A couple of weeks ago I participated in a meeting of companies working in the field of information and communication technologies applied to the energy sector. Among the participants were representatives of companies that develop solutions based on artificial intelligence, electricity distributors, oil companies looking for a new path, research centres, etc. A person from Red Eléctrica de España (REE) also participated.
At a certain point in the ensuing debate, this person from REE made a comment that left the other participants speechless for a few moments. She said something disturbing, something unexpected, something disconcerting. This person from REE said that in the not too distant future we will have to forget about the idea of electricity being available all hours of the year. In other words, a representative of REE, which is the backbone of the Spanish electricity system, told those of use present that in the not too distant future there will not be electricity for everyone all the time.
Some surprise was visible on the faces of those at the round table with her. Some tried to clarify her words by mentioning demand response, a service whereby consumers forgo electricity consumption in exchange for compensation, like the SRAD1 currently in place in Spain. But she made it clear that this was not what she meant and insisted on the literalness of her words: there will be no electricity for everyone all the thime. I listened to her from my chair in the second row and three questions came to my mind: why this is going to happen, how is it going to affect us and how could it be avoided or at least alleviated.
The reason why energy for everyone all the time may come to an end is the renunciation of the use of fossil fuels. The day that happens we will only have renewable energies; and we already know that these are intermittent energy sources and cannot be controlled at will. In some countries, which is not likely to be the case in Spain, they will only be able to partially solve this problem by using nuclear energy. At least as long as they have acces to uranium mines, but that is another story that will have to be told another time.
Imagine what everyday life would be like without a secure electricity supply. It would become a scarce commodity and the price would increase. The energy companie could buy up battery farms to guarantee supply to those consumers disposed to pay even more. Many industries would become uncompetitive and migrate to countries with greater security of supply. Neighbourhoods of wealthy people would emerge with their ownmeans of generation and storage, allowing them to isolate themselves from the electricity system and avoid the problem. Those who could not afford to supplement or isolate themselves on their own energy island would suffer a new type of energy poverty. And we must bear in mind that in the not too distant future, home heating will be electrified, so increased dependence on electricity will exarcebate the problem.
What can we do to avoid this situation from affecting us to the point where we can no longer have a fridge at home? Perhaps the answer lies in local energy solutions, energy efficiencyand intelligent energy use: generating electricity where it is used, not wasting energy, storing surplus energy, converting electrical energy into thermal energy and thermal energy into electrical energy, and managing energy use using advanced predicton, control and optimisation techniques (what some call artificial intelligence). What would be the optimal local environment: a neighbourhood, a city, a region? These local environments could be connected with their nearest neighbours to exchange surplus energy and perhaps move from a centralised electricity system to a chain of more or less self-sufficient energy islands. And I say more or less self-sufficient because the problem of large energy consumers, such as industries or data processing centres, those 21st century factories whose raw material is data, remains to be solved. Could SMRs (small modular reactors) be a solution for industrial parks in the not too distant future? Not in Spain, it seems. And it would also be necessary to solve the problem of those industrial processes that require temperatures that are not easy to reach without fossil fuels. It doesn´t seem that adaptating to a world without gas and oil is going to be easy, especially if we take into account that photovoltaic panels, wind turbines and batteries require a large use of energy (nowadays fossil) for their manufacture. Will those who advocate zero growth be right? Or will those who see in Mad Max´s Negociudad a reflection of what awaits us be right? At the moment we have people from REE sowing doubts about the security of supply in Spain.
These days we are seeing news in the media1 about the possibility of blackouts in the coming years. This news has its roots in a report published by Red Eléctrica de España entitled “National Resource Adequancy Assessment“2 .
It summarises the conclusions of the latest analysis of the system´s ability to safely meet demand. The indicator used to make these estimates is the loss of load expectation (LOLE) indicator. This index measures the number of hours during which, in a given geographical area and in a given period of time, energy production will not be sufficient to meet demand. A LOLE of 0.94 hours/year, is considered acceptable,which means that 99.99% of the time production has to meet demand. However the Red Eléctrica de España report estimates that the LOLE could be 5.63 hours/year in 2024, 6.26 hours/year in 2025 and as high as 7.14 hours/year in 2027 if the planned energy storage is not implemented. In terms of energy deficit, these LOLE translate into 9.38 GWh/year in 2024, 12.9 GWh/year in 2025 and 15.68GWh/year in 2027. The cause of this energy deficit in the Spanish electric system would be the possible dismantling of a certain volume of combined cycle plants that would no longer be profitable due to competition from renewable generation. It would be interesting to know whether the LOLE could be even more adversely affected by the expected closure of Spanish nuclear power plants.
