In recent years an array of technological innovations and macroeconomic factors have acted in concert to instigate a complete transformation of the institutional framework and infrastructure that characterises today’s energy system and was initially conceived to support large centralised hydrocarbon energy generation.
While the electricity grid (one of the most comprehensive and complicated infrastructure ever built) dates back to Thomas Edison’s Pearl Street Station in the late 19th century, its structural and operational substrate has remained largely the same since the early 1900’s and is currently not fit-for-purpose for the 21st century world and the challenges it faces (particularly climate change). The energy system reform that is currently underway is therefore of paramount importance for the low carbon energy transition as the current rigid infrastructure would slow the penetration of renewables, and set the stage for a very hostile environment for low carbon technologies over the next decades in absence of a strong business case. Today, one of the key questions facing policy-makers and regulators when looking ten years down the road is whether to envision an energy system that retains most of the features of the current universal service system, albeit with distributed intelligence and resources, or that the system evolves into an atomised grid. Certainly, our energy system will see an increasing number of grid connected micro-grids put into operations as a considerable numbers of assets will inevitably be need to self organise themselves to maximise local efficiencies and opportunities and reduce burden on the backbone of the main grid.
Nevertheless, it is unlikely that the universal service network will phase-out completely. Even though the energy system is currently developing rapidly towards a system with more localised and smaller scale energy generation, the system design will still need to deal with large cables and transmission lines since most models still foresee a power transportation across hundreds of miles from one source of generation to another source of demand (e.g. in the context of offshore renewables). Furthermore, the energy demands for heating and private transportation is unlikely to be met by local generation to deliver on its own. As such, our future energy reality is likely to materialise somewhere in the middle, using local resources when and where available, using more remote or more central resources at other times.
At the same time, global electricity demand is expected to grow significantly over the coming decades both due to increasing population number and greater energy access for the 1.3 billion people that currently have none. While people might debate about how much larger the transmission and distribution systems will need to become in the near future to cater to this increased electricity demand, there is a strong consensus that the electric power system will need to become many-fold more intelligent. Here, smart grid innovation is playing a major role in driving the low carbon energy transition by making the existing universal service system of today’s grid, smarter with greater flexibility. At the same time, the grid edge has become a focal point from where digital technology is enabling a completely new type of energy flexibility trading platforms aligned at the distribution level that allows energy assets of almost any kind to trade their capability into a market system both locally and nationally, maximising the value to the asset owner/energy user while also enabling lower overall system costs.
Such system flexibility is critical for the decarbonisation of the energy system and energy security as the electricity sector sees a rising share of variable and intermittent renewables (and an increasing number of generators) penetrating the supply side, coupled with an increasing demand from the electrification of the transport sector.
The two key ingredients critical to harness the promise of digital innovation to deliver the low carbon transition and the future energy economy in a timely manner are: automation and incentives.
From the supply side, automation has already begun to transform electricity generation where network operation software (e.g. digital twin technology) has been driving improvements in performance and efficiency of power plants and wind farms via digital simulations of these generation assets (and is currently making inroads in the solar farm sector). Meanwhile, the digitalisation of the grid has seen transmission/distribution upgrade and automation technology allow for more reliable and secure grid management through predictive maintenance and real-time monitoring. However, much of the electricity system’s agileness and future value pools (i.e. new revenues or avoided cost) will come from the grid edge on the demand side, where automation delivered through advanced metering infrastructure and smart grid data analytics, will have to play out in parallel with market incentives (e.g. pricing signals). In this context, local flexibility markets will play a paramount role to enable transactive energy platforms (e.g. peer-to-peer and V2G), energy storage investment and mobilise aggregate demand side response.
In terms of the latter, this is where corporate customers have an excellent opportunity to help introduce flexibility to the system and at the same time meet their own climate targets. Nevertheless, at present there are significant market hurdles which policy makers and regulators around the world need to identify and help to address, in order to pave the way for a low carbon energy system and tomorrow’s energy market.
Earlier this year, a number of experts from government and industry came together in Malmö, Sweden in conjunction to the 9th Clean Energy Ministerial/3rd Mission Innovation meetings, to discuss the pitfalls and the promise of the role of digital innovation in introducing grid flexibility and unlocking transactive energy markets. The roundtable meeting was hosted by the FCO’s Science & Innovation Network in collaboration with the UK-based clean energy accelerator, Energy Unlocked and WindNODE – 70-member German consortium working on greater integration of renewables. At the meeting, there was considerable discussion around the transformation of local energy markets. There was a general agreement among roundtable attendees that grid flexibility is already required today and that a free market approach is particularly needed for local markets to solve intermittency issues and to better value assets.
This market approach will be underpinned by availability of granular data and pricing signals, and therefore a framework (or a common protocol) is needed to make pricing, dispatch signals and congestion data available.
To this end, better spatial and temporal resolution of energy markets is required to enable a proper pricing signal and facilitate greater involvement of market actors, as well as a transparent methodology for valuing flexibility solutions (e.g. EV’s, stationary storage, demand-side aggregation) against traditional grid investments (e.g. cables, transformers, substations etc.). However, there was widespread consensus that policy makers and regulators around the world need to play a far more progressive role in aligning incentives and providing clear policy signals to demonstrate commercial values in order for corporate customers to engage with energy flexibility and to ensure that market actors are rewarded for flexibility in different marketplaces. There was also recognition among roundtable attendees that frameworks for flexibility innovation trials and project implementation remains needed to establish more use cases and evidence. Also at the market level, attendees identified an independent market map of innovators, their solutions and capabilities, to be essential to develop wider competency and knowledge among key market actors (e.g. corporates customers).
In the coming months, the Science & Innovation Network will be expanding its consortium of partners together with Energy Unlocked and WindNODE to establish a platform for public and private sector players for sharing best practice from different countries or cities on data methodologies for underpinning new services, data privacy, sharing and emerging data value chains. This work will also aim to inform policy and regulatory framework by gaining insights from different countries on how regulators can become more pro-active in allowing trials and experimentations of flexibility innovations, allow more entrants with new business models into the market and enable a transparent system (in terms of information/data) to build trust in the market. Success in moving forward along these avenues is pivotal to enable flexibility services on an open platform that will advance the (r)evolution to a smart grid, and in turn, enable a more rapid, broader and cost-effective deployment of clean energy and low carbon innovation across the energy economy, engaging and adding value to the energy users of the future.