Flexing your assets' muscles

Fundamentals of flexibility in energy markets

What is flexibility? 

The flexibility of a power system, according to the International Energy Agency, refers to "the extent to which a power system can modify electricity production or consumption in response to variability, expected or otherwise". Eurelectric defines it as "the modification of generation injection and/or consumption patterns in reaction to an external signal (price signal or activation) in order to provide a service within the energy system".

Both definitions describe an ability to adapt in response to external forces:

Ability to adapt: Flexibility is classified as either positive or negative, based on the effect on available energy. Positive flexibility means the capacity to increase the amount of energy by either ramping up a generation or reducing usage, while negative flexibility refers to the potential to reduce energy by either decreasing generation (e.g. curtailment) or increasing usage.

Specific assets may only have flexibility in one direction or may be flexible in both directions; we’ll go into this in more detail below. How flexible a system depends on how much, but also how quickly, it can adapt generation or usage up or down.

External forces: The signals driving the operators of flexible assets to adjust their supply or demand can include both physical and economic factors. Physical factors include peaks and valleys in demand due to normal daily demand patterns, weather-related fluctuation in consumption or intermittent renewable generation, or planned or unplanned outages.

Economic factors include changing prices on balancing or spot markets: market participants may choose to adjust supply or demand in order to take advantage of favorable prices. Changes in price, however, are usually a reflection of physical factors, so in practice, the two are closely linked.

What are the potential sources of energy flexibility?

Almost any type of power source, load, or storage has the potential for flexibility, but each comes with its own unique considerations, as shown in the table below:

*Sources: IHA (hydro), Guidehouse Insights (DSM), IEA (all others)

Battery storage

Since storage is actually built to deliver flexibility, it may be one of the most obvious sources. Battery storage in particular has been positioned as a key technology to help realize the full potential of fluctuating wind and solar generation, storing excess energy when the wind is blowing or the sun is shining and delivering that energy when the wind stops or the sun goes down. As such it offers both positive and negative flexibility.

Battery storage is a newer addition to the power market but some relatively mature projects exist. Batteries are great for energy storage in that they are extremely efficient and are nearly instantly available, with lead times in the nanosecond range. However, the lithium-ion batteries most commonly used today are subject to deterioration from charge-discharge cycles; as a result, they can only handle a limited number of cycles per day and during their lifetime. Furthermore, most battery storage projects today are sized specifically for the needs of balancing markets. Unfortunately, the energy-to-power ratios oftentimes found are far from ideal for other demands of our power grids, like balancing of power schedules in the wholesale intraday market. As technology progresses, improvements in both of these factors will make battery storage solutions more and more suitable for intraday optimization. 

Pumped hydro

Pumped-storage hydropower is one of the oldest and most mature forms of storage, and like almost any storage provides both positive and negative flexibility. Excess energy is used to pump water up to a reservoir at a higher elevation. When energy is needed, this water is then released to flow through turbines below in order to generate electricity. Pumped hydro offers natural, clean storage, and is extremely flexible with very short lead times. The energy-to-power ratio is very different from that of most battery storage systems and is far better suited to trading on the intraday market. It does suffer higher efficiency losses than batteries. The main limiting factors in pumped hydro, however, are the limited number of suitable locations and the high cost of construction.

Wind & solar

Since they are completely dependent on the weather, wind and solar power are not always thought of as flexible. Essentially, they run and generate power whenever the wind blows or the sun shines, so there is no way to “turn them up” to counteract energy shortages or to take advantage of rising prices. However, modern wind turbines and photovoltaic systems can be shut down much faster than traditional power plants, so they are actually a great source of negative flexibility.  Due to weather dynamics solar and wind often complement each other, with one likely to produce more when the other produces less. As a result, a combination of the two not only provides a more constant energy supply, it also enables greater opportunities to respond to an energy surplus and to benefit from commercially optimizing this flexibility.

Thermal 

Thermal plants include conventional, fossil power stations but also modern CHP (combined heat and power) plants which run on various fuels, including waste, biogas or biomass. CHP plants are especially efficient since the waste heat from power generation is utilized for industrial purposes or district heating. In practice, many CHP plants optimize their operations to meet thermal demand, while the electricity generated is seen as a byproduct.

Both CHP and traditional thermal power plants provide a good source of positive flexibility, as well as negative when reducing previously scheduled generation. In many parts of the world, thermal generation is still the primary power source, although dynamics are changing due to the shift to more renewable energy. A key role of thermal plants today is also to provide a backup when the wind stops or the sun doesn’t shine, as well as to cover demand peaks. And even in places where thermal plants dominate, certain plants often act as buffers, running only to cover peak demand. In either case, flexibility - especially minimizing ramp-up times -  is an important aspect of plant operations. Different fuels have significantly different ramp-up characteristics, for instance, coal plants measure ramp-up in hours, while some gas turbines can ramp up in a matter of minutes.

With the huge amount of thermal capacity standing around, thermal plants are the biggest available source of flexibility today, and this will likely only change gradually over the next few years.

Demand-side management

So far we’ve only talked about the flexibility of power generation. However, energy consumers can also adjust their usage, given the proper incentives. Demand-side management (DSM) refers to the ability to reduce or increase power consumption, or to shift a load to a more favorable time. In most DSM applications, the flexibility is either only positive or only negative, although it can be both. An industrial facility may be willing to temporarily increase production to absorb excess energy. A paper mill or cement plant could flexibly time-shift their load peaks to take advantage of price changes or interrupt production temporarily.

In practice, DSM is currently mostly carried out with large commercial users. Consumer-level DSM doesn’t exist beyond some pilot projects, as strong use cases still have to be developed where private users are rewarded for giving up control of their appliances or sacrificing convenience. Overall, DSM only accounts for a small portion of total available flexibility.

E-mobility

A new and growing source of flexibility comes from charging electric vehicles. This can occur in two different ways. First and most obviously, a smart charging station can adjust charging speed or start time to take advantage of lower-priced power, providing flexibility. Consider a simple charger: it usually starts immediately and at full power. Unfortunately, most electric vehicles today are plugged in during morning or evening hours, when prices are highest. Flexibility arises from the ability to delay the charging process while still ensuring that the vehicle is charged to the desired level in time. Within the available time window, until the car is needed again, the load can be shifted according to market prices and can be reallocated based on short-term price movements. The ultimate goal is to charge the car with a unidirectional power flow from the grid.

The second option, called vehicle-to-grid (V2G), is to use the car battery itself to actively deliver power to the grid when needed. V2G can considerably increase the level of flexibility, as long as technical restrictions and the car owner's preferences allow utilization of this flexibility. A group of charging vehicles can be aggregated, acting as a distributed battery bank. However, this solution requires bi-directional chargers, which are still in their infancy.
 

As you can see, the potential for flexibility is everywhere. In a follow-up post, we’ll explore your options for generating profit from flexible assets.