I would like to reflect here on the possible mitigating effect that demand flexibility management could have. As is well known, demand flexibility is the ability of consumers to change their consumption profile in response to a request to do so. Ideally this would be done in exchange for some form of compensation, ideally financial. In a study3 we published a couple of years ago, we concluded that Spanish domestic demand could, thanks to its flexibility, be reduced by up to 2 GWh in winter and more than 10 GWh in the summer months. It is true that these figures would be given in an ideal situation and that they depend on the area of Spain we are looking at. A similar study4 provides more conservative estimates, but these can be as high as 3 GWh depending on various factors. In both studies, flexibility is provided by domestic electrical loads such as heat pumps, air conditioners or electric water heaters. Therefore, flexible energy depends on weather conditions and, of course, on the number of consumers who would like to participate in a demand flexibility management scheme. But above all, it will depend on whether regulation and business models evolve to make it a reality for households and small and medium-sized businesses to be able to offer their flexibility through a mechanism that remunerates them in a way that is not only cost-effective but also profitable. Ways to achieve this goal have been proposed, as in the case of the Entra partnership roadmap5, but Spain is still lagging behind other EU countries on this issue.
For large consumers, there are ways to sell their demand flexibility. In October 2022, the first auction of the new Active Demand Response Service (ADRS) was held, in which 699 MW were offered and 497 MW were allocated at a price of 69.97 €/MW. A new auction is planned for 2023, after the National Commission for Markets and Competition has revised the corresponding regulatory framework6. In addition to this, demand can participate in balancing markets, but the requirement to make minimum bids of 1 MW makes it impossible for non-big consumers to participate. Energy communities or aggregations of consumers are therefore practically excluded from this possibility.
A demand flexibility service that is taking shape is peak shaving. This service, still under study, will reduce peak demand and is designed to facilitate the integration of renewable energies. The service is presented as something that will contribute to energy savings. How much energy can be saved is, for the moment, a mystery. In conclusion, we could say that demand flexibility could mobilise significant amounts of energy, but it does not seem easy to cover the energy deficit that has been predicted in the National Analysis of Coverage of the Peninsular Electricity System, although it could help to alleviate it. To remedy it would require a vigorous regulatory, technological, commercial and social effort to convince as many consumers as possible of the benefits of demand response. This does not appear to be easy to achieve.
A few weeks ago, SmartEn1 association published an estimate of the benefits that could be achieved through flexible demand management. Recall that flexible demand management is the set of actions that stimulate consumers to change their usual pattern of electricity consumption in response to some kind of request.
It is considered that demand flexibility management will be one of the pillars to achieve the complete decarbonisation of the energy system. As the weight of classic generation systems, based on fossil fuels, decreases, it will become more difficult to match production with demand, since renewable energies are not controllable. This problem can be solved by storing energy in some way, such as hydrogen generation, heating water and using batteries. But, in addition to storage, attempts can be made to shift demand to coincide with times when renewable generation is most abundant. If demand is flexible, this could be done without prejudice to the consumer.
Let´s go back to the SmartEn report. They have used electricity market models and estimates of consumption and generation for 2030 published by the European Union and have come to some interesting conclusions. The first is that in 2030 there will be 164 GW of flexible power available in Europe to ramp up (consume less in the case of demand, generate more in the case of generation) and 130 GW of flexible power to ramp down. In terms of energy this is 397 TWh and 340.5 TWh respectively. To put these figures in perspective, all the nuclear power plants in Spain typically produce around 60 TWh per year, or that Europe’s electricity demand in 2021 was 3,399 TWh per year, or that Europe’s electricity demand in 2021 was 3,399 TWh2 per year.
Exploiting demand flexibility will reduce the price of electricity because it can be managed to increase the use of renewable energy. The report estimates that these savings could amount to 4.6 billion euros. The increase in the use of renewables would occur because up to 15.5 TWh of renewable energy would not be wasted and would not have to be “thrown away” because the system, thanks to flexible demand management, will be able to consume them when they are available.
If we take into account that the trigger for the whole transformation we are undergoing is the fight against climate change, the report estimates that flexible demand management could lead to 37.5 million tonnes less greenhouse gas emissions than if demand flexibility were not used. This would represent 8% of total emissions and would allow the power generation sector to exceed Target 553, i.e. to have reduced GHG emissions by 55% by 2030 compared to 1990 emissions.
