Arenko underwent a significant transformation in July, selling its only battery storage asset and transitioning into the software sector entirely.
The move marks a wider shift in the energy market in many ways. With flexibility recognised as key to the energy sector of the future, the technology needed to get there is having to develop fast.
Current± caught up with Arenko’s CEO Rupert Newland about why it decided to step away from owning battery storage, its trials with National Grid ESO and rewriting the rulebook of trading.
Why did you decide to sell your Bloxwich battery?
We announced on 3 July that we sold our major asset for just over £20 million to Gresham House Energy Storage Fund, and that marks a really, really important transformation for the business.
It is effectively the moment where we can say 'we've proven the technology, that now works, and now we are a pure play software business', so it allows us to really ramp up our activities to really start to distribute and sell our software within the market.
It's been a very interesting time during COVID-19, because it's been a window into how the future of the energy system can look. Demand for electricity has been way down, and that means that the proportion of renewables in the system is much higher, and there's lots of interesting things around that.
Our clap for carers announcement for example, showed the strange peculiarities in the demand profile for energy storage. Our systems are operated on a fully automated basis so they can help manage that supply. Importantly, this COVID-19 period has shown the potential for batteries.
Could you tell me about your recent upwards and downwards flexibility trial?
We've been doing a lot of work with National Grid, trialing upward and downward reserve. Now this is a 2GW ongoing requirement, and that can be up to 5GW at the moment during COVID. But it's historically always been procured from CCGTs and thermal power plants and that's very expensive. Basically what you need to do is switch off renewables to make space for CCGTs to come on at a very expensive rate and sit there at half-mast, so half power output, in preparation for being required to turn up or turn down, depending on what the system needs, to provide that flexibility and effectively manage the balance between variable renewables and demand on the system.
So National Grid spoke to the whole market, and said 'if anyone's got any ideas then let us know how we can do it' - and there is a whole bunch of stuff that they've done, like setting up ODFM, which is a way of switching renewables off, doing a deal with EDF to turn down the nuclear, but all of these things were short term fixes.
What we presented to National Grid was actually a pathway for them to get to their net zero carbon 2025 target by being able to say 'this stuff that you're buying, you're buying 2GW daily, and up to 5GW at the moment, we can do that with a battery and we can show you that we can do that with a battery'.
And how successful was the first trial?
It was a great success, and National Grid has confirmed that first of all it was cost effective, and second of all that batteries could deliver the service. We see it as the first time really that batteries have been considered to be a potentially central piece of the energy system as a whole, and that allows for more renewables to be put on the system.
Ultimately the value is shifting from the way in which electricity is generated to the way in which it is managed. And that's really important when you've got renewables that are completely variable. You don't look out your window to see if the wind is blowing or the sun is shining before you put your kettle on, so supply and demand is disaggregated when it comes to renewables, and that needs to be managed by batteries. The work that we're doing with National Grid is very much the starting point for opening up batteries as a central piece of the UK energy system.
We also announced earlier this year that we've released our EPEX trading modules – again this is fully automated – which allows our customers to have access into the wholesale markets. Now this is particularly important given what's happening at a global scale, with recent announcements that open up the potential for batteries to operate in the US wholesale market for example. All of these things are extremely important, because ultimately with a battery system you need to be offering the most important service that is required at any given time, doing these services, and doing multiple services at the same time.
Could you tell me a bit more about how Arenko is operating in EPEX trading?
The EPEX and balancing market modules that we have operate in real time at the same time. So it's an actual example of how stacking revenues can be used to reinforce the value opportunity for our customers, and there's this concept of stacking that's long been talked about in energy storage, but actually what most people think is stacking is what I would describe as scheduling.
So they'll say, ‘we want to do frequency response for the first four hours of the day, then we're going to do balancing mechanism for the next four hours, then we're going to do frequency response again and then we're going to do EPEX trading’. We're rewriting the rulebook in this regard, and saying, 'you know what, we can offer value to all of these services at the same time, and provide an output that allows you to manage both sides' and that's hugely exciting for batteries because it underpins the revenue model for our customers, and allows for a fully scalable business case.
All of this is unlocked by our automation technology. It's something that we see having a global potential, indeed the software is being designed in a way that it's totally transferable into any other market around the world, with plug in modules that are sector specific modules.
With more flexibility trials coming up, will many adaptions to your software be needed?
From our side, we've got a very, very flexible software architecture so that we can make changes to reflect what is required by our customer, in this context National Grid who wants to buy that up and downwards reserve. Effectively they tell us how they want this service to look like, and this software architecture can adapt to that very quickly.
I think that's really important because there's going to be further markets as we go into the future where we need to continue to be right on the front end of this stuff, we need to be able to offer our customers state of the art software solutions to be able to deliver services to National Grid as and when they're required.