As the amount of variable energy on Britain’s network is growing, so is the need for greater flexibility and active management. This has created a host of opportunities as well as challenges in the sector, with areas like trading growing and becoming more dynamic.
Underlying this activity is data. Assets are having to be more reactive to demands, often in real time, and key to this is having the data to understand the situation, make a decision and react exceptionally quickly.
“Increasingly, markets are becoming closer and closer to real time,” energy trading automation software specialists Origami’s head of commercial Dan Hodges recently told Current±.
“And so, our observation is that even the very large utilities are still struggling to speed up some of their legacy processes. It’s the Faster Horses analogy. They want to do the same, but do it quicker, rather than fundamentally reinventing the data architecture and data model and fully digitalising their business.”
We talked to Hodges about the growing demand and use of data, how key events over recent years like the pandemic and the Russian invasion of Ukraine are impacting this, and what challenges are assets facing in participating in energy markets.
Has demand for data grown in recent years, and is it more significant for the management of an asset?
Definitely. In particular, we’ve got a strong belief in the requirement for real time data, and having a platform that’s designed to respond super quickly. We focus a lot on asset data, real time generation data, and responding and understanding the constraints of assets.
Right now, we’re quite focused on assets such as renewables and batteries: we control assets locally with smart devices. Increasingly, we’re combining the physical asset data with market and financial data to enable our customers to make better use of them, and to automate various processes, such as analytics and reporting. Some of the larger firms start off by trying do that in house, but many realise that the capability and skills to do it well are specialized and costly and maybe aren’t USPs for their business.
We think that there’s a role for technology specialists to do that in a more scalable, faster way, that doesn’t compete with those firms’ differentiations. Because, really, we see the role of a trader at an off-taker as being to take a risk-adjusted market view, creating price and volume forecasts for the long, medium, and short-term, and creating their own algorithms so they can optimize asset portfolios — creating the best outcome for their assets, be it their own assets or their customers’ assets.
Has the impact of the COVID-19 lockdowns been a bit of a wakeup call to the energy sector?
Absolutely. A couple of things: for storage in particular, there were some other factors — the Capacity Market and the collapse of the Frequency Response markets a few years ago — but then, the change in demand profiles, the “big pause” if you like, and at the end of last year, the prolonged period of calm weather, which definitely exposed some of the volatility we can expect in the future.
That volatility in electricity markets is a price signal for battery storage. We’ve seen baseload outages that are a bit of a precursor. We’ve also got two gigawatts coming out of the nuclear system.
It does seem like the Capacity Market’s been a bit nuts on the back of it?
The Capacity Market’s gone crazy. And you can’t disentangle what’s going on in Eastern Europe and Ukraine from this — it’s all part and parcel really.
It’s absolutely a signal of what’s going to happen in the energy system, but I think with energy security more broadly, we can see it becoming a global issue. Recently we saw the German Gas Association escalate warnings to ‘alert’ level, implying a growing likelihood of gas rationing and / or disruption to industries. That’s going to drive even more demand for electricity and yet higher volatility.
Across Europe, we’re seeing an appetite to move to EVs — supported by a ban on internal combustion engines by 2030 in GB. If we’re going to put that much extra strain on the electricity system, we need so much more of it and so much more of it to be renewable — and then we’ll need so much more capacity to balance. Having said that, I think some projections on the scale and pace of grid-scale batteries in GB are over optimistic.
What challenges do you think will impact the scale and pace of this rollout?
What I’m personally hearing is that there are two big issues in the market. One is the supply chain issues — lithium, other key components to full battery manufacturers and OEMs; and the second one is actually TSO and DNO/DSO readiness.
We’re hearing a lot of issues around just getting planning consents and grid connections, creating years of delays.
The DNO, DSO, and the TSO have got to move much faster if they’re going to enable the network to cope with this, and they’re not. They’re used to very, very calm, long term, well-thought-through planning, and they’re not very agile businesses. With the right tweaks to regulation, storage can and will find a way through, but it hasn’t really been properly rethought yet. That’s an issue across much of Europe from what I can see.
Does more need to be done to enable DSR to help networks manage increased demand?
DH: I do think so. And generally, for the behind-the-meter market, Ofgem made some decisions which were designed to help the consumer in the targeted charging review, which removed a lot of the embedded benefits for behind-the-meter and DSR-type applications.
Now, removal of the Triads is part of it, and it makes me want to ask: do we actually have a system that is incentivising flexibility? How are we able to get price signals to industrial and commercial customers to enable them to really embrace it?
It feels like there’s more happening in innovation, being driven by ESG and by customers who are looking at how can we become less reliant on the grid. Who are asking how we can procure our own energy from renewable PPAs, or buy our own renewable generation, co-located with storage — but from a purely carbon footprint reduction perspective, rather than a DSR, grid stability, market driven view.
I think that some of these signals we’re seeing in the volatility in the energy markets are going to start to generate more innovation in energy supply contract structures and commercial structures. They have to.