The energy transition could threaten security of supply, i.e. the everyday gesture of flicking a switch and the light coming on could no longer be so commonplace. The report picks up on this threat and says that by 2030 Europe will have a generation capacity shortfall of 60 GW. Solving this problem by building generating plants could cost around 2.7 billion euros, an investment that could be avoided if 60 GW of flexible demand were made available. Related to security of supply are balancing markets, where energy is sold to avoid problems in the stability of network. If these markets were given access to flexible demand management, SmartEn estimates that the price of energy in these markets could be reduced by 43% to 66%, which would ultimately benefit consumers. The distribution grid may also face problems in ensuring its proper functioning when the presence of distributed renewable generation gains the expected weight. To solve these problems, it would be necessary to invest between 11.1 and 29.1 billion euros less than expected if flexible demand were to be managed correctly.
The end consumer would also benefit from flexible demand management, not only if they have loads that are flexible, such as electrified air conditioning or electric vehicle charging, to name two, but they will also have to pay less in terms of grid usage tolls. SamrtEn`s report estimates that these terms would result in direct cost reductions for consumers of up to 64% per year, some 71 billion euros in total. It would also benefit from indirect cost resuctions due to lower energy prices, reduced investment in the distribution network to keep it up to date and reduced costs associated with greenhouse gas emissions. The report estimates that this indirect reduction would be around €300 billion.
From the SmartEn report it seems that there would be nothing but benefits if flexible demand is managed correctly. So is flexibility already being exploited for the benefit of the energy system, consumers and the environment? The answer depends on the country, but in general, progress is slow. In the case of Spain, steps have been taken to define the role of the independent aggregator in the management of flexibility, but the necessary regulation has not been developed and, therefore, there are still no business models that can attract any type of consumer. The association Entra Aggregation and Flexibility has just presented a roadmap for demand flexibility according to which independent aggregators and market adaptation will be ready by the end of 2023. A plan that seems very ambitious considering the delays that have been dragging on, but which, if fulfilled, would represent a great step forward in achieving the decarbonisation objectives sought by both the Spanish government and the European Union.
Also in Spain we find an opportunity for flexible demand participation through balancing markets, where very large consumers can obtain economic benefits thanks to their flexibility. In addition to this, the first auction has recently been held. Consumers with flexibility have committed to reduce their demand by the amount they have bid when rewuired to do so by the system operator, for which they will receive a remuneration of 69.97€/MW. The bad news is that only 497MW have been allocated.
Demand-side flexibility management is set to be an important element in the new energy system. It can be achieved through voluntary and remunerated mechanisms as long as consumers adapt quickly enough and regulation is favourable. If this is not achieved, we will learn to be flexible by imposing restrictions on consumption.
You thought it would never happen, but you´re watching it happen. Your world upsidedown at an unexpected speed. Ecologists announced a different world according to their believes, but it turns out that in the end it will be the cold sceptics of the Excel sheet who will do it. Ukraine war has caused an energetic crisis, and we wil se if it won´t also be food, that it doesn´t only brings us high energy prices, but also could cause shortage of gas, petroleum and offshots.
We are seeing that in order to resolve this situation it is being proposed to tap into Europe´s subsoil resources, especially shale gas, and to increase generation capcity based on nuclear fission. All these measures could serve to alleviate the energy crisis, although it does not seem at this stage to be willing to disengage from greenhouse gas and pollutant emissions. So it is likely that we will not see much hydraulic breakup, we will probably see more nuclear reactors and, above all, we may see a strengthening of the energy efficiency and renewable generation policies that the European Union has been promoting for some time. And it will not be for environmental reasons, but simply to maintain an economic system that does not take us back to the 18th century.
The sun and its child, the wind, will increase their weight in the electric system faster than expected if access to the raw materials needed to manufacture generators is not interrupted. The stoarge of energy could be developed with intensity and we end up getting acquainted with hydrogen as we have made in the past with butane. But surely what we have the hardest time getting usd to would be the new figures that will appear in the energy system management.
The energy communities are one of the news that are getting shape in Spain. Although still aren´t frequent, there are several examples of people that joint to generate and manage the energy they consume. The downgrading of the photovoltaic panels favours their installation in domestic roofs, which achieves that generation and consumption are close. Energy management could be done from the cloud thansk to Internet of Things and specialized companies could offer this service to communities. Hydrogen and batteries seems to be called to be the energy storage medium, although it will depend on the cost and availability of raw materials. Internet of Things woul allow to manage demand flexibility inside the community. It seems to start being possible that a group more or less big of citizens constitute their own electricity generation company.
