Grids: Easing bottlenecks

The build-out is definitely not going fast enough, I would say. I think it's fair to say it's not rapidly enough. If it would be rapidly enough, we would not have the congestion issues that we have today. Cretelman and congestion is generally creating opportunities in order for us to position assets in a way that they can help the grid. Europe's electricity networks are under increasing strain as renewable output grows and power flows become more complex. In this episode we'll be exploring Europe's bottlenecks and ways to solve congestion using flexibility, storage and smarter systems. In this episode three of our summer series focusing on Greek congestion and how to ease bottlenecks in the European transmission system, gives me great pleasure to welcome Frank Berman-Lima, whose flow-based capacity calculation expert, and also Luke Vicken, who's CEO of Dexter Energy. A warm welcome to you both gentlemen. Thank you. If I can start with you, Frank. So let's talk about the bottlenecks and the grid constraints. Where are they the biggest obstacle to renewable growth in Europe, currently? There's a lot of congestion everywhere, especially in the Netherlands of course, which means that a lot of renewable projects are on long waiting lists. Not only generation, but also the flexibility they would need. So batteries and that type of thing are now on waiting lists. In the Netherlands it's actually so bad that even houses are now waiting lists just to give an indication how bad it is. And that's of course a bottleneck to renewable growth in many areas. It also really helps for renewables if there's a lot of cross-ported trading, so that you can make use of flexibility elsewhere in Europe. And there are still quite some bottlenecks that cause large price differences, price spreads between zones. So the answer is more grids or the better use of the grids, Frank. Yeah, I always say both. So I think there are definitely ways to better utilize what we're doing now. And this goes in many many different forms. So locally there are many ways to where in which DSOs and DSOs are experimenting with different ways of managing and connecting and calculating. And then in my expertise of capacity calculation we're also making more and more efficient calculation methods which allows more space to the market for cross-ported trade. So it's really both. There's not one silver bullet. One silver bullet. That sounds familiar, Frank. Now, Luke, you said the energy transition is now happening every 15 minutes. What does that mean in practical terms? Yeah, so as of last October the day at market now clears in 15 minute blocks and in today an imbalance settlement where already there well for imbalance in most countries. So now the entire chain from day to real time runs on quarter hours. So basically 96 prices a day instead of 24. Yeah, this is obviously required for trading over newables as forecast can change rapidly but also as weather can have a significant impact between 250 minute blocks. And so you mentioned forecasting. So how is how is forecasting and automation changing the way renewable assets participate in power markets? Look. Yeah, what you see in the market is that you really are incentivized to forecast well because if you don't forecast well, you're basically. Yeah, you can basically not optimize your position after the day at market for example, meaning you have significant imbalance risk because every megawatt hour you're not sold or bought correctly all day at or in today markets will flow into imbalance. And imbalance markets can be super volatile, especially as more renewables are entering the market. So this is yeah, it's really a high need for energy companies to forecast as well. Yeah, as positioned continuously change due to weather and new weather forecast. Also, now we have 50 minute blocks. It's really hard to do this also manually. So it's hard for a human that to watch 96 blocks across multiple markets, re optimize have a few minutes. Also, you see now the shorter gate closure for for intraday markets. So the closer to real time you can trade the more you can correct also over in the forecast is that is indeed already for crawl portal trade but then a lot of countries. If you're yeah, in local markets in the last let's say 30 minutes or 60 minutes is not a lot of liquidity left and also the prices you need to take are often not that. Yeah, not that or let's say less interesting. Aside from a country like Germany where there's still some liquidity but that for the Netherlands or Belgium that's definitely a different. Different situation. I think before I turn to Frank and talk to him about this special specialty topic. Can you just say explain what forecasting well means in practice that means you have to have your own in house weather weather models you buying external you're combining everything what what is forecasting well mean in practice. You vote forecast how much power your portfolio will produce for example your solar panels or or windwind parks. But also means you need to include all the new information available so if you're making a day ahead forecast is this is often mostly based on the weather models as for so global or local weather models as you move near time other data gets important as well think about your own. Data so your production data they