If you ask people in the electric power industry what they associate with ‘energy transition,’ you are likely to hear ‘flexibility’ a lot. In fact, it would be fair to say that the latter has become something of a byword for the former. The reason is that, as the electricity sector and power markets become dominated by renewable energy sources, flexibility gains more and more significance. But how can we harness this flexibility and use it optimally in all parts of our power systems?
Flexibility
Flexibility is the ability of a system to react to changing conditions in energy consumption / generation to ensure that it remains stable or that it can restore its stability. System balance is essential and can only be guaranteed by this flexibility. Given the rise in renewable energy assets, electricity systems need to be increasingly flexible. However, it’s not only the amount of flexibility that needs to be taken into account, but also the types of assets that can provide it. Before renewable energy became an integral part of power systems, larger assets (e.g. thermal power plants or pumped storage hydropower) were the primary source of flexibility, but today, many smaller-scale assets such as solar panels or residential battery storage also have great potential to deliver a considerable amount of flexibility.
This rich diversity of assets is also bringing about a change in who is responsible for flexibility management. While transmission system operators (TSOs) have always managed supply and demand in their own systems, distribution system operators (DSOs) today also have to be capable of managing power flows and constraints in their own grid. With distributed renewable energy technologies becoming ever more widespread, DSOs are likely to engage with them more and more often. But whether it’s TSOs or DSOs, it must be ensured that the flexibility they need to provide is unlocked. Enabling flexibility services to be traded on power markets is an effective way to do it, and it can be achieved all the more efficiently with the help of digital platforms that make trading easier, so-called flexibility platforms.
Flexibility platforms
When we talk about grid-serving flexibility, we ought to consider the role that the market could play in determining the demand for grid flexibility, and market inclusion could be made significantly easier with the help of flexibility platforms. The Office of Gas and Electricity Markets (Ofgem), an independent national regulatory authority in Britain, defines a flexibility platform as “an IT platform where the coordination, trading, dispatch or support services for flexibility markets take place.” These platforms can be self-contained marketplaces or intermediaries between market participants and existing system services or wholesale markets. Regardless of their type - local flexibility platforms, balancing platforms or some subcategories of either - flexibility platforms can transact with any market participants and play a central role in today’s complex, interconnected power systems that serve network or system operators, aggregators, distributed energy resources (DERs), prosumers and consumers.
Based on their models, these platforms can perform a variety of tasks, but some of the most important ones are the following:
- Asset prequalification - in order to assure that the connected assets meet the pre-defined criteria, both technical and due diligence assessment needs to be carried out
- Flexibility procurement - a marketplace that can communicate supply and demand in the form of bids and offers needs to be available
- Grid coordination - to avoid or cope with grid congestion, it is important to assess grid impact and access priority
- Matching - bids must be paired with offers; with factors such as price and time, asset type as well as congestion management taken into account
- Price formation - internal auctions and continuously-clearing market mechanisms must be in place
- Dispatch and control - based on the executed assets, near real-time communication of activation instructions (e.g., power modulation, rate of change and response time) must take place
- Transaction validation and settlement - it must be verified that a certain amount of flexibility has been delivered, and it needs to be ensured that payment has been made
Flexibility platforms differ greatly in who is in charge of each task or how it is carried out, which highlights one of their key characteristics: no two platforms are the same. Every single one has its own unique model, which also means that there aren’t any uniform regulations that apply to all platforms.
Regulation
Flexibility platforms not only encourage technological innovation, they also bring enormous benefits to all the participants within the energy sector as well as the wider society - provided that they are carefully and properly regulated.
Given the number of stakeholders, agreeing on the rules for operating these platforms is a daunting task. Even though stakeholders can consider the operational standards for data, processes, and interoperability by following some predefined principles, there are still a number of challenges with regard to DER integration, TSO-DSO coordination, and market design. Some implications, however, are clear to the industry:
- Cross-industry development and agreement about principles for setting common standards and processes to promote interoperability would reduce barriers to entry and benefit market participants as a result.
- With the necessary safeguards in place, monopoly power and market distortions could be prevented. At the same time, through implementing data-sharing frameworks to allow access to network data, competition within the sector could be enhanced.
- A common terminology needs to be developed for flexibility market services, platforms and related issues, which would facilitate the communication of societal and community benefits, in addition to encouraging a behavior change within the electricity sector.
As we transition to net zero and rely more on distributed forms of energy, flexibility helps us to integrate different technologies that can incentivize changes in power supply and demand, and enable us to achieve decarbonization at a lower cost. Flexibility platforms are at the forefront of the clean energy transition and can make a valuable contribution to changing the way the energy system works.
In two follow-up articles, we will take a look at the different platform categories (administrative coordinators, market intermediaries and marketplaces) and the platforms that fall under them.
