How demand aggregators are flexing the energy system

Sensemaking / How demand aggregators are flexing the energy system

Smart grid and metering technologies are unleashing the potential for energy demand management at scale. Will Simpson reports.

By Will Simpson / 30 Mar 2015

When it comes to meeting a country’s energy demands, renewable energy has two downsides: its variable nature – the sun, wind and waves are intermittent sources of energy – and the fact that electricity cannot yet be stored on a large scale (which would help to address the intermittency problem). 

One way of tackling this conundrum is to manage the demand for electricity more effectively, manipulating it through a variety of measures to introduce more flexibility into the system and balance supply and demand. This should allow the share of the electricity supply provided by renewables to increase without national grids having to pay windfarms to stop producing electricity, and also address any gaps in supply that arise as aging power stations are decomissioned.

A new type of organisation aims to help facilitate this flexibility: the demand aggregator. The idea behind it is not new: national grids often pay large energy users like steel works to reduce their energy demands during peak times. But now smart grid technology and smart metering systems allow the aggregator firms that have emerged in recent years – including Flexitricity, Open Energi and Kiwi Power – to offer this service to medium sized firms that wouldn’t otherwise be able to deal directly with national grids.

Having hooked customers up to their smart grid, aggregators are able to turn on generators or turn off lighting and air-con systems – usually for no more than an hour at a time. They can do this at a moment’s notice – upon instruction that the national electricity system is highly congested – and receive a fee for helping to balance the grid. They take a cut, and the company gets the rest. Kiwi Power says that while it is difficult to generalise, medium-sized UK businesses typically generate around £20,000 per annum in revenue from its scheme. 

KiWi, whose customers include several NHS hospitals and Marriott hotels, claims it can take around 200MW offline almost instaneously. Like the Edinburgh-based Flexitricity it provides what’s called a ‘short-term operating reserve’: both companies monitor consumption on a minute by minute basis, using smart meters. Open Energi, on the other hand, offers a service called ‘frequency response’: an entirely automated system that analyses energy usage per second instead of per minute. 

“We monitor it all in real time and report back to [the UK’s] National Grid”, explains David Hill, Business Development Director, Open Energi. “Just as a power station offers services to the National Grid, saying ‘I have 10MW in the next half hour should you need to use it to keep the system running’, we are doing the same on the demand side.”

KiWi recently opened its first office in Singapore (it already has offices in London and Tel Aviv) – a timely move given how fast energy usage is rising in the region. While in the US, one of the strongest global markets for demand response services, California recently produced a Demand Reponse and Energy Efficiency Roadmap which details the state’s plan for turning energy efficiency and demand response into “integral, dependable and predictable resources” for the grid within the next five years.

The growth of demand management services is likely to have a number of medium to long-term effects on the overall energy market. For one thing, it may have an adverse impact on the major energy suppliers. “They make a lot of money at times of peak demand”, says Mike Pepler, UK Awards Manager for Ashden, the London-based charity that promotes global solutions in low carbon energy. “If you bring in demand response you wipe out a lot of those peaks. They will certainly need to restructure how they do their pricing. Normally the big generators make money out of these markets that the aggregators are now playing in.”

It would also reduce the need to keep old, expensive power stations running purely so that there is enough reserve capacity for the national electricity system. The incentive to build new ‘peaking’ gas-fired power plants would be greatly reduced too; EnerNOC, which manages demand response programs worldwide, says its services have already displaced the need for more than 80 of these plants.

In time there could be a wholesale shift from a production-driven energy system to a consumer-driven one, which would better suit viable sources of energy like renewables. Millions of small, automated power reductions would help to smooth out the fluxuations in supply from wind and solar farms – i.e. when the sun rises and sets, or on a paricularly windy day. 

But whether demand aggregation is to become a feature of the domestic market depends in part on technological developments. “The key thing is making the hardware cheaper”, says Pepler. “Once you get time and variable pricing I don’t see why this can’t break into the domestic market.” In fact the technology is already in place in many cases. “Just think of how many of our fridges now have digital displays on them”, he adds.

One of Norway’s largest power companies, Nord-Trøndelag Elektrisitetsverk Nett (NTE), has already begun a pilot to discover whether customers will respond to fluctuating energy prices in real-time. The households involved in the trial have electricity meters that collect, analyse and redistribute usage data minute-by-minute. The system displays the cost of the electricity they’re using, allowing them to alter their consumption in response to changing prices and set spend thresholds.

Will Simpson is a freelance writer specialising in environmental resource issues.

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