often tell you very different story when your weather model data what what's the producing we need to be able to take that into a count let's say one hour two hour three hours before delivery and I really close to delivery all our data plays a role as well like for example satellite data so we a desert we build a internal weather model predicting how clouds will move over Europe. And that our customers can use that that that updated forecast to trade better let's say 30 to 30 minutes to 1 1/2 hour before delivery so basically making use of all the yeah all the data that is available that materially impacts your production that is required and what we see typically is that either our customers have their own in house models but they also buy different vendors and the best ones they sort of. Have a layer on top of that where they sort of get the best of both worlds so as some customers are yeah have their own forecast model but also buy let's say six seven different for costers and they have a layer on top of that where they combine best of both worlds given the country or the assets so that is really what we think is is best in class for calls and the same is is actually for for price for causing as well and be able to to you. Set also your decision making the big sense Frank you know turn returning to the the topic of this episode which is great congestion and TSO bottlenecks how has flow based market coupling. Change the way cross border let electricity flows are managed and has it also helped to ease some of the congestion that we see on those cross border points the most basic fact is that it is more efficient method right so you you make use of more of the grid. Then you would in a simple atc and the sea world and so that that helps it just it just makes the pie larger you know the for the market could just explain it is in the city to those those the main of the million. Oh yeah so so the domain the the the old way is very simple you have a single number per time unit which is now is looks at 15 minutes in the head and also in 3 day. You have a single number per board direction and that means that there are no you cannot encode in that number the relation between borders so if you export more from the lens to Germany is possible that from a grip perspective there is more import possible from Belgium to the flow based does that flow based no longer does a single number it gives you a domain a set of constraints which encodes this information into your linear constraints and that makes it in theory there are practical exceptions to this to confirm the rule of course but most of the time this allows for a larger capacity domain for the market and so that is that is basically advantage one and at on the issue is transparency so the way that the so is published atc numbers is highly in transparent so it's usually quite at this all days it was quite unclear where it would come from it's basically you know trust us and you know that's it. This makes world the world simple right you have a one number per board direction and you do something with that and that's all information have. Now days in the flow based domain you not only have a front very clearly all the constraints and how the grid works which you also have after the fact an analysis from the market algorithm to tell you where the bot the active bottlenecks were so the ones that the market algorithm really hit in trying to optimize towards more welfare and those are really the tool main. advantage pillars, at least in my eyes, for market participants. Right? You know, front, there's more capacity, you know, for more about it and exposed, you get better analysis tools for it. And they're also, of course, self-compes who then analyze the data for you and then sell you the analysis. And next to that, which is a bit more invisible, I think, to at least to the average market party is what flowbase also does is it unifies processes within TSOs and more importantly between TSOs. So a lot of the steps are much more clear out in the open unified written and that helps with regional coordination. So for example, Nordic flow, the introduction of Nordic flowbase made sure that that was a Nordic common grid model. Before that, most ATC calculations were not based on a common grid model. Flowbase helps with that because it needs that. So it's the first step if you want to implement such thing. So that's a little bit more invisible, but I think just as important from a great operator view. The invisible hand, but it's also a very important hand, but this is also showing you where those great bottlenecks are. So I want to talk about more about renewable penetration here and the rapid expansion of renewables, which, Europe's received very clearly. This is the second crisis is the second in four years and obviously that's increased calls to accelerate the green transition, which means building more renewables, but it also means building grid. So are the networks expanding rapidly enough, Frank, than Europe? If it will be rapidly enough, we would not have the congestion issues that we have today. You will always have a little bit issue because you can never perfectly forecast what is happening and building grid assets usually takes much longer than building generation and load assets. So exceptions left. And that means that these always need to do with