Flexibility a valuable opportunity for CHPs


Combined Heat and Power (CHP) units are helping businesses to reduce costs and carbon and boost energy security but could be missing out on valuable flexibility revenues. Alana O’Neill, Senior Business Development Manager at Open Energi, explores the opportunity.

CHPs have an important role to play in the UK’s transition to a sustainable energy system and are being adopted by a growing number of businesses across the UK to help reduce energy costs, boost energy security and support carbon reduction efforts.

A 2017 ADE report found that over 2,000 businesses across the UK had already invested in the technology, saving an estimated £375m annually. These CHPs are already generating around 5.7GW of electricity for a wide range of industries, from brewing and paper manufacturing through to hospitals and water utilities, and this could rise to 15GW by 2025.

One part of CHPs’ appeal is they are very flexible assets which provide a controllable source of on-site electricity generation and heat. This controllability means CHPs are also an ideal asset for participating in flexibility markets and can increase or decrease generation to help businesses reduce overall electricity costs. However, as this is not their primary purpose, CHPs are often not optimised against electricity prices or other market signals, which means they could be missing out on significant value.

Unlocking flexibility value

Open Energi’s analysis suggests that fully optimised, a CHP unit has the potential to earn around £20-35,000 per MW of installed capacity annually through a combination of flexibility services:

  • Peak price management – increasing CHP generation during peak periods (4-7pm) means sites can reduce demand from (or export to) the grid and reduce the cost of (or benefit from) Triad, DUoS charges and the CM Levy*.
  • Balancing services – CHPs can provide a combination of balancing services, including firm frequency response (FFR) and demand turn-up (DTU) to National Grid and earn revenue in return for increasing or decreasing generation to help balance electricity supply and demand.
  • Energy trading – CHPs can take advantage of price arbitrage opportunities in wholesale and imbalance markets to make money and cut costs. The scope of this will be determined by the supply contract or PPA in place, but the opportunity is expected to grow as price volatility increases with growing renewable generation.
  • Local markets – Distribution Network Operators (DNOs) are starting to procure flexible capacity locally – most have now signed up to the Piclo Flex platform as their route to market – offering a new revenue stream to CHP owners able to help DNOs manage constraints on the network and avoid reinforcement costs.
  • Capacity Market – exporting CHPs which aren’t receiving subsidies under the Renewable Obligation scheme are eligible for the Government’s Capacity Market scheme, which pays providers of capacity for being available to respond when the system is under stress*.

Site factors to consider

There are lots of factors that need to be considered when building a business case for CHPs.

  • Biogas or gas grid connected – The ADE suggests that over 2,000 businesses or sites across the UK have CHP units installed, and latest data from Ofgem indicates that there are around 450 which are renewably powered. Sites reliant on biogas will face different constraints and challenges when it comes to managing generation and providing flexible capacity including the availability of gas storage.
  • Behind or in front of-the-meter – CHPs supplying on-site demand (known as behind-the-meter) will have a different business case than front-of-the-meter sites e.g. AD plants, which are solely exporting. The former can unlock more value from reducing site demand but may be more constrained in other ways.
  • CHP location – Peak prices vary across Distribution Networks, so this can affect the business case.
  • Heat demand – Requirements for on-site heat demand are also an important factor in determining how much flexibility a CHP unit can provide.

Of course the primary concern of any site operator is that asset performance and lifetime will not be affected by asking CHP engines to perform flexibility services. The importance of understanding site characteristics and asset constraints cannot be understated. Building strategies that can deliver value automatically while working within these is key.

Open Energi’s Dynamic Demand 2.0 platform does just this – automatically optimising a CHP’s operation to maximise value from flexibility markets without impacting overall performance or asset lifetime. The platform uses artificial intelligence to coordinate site demand and generation and deliver an invisible service that takes a holistic view of energy optimisation.  To date the platform has connected over 3,500 assets UK-wide and performed over 60 million switches – operating invisibly deep within customer processes without once affecting site operations.

