Spain, for instance, the Demand Management Market just opened (officially announced on January the 27th) and allows only Aggregators (Utility firms) to trade, but from 2022 also Independent Aggregators will play too. So far, Aggregators will negotiate the energy flexibility with TSO and BRP.
The characteristic of the flexibility delivery is split in two:
- the availability (or capacity) of flexibility for specified service window, as expressed in terms of power (MW) to be addressed in the Market to TSO;
- the active flexibility, as activation, consists in the energy transactions to be offered (as actual control of assets), expressed in terms of energy (MWh)
As the availability leads to activation, the flexibility delivery is to be specified in which condition the Market and the Aggregators needs to activate it.
That is why TSO requests per-qualification tests, audits of assets and control equipment, to match compliance for aggregated Demand-Side player with the Grid ecosystem.
The Aggregators trade the energy flexibility from Demand-Side: this is the key paradigm shift of the consumer-centricity revolution.
The success of Demand-Side Response (DSR) is strongly dependent on user acceptance and engagement
So, since now to balance a supply shortage, for instance, TSO had requested more generation, according to a top-down hierarchy and 50-years-old transmission pattern. Now, it the era of DERs (Distributed Energy Resources) the TSO asks for either party of the equation to contribute with their own assets.
That is why the success of Demand Side Response (DSR) is strongly dependent on user acceptance and engagement, and this mean that the request to implement these policies will start bottom up.
This comes from enhancing more competitiveness and passes through efficiency in production and comfort processes. Nevertheless, it is meaningful to integrate these best practices also in the infrastructure to keep the grid balanced.
So, the Aggregators will play the role of Demand-Side enablers, diverting from the incumbent business model (trading energy from generation only) to the new innovative paradigm to foster Consumers engagement in the Market.
The Energy Market Operators need to create new business models and provides to every stakeholders energy programming (Energy Data-as-a-Service) integrated with distributed generation by creating Active-Demand -> Flexible Response model for Consumers.”
This is the key to differentiate from status quo, where Utility Firms are not able to provide anything else than tariffs. From now on, they can create value added services where the Consumers, willing to actively participate in the Energy Market, will generate new revenue streams from selling their assets (the energy flexibility), as a response to Market’s needs, through the intermediation service of professional traders (the Aggregators).
The energy flexibility
The new asset in the Market is the consumption: without consumers and their consumption there is no market at all. Neither it the old ecosystem.
That is why, the key success factor of this Energy Transition is to engage and activate the active role of the Consumers, so that the Market turns to a consumer-centric evolving dynamic.
Their energy flexibility is used to compensate local congestion or to provide capacity or to better manage the peak shaving from intermittent resources.
Therefore, it is able to:
- mitigate the effect of DERs and intermittent resources in the Infrastructure;
- so, reduce the costs of unbalance (about € 20B per year) for TSO and BRP;
- inject asset liquidity in the Market;
- smooth the effects of crazy price boost (i.e. recently in UK the cost of MWh sky-rocked to 1.500 GBP) due to a lack of wind as in the production forecast;
- mitigate the effect of swerves from the forecast of generation versus the real Demand;
It turns out to shift the paradigm of the market from a production scheduling, based on historical and weather data, into a programming of the consumption (with flexible loads), with the capacity to master the available assets in the Market with an automatic intelligence, as in the neural grid.
For this reason, instead of investing trillions of Euros/$ in Infrastructure, Market Operators are warmly invited to deploy a plan to control resources with Artificial Intelligence and foster the Energy Digitalization of the Demand-Side to build a flexible load integrated system.
The ingredients of the cocktail: Artificial Intelligence, IoT and Blockchain
As we just mentioned that the Grid should evolve to a neural grid, the key to control the assets is to program the Demand consumption. To take control of each active device is key to define the production schedule.
You need to identify an incentive to convince the Consumers to invest in the Energy Digitalization of their Factory, in the Building or in their houses. This is not to reduce some cent €/US$ the energy bill, rather to recognize to them a central role where they get a part of the pie. So, they generate new revenue streams by offering their asset.
“Instead of investing trillions of Euros/$ in Infrastructure, Market Operators are warmly invited to deploy a plan to control resources with Artificial Intelligence and foster the Energy Digitalization of the Demand-Side to build a flexible load integrated system.”
The Aggregators to identify, to control and to trade it through a Demand-Side Response Aggregation (DSRA) platform, the Market to get it and reward back the Consumers.
The DSRA platform is the orchestrator of the energy flexibility from Demand-Side: it closes the loop with the smart-meters (IoT), measuring in real-time the consumption of any active device, and instructing the production control system (i.e. via SCADA field protocol) to adjust production schedule. It identifies with Artificial Intelligence algorithms the flexibility and it releases it to the Market when this needs it.
The DSRA platform is a long-term mean to control consumption and costs in a Facility, renewable sources and energy storage in DERs, and to enhance resilience, stability and to quit complexity in the Transmission and Distribution system.
The final piece of intelligence comes from the usage of blockchain to guarantee the security and the transparency of each energy transaction throughout the platform.
This is key to generate enough confidence in the Consumers of the new Market in order the latter to become more transparent and to provide real-time information. On one side, for the same users, to get a tool to control their consumption in real-time (not as a forecast or a provision)to take the best cost-effective business decision, but without disrupting their business-as-usual.
For the last reason, the DSRA platform is a long-term mean to control consumption and costs in a Facility, to manage intermittent (renewable) sources and energy storage in DERs, and to enhance resilience, stability and, at the same time, to quit complexity in the Transmission and Distribution systems.