Distribution system operators have their work cut out for them, as they are tasked with the ever-increasing challenge of managing their networks at times of increasing EV penetration, the electrification of heat, and distributed behind-the-meter generation and storage. As transmission system operator markets have opened to demand-side flexibility across Europe and beyond, we now see a trend of DSOs at the very early stages of a similar transition, writes Philippa Hardy, principal analyst at Delta-EE. DSOs are now starting to call on behind-the-meter assets to support local network management and balancing. This provides cost savings for DSOs, while offering opportunities for DSF providers and asset owners.
From pv magazine 09/2020
Distribution system operators’ (DSOs) use of demand-side flexibility (DSF) as a tool for network management is at an early stage. Across Europe we find activity in DSO-led demand-side flexibility varies significantly from country to country, with Great Britain and the Netherlands as the most advanced of the emerging markets. In these two markets, commercial procurement of demand-side flexibility is taking place, with varying degrees of maturity and success. In other European countries, including France, Germany, Italy, Spain, Norway and Sweden, DSF procurement by DSOs is at an earlier stage of development, currently limited to trials and innovation projects – a combination of paper-based studies, demonstration projects and field trials.
National regulatory drivers are key enablers and have resulted in Great Britain leading in this space, thanks to energy regulator OFGEM’s TOTEX incentive model. At a European level, the EU Clean Energy Package (CEP) will be a key driver in the future. The CEP sets new rules for DSOs to procure flexibility services from the market, which include encouraging DSOs to find the most cost-effective options, working collaboratively with transmission system operators (TSOs), creating open and accessible markets for distributed energy resources, which are consistent with electricity wholesale markets.
How this translates into national regulation is still yet to be seen, and as often is the case, there is a risk that this could be watered down significantly when put into national law, effectively mitigating any effective development of a DSO DSF market. But with innovative technology companies – the likes of Piclo, Nodes, Greensync and others – carving a new role for themselves as marketplace operators to facilitate the interactions between DSOs and DSF providers, the market pull is already in place.
DSF is a new tool that DSOs can use for a multitude of use cases to derive cost savings. Despite predominantly being used today to defer physical network reinforcement, there are many additional use cases and hence cost-saving pathways available to DSOs. These additional benefits include helping bridge decision gaps, solving issues in medium term while demand falls, and maximising existing asset lifetimes. These cost savings are principally derived by DSOs valuing the optionality DSF provides. However, traditional reinforcement may still sometimes be the best option and in fact, most DSOs see DSF as a short-term alternative to traditional network reinforcement.
The range of potential value from DSOs for DSF is large, but currently a small part of the overall value stack for DSF providers. To date the value from DSOs for DSF providers has been an additional value stream to utilize with others (where possible), rather than something to rely on completely (gone are the FCR days). However, the range of potential value is wide due to the highly specific nature of DSOs needs (in terms of location, time, seasonality, duration, and underlying need) as well as the lack of standardization. It is difficult at this early stage of market development and commercialization to put a number on the potential value in the market today and in the coming years across Europe and further afield. However, we have seen availability payments currently ranging between GBP 5 and GBP 125/MWh, and utilization payments ranging from around GBP 60 to GBP 600/MWh.
The flexible power team at Western Power Distribution (a British DSO) has estimated the annual potential value of DSF for DSOs in Great Britain to be between GBP 1,500 and GBP 6,000/MW.
There is a lot of excitement in the energy industry for this new market for DSF, not only as DSOs stand to reduce their costs of service, but also as a new value stream for DSF providers at a time where TSO ancillary service prices are declining/stabilising and competition in DSF is ever increasing. Despite the rosy outlook, we have identified several key factors, including a lack of market liquidity, a lack of transparency, burdensome administrative processes, and many more issues that need to be addressed to drive this market forward. While progress is being made, as always there is more to do to address these barriers, including:
- Standardization – DSF procurement is at an early stage and there is currently no standardization across Europe. There is a high degree of divergence among different network operators between countries and within a single country.
- Simplicity – Using consistent terminology for the different DSF services required, automating registration, streamlining prequalification, using standard metering processes, and other factors would provide much welcomed simplicity for DSF providers.
- Certainty – Making it easier for DSF providers to understand future revenue as well as requirements (e.g. location) of DSF will enable business cases to be made with more certainty.
The market for DSO DSF is set to expand rapidly in the next five years in Great Britain as the market develops and DSOs use DSF as a business-as-usual tool for multiple use cases, e.g. restoration post faults, network security during planned maintenance, active network management etc. For other European countries that are less developed with regards to DSO DSF, like Spain, this growth is still years away.
Looking ahead, DSO demand for DSF will likely eventually stabilize. This is due to the practical limit to which you can reduce demand by using DSF – once reached and with increasing demand and/or constraints on distribution networks, network reinforcement may be needed.
The market may reach a point of equilibrium as some DSF contracts are ended due to network reinforcement, but new contracts are required in other areas, effectively shifting the need for DSF but not increasing it. Furthermore, the future introduction of DSO time-of-use pricing and/or tariffs will provide a new pathway for DSOs to incentivize implicit load shifting, in turn potentially reducing the need for the explicit procurement of DSF.
By Philippa Hardy, who has worked in the low carbon energy sector for over 10 years. She is passionate about demand-side flexibility as a technology to enable the energy transition. This led to her create the Flexibility Research Service at Delta-EE, which provides clients with research and advice on demand-side flexibility markets, business models, technology, competitors, and issues impacting this space. Philippa currently leads the development of Delta-EE’s Flexibility & Energy Storage Research Services. She is responsible for managing client relationships and business development for both services and works with the team to develop the knowledge area, support clients, and continuously improve research services.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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