Future outlook

As the UK energy industry shifts to a more decentralised, digitalised and decarbonised future the need for flexible services to help manage the system is growing. Market regulations and policy are playing catch up as the Government seeks to deliver the £40bn of value identified by its Smart Systems and Flexibility plan. Significant reforms are expected to network charges and market access over the next 18 months. With the right technology in place, companies with CHPs will be well placed to take advantage of these opportunities and play an important role in creating a cleaner, more affordable energy future.

Codford Biogas case study: for more information on Open Energi’s work with CHP units read our case study with Codford Biogas, who are recycling food waste to provide almost 4MW of renewable generation.

Contact: Alana O’Neill – alana.oneill@openenergi.com / 07468 700796

*On the 15/11/18 the Capacity Market was temporarily suspended after an EU ruling against the European Commission. This means the CM has entered a ‘standstill period’ which prevents any CM auctions being held or payments being made until the scheme is reapproved. You can find more from National Grid on CM payments and the upcoming CM auctions here, and BEIS’ most recent proposals here.

How greater flexibility can help UK deliver 50% renewables by 2030

electricity pylons

The National Infrastructure Commission (NIC) recently published its first National Infrastructure Assessment (NIA), setting out a strategy for the UK’s economic infrastructure from 2020 to 2050. A key focus is decarbonising the UK’s energy supply and the report recommends 50% of generation is supplied by renewable power by 2030, with the UK’s electricity supply almost entirely zero-carbon – thanks to nuclear and renewables – by 2050. But how can we integrate this level of renewables cost-effectively, and what do we do when the sun doesn’t shine, and the wind doesn’t blow? Wendel Hortop, Commercial Analyst at Open Energi, explores the role of flexibility in enabling the UK’s transition to a zero-carbon energy system.

What would such high levels of renewables mean for the energy system?

The UK is on track to power 50% of our electricity supply with renewable generation by 2030 but this level of renewables creates some very specific challenges. Solar and wind, which would form most of new renewable capacity, are highly inflexible – energy is only generated when the sun is shining, or wind is blowing. Despite increasingly accurate forecasting, this inflexibility introduces short-term (balancing electricity supply and demand within a given half-hour) and long-term (what to do when wind and/or solar output is low for hours or days at a time) challenges, and reduces the level of inertia on the grid, resulting in much quicker changes in system frequency – which must be managed to ensure power keeps flowing.

Flexibility can help to address these impacts cost-effectively – reducing total system spending by between £1-7bn per year – and enable the UK to integrate renewable generation at the scale required by the NIC assessment.

Flexibility can deliver significant cost reductions in in a high renewable system

Source: Open Energi
Source: Aurora Energy Research

 What role does flexibility have to play?

The majority of system balancing occurs through the energy market in response to energy prices visible over different timescales, of which the last resort is the imbalance price. Energy generators and suppliers forecast their half-hourly energy usage and provide this to National Grid, who then take action to correct any differences between forecast and actual energy usage. Anyone out of balance in a way which harms the system pays a penalty, whilst the opposite is also true – putting yourself in imbalance to benefit the system gets rewarded. The imbalance price (or System Price) is not known until afterwards so predicting and reacting to it allows energy users to help the grid and be rewarded; increasingly trading teams at big suppliers are looking to their customers to help manage this.

Open Energi are already responding to the imbalance price by flexing loads through signals from suppliers, such as Ørsted’s Renewable Balancing Reserve. Increased renewable generation on the grid will increase the likelihood of system imbalances, and the incentive to respond.

Flexible loads can respond in real-time to predicted system prices

Flexible loads can respond in real-time
Source: Open Energi

The wholesale market doesn’t balance all supply and demand so National Grid look to the suite of services they procure to do the rest. For example, frequency response services fine tune the system balance and provide a ‘first line of defence’ after large generation outages.

