Attending the Energy Live event in Westminster in November was an opportunity to find out how some energy suppliers are diversifying their offerings for commercial and industrial (C&I) energy customers.
Energy is becoming more expensive. Investment is going into renewables and distributed generation, not fossil fuels. The electric vehicle transition is picking up momentum.
These are some of the trends changing the traditional supply and demand model. Ensuring there is enough electricity generated to meet demand at all times without investing in significant amounts of new network capacity just to handle peaks, requires alternative approaches.
So, energy companies want you to use less energy, or shift your energy demand away from peak periods. They will pay you to do it; packaged, marketed and sold as energy services.
This requires commercial energy users to make more of their energy demand flexible and participate in the emerging demand side response (DSR) market.
DSR is where levels of electricity demand are reduced or increased, or demand is shifted in time, in response to a signal, such as higher peak time tariffs, or a notification from the grid operator.
Assets and appliances, including heating and air-conditioning, chillers, and equipment, as well as onsite generation can be controlled to reduce their electricity demand. As an inherently flexible resource energy storage is gaining attention. Batteries can release electricity to power a site at times of peak demand, and can recharge with surplus renewable energy generated onsite or with cheaper electricity in times of low demand.
British retailers trial demand side response
DSR can be applied across single, several or multiple nationwide sites.
UK supermarket retailer Sainsbury’s intends to unlock the demand side potential within 400 stand-by generators located around the UK. The first to be trialled is a 150kW generator in west Yorkshire, followed by a 1.2MW generator in Staffordshire.
The retailer is also planning to trial battery storage at its Melton Mowbray store, which will store off peak electricity to be released on demand.
Sainsbury’s has been working with aggregator Open Energi, using the company’s knowledge of the frequency response markets to see how the retailer can be paid to reduce its energy consumption further.
Marks and Spencer (M&S), another UK retailer, is committed to making 50% of its peak demand flexible by 2025, which has been updated in its Plan A sustainability programme.
DSR has already played a part in reducing M&S’s electricity consumption by 10% in 2017, compared with the previous year. Energy supplier Eon, which has in-house aggregator capability, has been working with Sainsbury’s to help reduce its consumption through DSR.
Open Energi’s commercial director David Hill sees M&S’ flexibility target as indicative of the direction the industry is moving in.
The value of C&I energy users’ flexibility will increase in value because it is cheaper for energy suppliers to get a customer to reduce or move demand rather than have to procure additional capacity from the market if forecasts have been missed. As the level of renewable, albeit, intermittent generation increases, accurate forecasting becomes more challenging.
M&S has already connected some back-up generators to the grid for Triad avoidance – the three most expensive peak times during winter – going on to participate in the Short-Term Operating Reserve (STOR) market and, more recently, the Capacity Market.
Energy supplier Npower offers energy customers a one-stop-shop to help them take advantage of DSR, with in-house aggregator platforms. The company will also develop battery storage projects for customers.
Npower sees growth in battery interest
Npower also has access to in-house energy storage technology, via its parent company Innogy, which acquired German developer and operator of solar PV, energy storage and hybrid plants Belectric in January 2017.
Dan Connor, an energy management specialist at Npower Business Solutions, says the company has received lots of requests about energy storage and is exploring opportunities to pilot storage with customers, in capacities ranging from a couple of hundred kW up to several MW.
If peak shaving can be blended with other services or benefits such as improving power quality; for some manufacturing and processing businesses this is important, and back-up, as well as generating revenues from ancillary services, then pencilling out a business case for energy storage makes sense.
Energy suppliers have access to customers and knowledge about their loads, usage patterns and billing. This puts them in a good position to see how energy storage can be of service to customers, and how to monetize these assets.
Organisations looking at energy storage investments should be clear on their changing electricity demand and requirements, not just two years ahead, but in the next 10 years, advises Connor.