But for these participative companies, this capitalism at a human scale, could be possible, we have to defeat some obstacles. And leaving aside reluctance to change, the mosr important is the cost of setting up such a community. Are being made huge efforts to understand people motivations1 to get involved in an energy community and to design mechanisms to set them in motion2, but perhaps not as much effort is being put into designing the business models that would make them economically viable.
We can think of some business models for energy communities. The most clear is the save in energy purchase. If the community generates their own energy and distributes it betweent their members, they will save at least the trasnport tolls that are payed in a conventional bill. Other possible business would be the sale of energy surplus, but current legislation imposes limitations on the distance at which the buyer can be located. The demand flexibility could also give rise to another businees model based on promote a distribution grid of auxiliary services, but this is not easy. If this were to be attempted through balancing markets, the regulations impose minimum power values that will be difficult for many communities to achieve. Moreover, it should be borne in mind that it is not possible to interact with the network without complying with a whole series of complex technical rules. It becomes necessary the independent aggregator figure, which is already provided for in existing legislation, but which is not fully developed and which would have to intermediate between the community and the electricity grid. These problems could be solve if they existed energy local markets or flexibility markets, but in Spain are in an embryonic state and it will still take some time to see them in operation.
But, despite of these deficiencies, nowadays energetic crisis overview joint with the directives that came from the European Union will boost the development of energy communities. The problem will be finding resources to do so. Administrations and the cold sceptics of Excel spreadsheets who come up with innovative business models may have the last word.
There are two things that have nothing to do with each other but that in real, they have to: the perplexity of a roe deer in the foothills of the Torozos hills when she founds a fence surrounding a photovoltaic park and that the 64%1 of the Spanish people do not know if our electrical supply contract is from a free or a regulated market.
The roe deer ignores the fact that the place where he walks is going to be subjected to radical changes. Tens of thousands of hectares are going to be covered with photovoltaic panels and closed by fences. We will have to see how this will afect to biodiversity, what will become of the bustards and of the foxes that walks throguh those places and if roe deers will learn to see fences before they colide with them.
But we have to take in count that human activity will be affected. All those hectares will be excluded from agriculture, shepherding will be limited and the landscape will be radically transformed, what could affect to local business of the rural tourism. In exchange of this destruction, energy will be generated without emitting greenhouse gases, energy that also will be cheap and that will help to decrease the price resulting from the daily market matching. But the sun does not usually shine at night, at least in our latitude, and what could happen with the electricity price and with the electric system stabilisation from the time of sunset or the days without sun is something that we will have to talk about in other moment.
Spanish consumers may be just as unaware as the roe deer, because it seems that manyof us are not informed about the possibility of choosing between a regulated rate and non-regulated one, and surely we are far less conscious about the changes that decarbonization of the electric system brings.
This situation of unknowledge raises the fear that it is going to be hard to let people know that they have in their hands a powerful weapon for combating the problems that could appear as a consequence of the massive introduction of renewable energies.
It is the flexibility or capacity of consuming electricity at different times than initially desired without having a loss of comfort or utility. To complicate things further, the household consumers could take better advantage of their own flexibility if they offer it on a joint basis. And this offer should be made in energy local markets, still non-existent, but already in development.
To imagine that a consumer that does not know if he has a free rate or a regulated one may become involved in the energy local market seems harder to achieve than a herd of roe deers jumping the fences of a photovoltaic park.
Several things are required for demand flexibility to be useful. On the one hand, it is necessary that all flexible electricity-consuming assets, such as air conditioning, should be able to accept external signals that allow regulating its operation automatically. Also, it is necessary that control systems that generates these signals are available and acting in an aggregated manner on a significative number of air conditioning systems, to mention a flexible load. In addition, it is necessary to define business models that will allow users to be remunerated for their flexibility. And finally, rules and regulations must be developed to define new market agents, such as the recently created independent aggregators, and to regulate the consumer participation in the new local electricity markets.
But all of this is not going to be possible without a change of mind. Consumers have to realize that there are ways to actively participate in the electricity system that go beyond switching companies when the bill seems too high. One of these ways could be energy communities, which are already opening the door to collective self-consumption and will hopefully soon also open the door to flexible, consumer-centered demand-side management.
Perhaps these communities allow the consumer to adapt to the new electricity system in the same way that roe deers of Torozos hills will have to adapt to a new environment full of unfamiliar things.
