Flexibility in the Context of Variable Renewable Generation
In Germany, roughly one third of power generation in 2016 was supplied from renewables with an overwhelming portion of wind, biomass and solar energy. The variable energy sources wind and solar have a significant impact on the power grid: Wind generators in the windy North often produce so much electricity that the grid transporting it to the industrial South gets congested. Grid operators deal with this situation by paying thermal or renewable units in the north to switch off – and paying thermal units in the South to ramp up. The costs for curtailing or switching off renewable plants almost doubled from €43.7 million in 2013 to €82.7 million in 2014 and then multiplied to €478 million in 2015 before decreasing by 22 percent to €373 million in 2016.The expected effect of so much variable generation on the network is twofold:
- First, it tends to depress overall wholesale prices because renewables displace thermal generation with zero marginal cost while thermal capacity is shut down in a lower pace than renewable capacity is built, leading to overcapacities in the market.
- Second, variability of renewable generation tends to make wholesale prices volatile because large swings in wind and solar generation impact market price spreads.
The first expected effect brought significant consequences in Germany, especially for the four German power utilities: Their thermal plants are dispatched less frequently and for fewer hours at low market prices on average while many of them cannot be ramped down to zero, further depressing prices when running on minimum load. A trend which is likely to get worse: recent studies estimate that up to 230 GW of fossil capacity in Europe will remain unprofitable through 2020.* Still, a lot of nuclear and coal/lignite capacities are kept in the market through direct and indirect subsidies – a paradoxical outcome at odds with the EU’s climate goals.
The second expected effect cannot be so easily detected in the German market. The German electricity markets very efficiently deal with the fluctuating nature of wind and solar, so that prices do not necessarily become more volatile. Nonetheless, renewables have immensely altered the price structures of wholesale markets, for example by breaking up the peak/off-peak paradigm of the old energy world.
Combined, the net effect of these two phenomena – wholesale prices plummeting and the peak/off-peak differential eroding – is to:
- make thermal plants with inflexible operational characteristics less profitable
- make the grid operators job more challenging as the task of keeping supply and demand in balance requires new thinking, new tools and new approaches.
VPPs and the role of aggregators
As we can see from the preceding discussion, business as usual is not likely to be sustainable. The up- and down-ramping of thermal plants causes a lot of wear and tear on the units and is hugely inefficient, expensive and polluting.
Obvious solutions to these problems are:
- better manage the variable generation to the extent possible
- foster flexible renewable generation alongside variable renewables; and
- make demand more flexible and price-responsive.
We at Next Kraftwerke are trying to do all of the above by creating win-win-win-scenarios for grid operators, consumers with flexible demand and generators who can adjust their output. We have therefore networked a portfolio of flexible generation and loads by aggregating a large number of participants who are willing and able to respond to price signals of the VPP’s control system. The price and control signals are submitted wirelessly using a remote control unit called the “Next Box” – learn more in this article.