Thomas Jennings, Head of Optimisation, Kiwi Power
The late May bank holiday in Great Britain gave a real sense of the future of power generation. With significantly reduced demand thanks to the COVID-19 lockdown, at lunchtime on 25th May, over half of the electricity mix was being met by wind and solar. Over that weekend, we saw the energy mix of 2025 – today.
However, while more renewable energy is a welcome trend, it also creates system volatility. The need to smooth this volatility presents a huge opportunity for distributed energy resource (DER) asset owners, who can help balance the grid. The Bank Holiday weekend was a case study on just how valuable this can be.
Still, not all DER asset owners were able to make the same market gains. With the ever-progressing shift to a more renewable, flexible future – and the role for DERs increasing – how can DER asset owners maximise revenue and return on investment? It boils down to three simple tricks: be open to short-term thinking; know your asset; make a move on new opportunities.
1. Think short-term
We often view an asset with its payback period in mind. That’s not wrong; if we can turn an eight-year payback into a six-year payback through clever thinking and market use, we’ve done well. But sometimes a short-term change can unlock even bigger gains. We saw an opportunity to maximise returns for our clients in the new Optional Downward Flexibility Management (ODFM) market.
Introduced in May 2020 through the Balancing Mechanism to tackle the unusually low lockdown demand, ODFM is unlikely to be a product that is needed every day. However, the ability to react to the volatility created by coronavirus meant DERs had access to a short-term revenue generating option, which others missed out on. These assets will make revenue by turning down – a rare treat for DERs.
2. Know your asset
While it might sound simple, knowing your asset, it’s capabilities and applications is key for getting the best from it. A ramp time of 30 seconds, 90 seconds, or five minutes means access to different ancillary services; knowing where you fit in that mix presents different revenue generating streams. But there’s more to it than that.
We’ve typically viewed DERs through the lens of frequency response or to reduce demand peaks, yet the last bank holiday has shown they can also be used for supply turndown or demand turnup services. Understanding what flexibility your assets and business operations possesses allows you to make the most of some of that short-term thinking mentioned above. With so many potential revenue streams, this can become quite complicated, so getting a DER manager involved can take the stress away.
3. Make a move on new opportunities
While DERs were broadly the winner from the bank holiday weekend, one asset type really stole the show – storage. Battery storage will become increasingly important for system flexibility. Those businesses that already have these assets really saw the value over the bank holiday weekend – if prices remained at that level, they could have seen a return on investment of just two to three years. Storage assets have taken over the frequency response market in Great Britain and provided essential frequency services over the weekend, while also offering greater flexibility through charging and discharging as needed.
Right now, the potential returns from storage look lucrative thanks to new revenue streams; nonetheless, they will also continue to do so as demand for flexibility increases. In Great Britain, any less than 10GW of storage by 2025 could leave the grid imbalanced, as more and more renewables pile onto the system.
The long weekend at the end of May brought into sharp focus why we need DERs, but also how different models can generate different returns. Across Europe, the energy landscape is changing and, as Project TERRE (a new Europe-wide balancing project which will enable cross border trading) widens access to the market, asset owners need to jump on the opportunities in front of them. There are many complexities around market access, grid flexibility and revenue stacking – but DER managers, can manage away these challenges for asset owners. The benefits of this extend past a better rate of return for the owner, as you can help facilitate the shift to a cleaner grid, playing your part in the wider energy transition.