A2 : Four sources of values can already be captured by aggregation businesses

Context

One of the objectives of EU-DEEP was to identify promising Distributed Energy Resources (DER) business models. Three examples of business models were studied. Regulatory conditions have a major impact on the sources of value of aggregation businesses, which can act as a barrier to these aggregation business models.

Challenges

Which are the key regulatory issues considered as barriers to aggregation?

Results

Today’s aggregation businesses can be based on four sources of value

Separate qualitative analyses for each business case highlighted the fact that DER flexibility is used to maximise the same sources of value:

 

  • Reduction of imbalance costs (RIC): After the gate closure, energy cannot be traded in the market anymore. Without flexibility, inevitable errors in forecasting (consumption, wind production, etc) cannot be corrected. With flexibility, it is still possible to adapt the consumption or production level of DER units, to decrease imbalance charges.
  • Obtainment of best electricity prices in the market (OBPM): When the price on the spot market is high, it may be interesting to buy flexibility from DER units either to sell electricity on the spot market, to avoid buying electricity on the spot market, or to increase the sales of electricity produced by distributed generators.
  • Provision of Frequency Control Services (PFCS) to the System Operator: The flexibility of DER units can be offered to the System Operator to provide bids and offers in real-time balancing or in the market for reserves. While theoretically any size of consumer or generator could enter bids or offers into real-time balancing, larger contracts (tens of MW) are far more likely to be accepted by the SO in many countries, because, in that way, the system operator has to communicate with fewer balancing providers, which results in smoother operation. Hence, aggregation allows smaller consumers to access this market.
  • Reduction of capacity-related grid fee (RCGF): Usually, T&D charges have a capacity-related component based on the consumers’ maximum consumption over a given period (day, month, year, etc). If DER flexibility can be used to reduce a consumer’s maximum consumption (either increasing generation or reducing consumption), the payment linked to the maximum consumption will thus be reduced too.
Figure 1: The aggregator’s decision to use flexibility (for a dedicated revenue) is mainly linked to the opportunities provided by the markets and the balancing mechanism (here illustrated for the UK case)

Different regulatory regimes create different barriers to aggregation

A detailed cross-country analysis provided by country experts showed that different regulations impose different barriers to the aggregation businesses:

 

  • No obligation for hourly metering & billing for the smallest consumers/generators: In order to provide flexibility, DER unit owners must see different prices for different periods of the day (ideally, as many prices as the market has), and they must be sure that they will be remunerated for all the flexibility they provide (interval metering is required).
  • Prohibition of adjusting after gate closure: DER flexibility can only be used if some portfolio effect is allowed, i.e. if some units can compensate the variation in the output of others. Ideally, DER units should be able to compensate both generation and consumption deviations from schedule.
  • DER units not fully integrated in the market: DER units must be incentivised not to sell their output without taking care of imbalances, so that they are able to modulate their output and provide flexibility to the system when needed.
  • Restricted access to provision of frequency control services: If properly aggregated, DER units, including Demand Response, can provide cheaper flexibility to the System Operator than some central generators; however, regulation does not always allow it.
The Table 1 details the main barriers for three of the four sources of value studied in the business models.

Expand results

 

Topic of interest for

  • Regulators

  • Transmission System Operators (TSO)

  • Energy Producers, Retailers and Service Providers

  • Investors

  • Manufacturers

 

Contacts

  • Carlos MADINALABEINWP8
  • Gilles BOURGAINGDF SUEZCoordinator 2007-2009 / WP8 Leader
  • Athanase VAFEASTechnofiWP6 & WP7 Leader / WP8