Demand flexibility is already an established tool in helping to balance frequency on the grid via the Firm Frequency Response market. Inertia levels falling means faster frequency response is needed. Lithium-ion batteries are perfect for delivering this, whilst some forms of demand flexibility can also respond at the required speed. National Grid is developing a Faster Acting Frequency Response product which will allow loads capable of responding quickly enough to participate and will procure a mix of assets capable of tracking frequency (such as batteries) and those capable of delivering large shifts in demand almost instantaneously (such as large industrial processes).

Longer term shortfalls in generation introduce a new challenge for flexibility

The more significant challenge is in longer periods of low wind and solar generation. Increased interconnection with Europe will help but demand flexibility can again play a key role.

Frequency response has tended to focus on energy flexibility within a half-hour period, however many processes have inherent energy storage of hours or even days. Water pumps, heating and CHPs are all assets which can shift demand over long periods. The signals to do so come from the market – low renewable generation leads to increased wholesale energy prices, and vice versa. As wholesale energy prices can be known a day ahead, a load can be optimised in advance to increase consumption when prices are lowest, and reduce consumption when prices are high.

Many flexible processes have hours or even days of energy storage

Many flexible loads have hours or even days of storage
Source: Open Energi

Advances in storage technology will also assist with this longer duration requirement for flexibility. Technologies such as vanadium flow batteries can provide over 4 hours of energy storage and can help balance sustained periods of low or high renewable generation as well as providing short-term frequency response and price arbitrage.

Aggregation of assets such as these, diverse in both location and technology, will help to tackle longer periods by spreading the requirement for flexibility. Digitalised platforms that use artificial intelligence (AI), statistics and probability can schedule and manage asset behaviour to deliver the optimal amount of flexible capacity.

As we look to 2030, increased adoption of electric vehicles (EVs) will also come into play, either through smart charging or vehicle-to-grid (V2G) charging. In their latest Future Energy Scenarios report National Grid predict we could have over 10 million electric vehicles in 2030, and over 35 million in 2040 – a huge number of flexible, distributed assets.

Smart charging will allow EV charging to be modulated or staggered to avoid surges in consumption or shifted to times of day when demand is low, reducing the infrastructure required to support them. Aurora Energy Research estimate that smart charging can reduce the level of generating capacity required in 2050 by up to 22GW in a high renewables system. Meanwhile V2G charging introduces possibilities such as taking households off-grid during peak periods – Open Energi are part of the PowerLoop consortium exploring this and other potential V2G applications.

Smart charging significantly reduces the need for flexible generating capacity

Source: Aurora Energy Research
Source: Aurora Energy Research

Decarbonisation of heat will introduce new sources of flexibility

One common process with very high levels of inherent storage is heating; however the UK’s reliance on gas means potential flexibility which could be offered to the electricity system is currently limited. Looking forward the decarbonisation of heat therefore offers long-term opportunities, whether this comes through electrification or a transition to hydrogen and district heating.

Switching to heat pumps would introduce a large but flexible energy load into the system with significant storage potential. Coupled with smart meters and other advances in technology this could lead to a highly distributed source of flexibility for the grid, just as with the shift to electric vehicles.

Hydrogen powered heating – produced via electrolysis – is an energy-intensive but flexible process, which alongside district heating networks would likely lead to many more CHPs – which offer short and long term flexible capacity.

Technology will play an important role in delivering this flexibility

The NIA shows that flexibility has a key role to play in delivering or surpassing our carbon targets. As renewable generation increases significantly so will the need for flexibility. We already have many of the solutions we need – the real challenge is rolling these out at the required scale and speed.

This is where AI and cloud computing can come into their own. Aggregation of larger and larger portfolios of diverse loads will require the behaviour of each of these individual loads to be optimised and controlled in real-time in response to the requirements of the system. Meanwhile the move to smaller, distributed loads, including those on a domestic scale such as electric vehicles, will rely heavily on cloud computing with dispatch instructions delivered over the internet and loads communicating their behaviour with the platform and each other.

Ultimately these solutions can give rise to an autonomous, self-balancing grid which operates incredibly cheaply. Open Energi are leading this transition, connecting, aggregating and optimising distributed energy resources in real-time, to create a more sustainable energy future.