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.
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 – firstname.lastname@example.org / 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.