In 2017, three trends in the utilities industry are about to converge in Europe: intermittent energy supply, maturing smart grid infrastructure and flexible national capacity markets. Together, they are about to create a meaningful new market opportunity around energy system flexibility services.
Today, several European countries are experiencing an increase in intermittent generation as national programs are promoting expansion of renewable generation. The transmission and distribution grid system is facing its physical limits, as planned capacity is growing faster than the wires can absorb. Integrating more solar or wind generation in the grid will be expensive; a recent UKERC analysis as reported by Reuters revealed that without a flexible energy system, the integration of renewables in the United Kingdom may cost more than new generation capacity.
The industry is also witnessing a breakthrough in the available power grid infrastructure, with the installed base for advanced smart meters reaching multiple millions in France, Spain and the United Kingdom, and with the first “time-of-use” tariffs being introduced to incentivize customers to reduce consumption during peak demand hours. In parallel, grid-scale storage is becoming a real option in Germany and the United Kingdom, with commercial and industrial storage capacity expected to grow threefold by 2021, according to a recent Delta-ee analysis as reported by Greentech Media.
Finally, the new national capacity mechanisms in France and the United Kingdom are becoming well developed, supporting the increasingly flexible balancing markets by remunerating substantial volumes of energy storage and aggregated demand-side response “negawatts,” along with traditional megawatts of conventional generation and renewables. In December 2016, 500 MW of battery storage were awarded in the UK Capacity Market auctions. In addition, the first capacity auctions in France 2016/2017 are expected to build on the existing balancing market, which has already been open to industrial demand response for years.
Belgium and Finland have also adopted flexible demand as a part of the wider energy ecosystem, while balancing markets in Southern Europe do not allow for aggregated demand response. In Spain, for instance, demand response is available only for large industrial customers. We are likely to soon witness some changes in the market as the European Commission introduced a “Winter Package” for the utilities sector late 2016, in which one of the 40 planned measures included free access to the balancing markets for all market participants individually or by aggregation.
The new US-style demand flexibility services market in Europe is already attracting new players, and several utilities have also recognized the new distributed value opportunity. In general, major utilities are starting to discover the need for flexible solutions to balance the grid. According to Accenture’s Digitally Enabled Grid research findings, more than three-quarters of the executives either already are investing or intending to invest in grid-based storage over the next 10 years.