If the site has onsite renewable energy, like rooftop solar photovoltaics (PV) then the system can be used to optimise self-consumption, load shifting to use less grid electricity and peak shaving to avoid demand charges levied by the distribution system operators, as well as the grid operator.
Connor advises on having a solid primary application such as load shifting, optimising onsite renewables self-consumption, for example and then diversifying revenues from a few other streams, through accessing DSR revenues for example.
Companies can contract with the National Grid directly to provide DSR services, cutting out the middleman and retaining all earnings, but the growth in third party independent aggregators, such as Open Energi, suggest there is appetite for handing the reins over to a specialist with the core capability of working assets effectively – especially as a fleet, rather than a single installation – to capture revenues.
“Revenues versus longevity is a really important consideration. Because we have the aggregator and the battery capability in-house, we can work with a customer to establish a use case for the energy storage system, which is balances revenues with operating the battery over the long term,” says Connor.
One project Npower is working on is with a local authority to install a battery to enable the council to optimise solar PV consumption and do load shifting.
“As well as local authorities we’re seeing interest from intensive energy users, as well as from the retail industry, ranging from supermarkets to smaller stores,” says Connor.
Obstacles to C&I battery investment
Like other energy suppliers Centrica is moving away from investing in upstream generation and is focusing more on downstream, which is more concerned with customer services and products. This has required investing £500 million in the domestic consumer business and £750 million in the commercial consumer business.
Much of the low-hanging fruit in terms of energy savings have already been achieved by commercial customers, such as negotiating on energy contract pricing, installing energy-efficient lighting and upgrading buildings management. The return on investment for these is easy to understand.
Earlier this year Centrica surveyed over 100 large energy users. Despite lots of interest and appetite for energy storage, nearly half – 48% – said political and regulatory uncertainty hindered larger investments in controlling energy costs.
A third of respondents are struggling to convince organisational leaders, such financial directors, to make investment decisions that would enable investment in energy storage. They don’t see reducing energy costs as having as much shareholder as, say, investing in a new site or manufacturing plant.
To prepare itself for more demand for energy storage in future, working with Gateshead Council, Centrica installed a 3MW battery storage system in September 2017.
The battery, with enough capacity to power 3000 homes for an hour, will store energy produced by the Gateshead District Energy Centre’s combined heat and power (CHP) plant.
Gab Barbaro, managing director for Centrica’s business energy division in the UK, says: “Centrica will manage the battery scheme under a 10 year optimisation contract, working to extract the maximum value for the council by providing flexibility services to help keep the electricity network in balance.”
In future the battery will be used to help meet peaks in local demand, providing electricity through a private wire to council-owned homes and businesses.
In Cornwall, Centrica is trialling a virtual local energy market that will allow 150 homes and businesses to generate, store and buy and sell energy to the grid and to each other.
The aim of the trial in Cornwall is to test and demonstrate the role of flexible generation and storage to relieve pressure on the grid and drive down energy bills.
Energy storage will play a fundamental part in the trial, providing the local network operator with a tool to help stabilise the system, relieving constrained parts of the network, and giving homes and businesses the kit they need to store their own energy.
Centrica is working with several businesses, and has had 300 homes register their interest since launching the pilot in December 2016.
“Energy storage units will be placed on industrial sites, businesses, and in homes, and we are exploring the possibility of putting them near substations where the local network is particularly constrained,” says Barbaro.
At Energy Live Ørsted also unveiled its new energy services business offering for C&I customers. Ørsted’s energy portfolio includes substantial amounts of offshore wind, due to its activities in developing and operating this form of large-scale renewable generation.
To offset the intermittency of wind Ørsted’s new product, called Renewable Balancing Reserve, is open to customers with flexibility in supply and consumption.
Ørsted is the first energy supplier to use Open Energi’s Dynamic Demand 2.0 platform, machine-learning aggregator software that ensures flexibility can be dispatched in a reliable and accurate manner, to ensure that flexibility from the customers’ side is properly exploited at any given moment.