certain prediction and predictions can always be wrong. So it will never be 100%. But I do think that at the moment there are a lot of issues and it's just not fast enough. That does not mean that grid operators are not trying to their utmost best. There are simple, simply certain physical rules that stuff takes long time to build. There's also a lot of rules and regulations around the surrounding permits where to build, when to build, people who are allowed to appeal against permits because they don't want a pylon in that backyard. You know, stuff like that. And that takes quite a long time. In fact, I regularly heard from colleagues that in certain projects, the permitting phase literally takes longer than the building phase because there are so many rules and regulations. And I think the EU is trying to speed that up in a way. And also many national countries are trying to do that. I think that's a step in the right direction. But it will take a while before you see the fruits of those efforts and the problem is now. So it will take a while because grid building is simply a very slow process. And once you do it, of course, it stands 100 years. So it's a certain investment, but it takes a while. So you basically start to play for patients and to some far understanding for the tears out there trying to hunt. Yes. And that is really frustrating. And I understand that. It's really frustrating if you want to build, I know, a solar park or a wind park or whatever. And you here, you have space on the grid in the next 10 years. That is very frustrating and also on the load side. But it's also really difficult to solve that properly without taking risks that explode your grid or going to kind of a dictatorship situation in which you build those over all the rules and regulations that you have. I think there is a middle ground to be found and many countries are trying to do that. You have to e.U. grid package, which is trying to do that. Although I sometimes have to feel that European commission is zooming in a lot on the financing. I don't think the financing is the issue usually. The issue is the practical stuff. You know, pyramids building, getting people, getting material. A famous example of this is laying of cables in the sea. There are only a fixed number of boats which can do that in the world. That can lay subsie cables for long hvdc, but also for wind parks. So after a while, they're all reserved for such a period. And then you can throw the money in the world, but you'd come just randomly by a ship like that. So still like that is it's really the the practical bottom exit you can see right now. I think those kind of technical details that the devil is always in the details in the frank, but look turning to you here. I mean, you know, we're talking about increased renewable penetration. The grids aren't quite keeping pace, but what are the biggest balancing and operational challenges that you see out there at the moment? The forecast errors are increasing. So wind ramp comes an hour earlier or so the forecast that that's a few percent all. That is creating an imbalance. And obviously the add with the yeah, also the TSOs are working hard to yeah, to improve how how this imbalance is shared. So because there's a great example where suddenly the yeah, a huge part of this imbalance was then could be traded between countries, which helped a lot. But still you see also there's just more correlation, right? So when the same shines, everyone's solar overproduces at the same moment. Everyone is long at the same time, prices collect and we see negative prices far more often than we then we used to. And that and what you know, so with because I would say is it really helped to make the system more balanced because you could trade out these imbalances more easily between countries, but still you have this fat deal events where and and I think all eastern Monday was an example of where a lot of countries at the same time. Yeah, there was a lot more production than we then we expected. And then suddenly they can't exchange all these imbalances with each other because they're all at the same side. So all experiencing overproduction and there you can get quite extreme prices and also extreme stress on the grid. Frank knows more about how how how how have then it dealt with that. So I can't look in the control room. But I guess these these fat deal events are posing a bigger risk now with more renewals in the system than they used to a few years back. And obviously, obviously, you know, the batteries, you know, and the flexibility options here should come in kicking at these points is is there not enough batteries being built. And the other question is, do they ease or sometimes contribute to congestion? So you see grid fees rising everywhere. Also congestion, yeah, getting getting worse. So now also in Germany at you in beginning run really fast, but now also a lot of battery developers are hitting significant bottlenecks. So I think here as well it's it's yeah, the build out is is definitely not going fast enough, I would say, to also bridge sort of the yeah, the the address way too much renewable production for how much battery there is in the system. And all the TSO are also expecting let's say in 2030 way more gigawatts of battery than is as installed at this moment. And the question is, can we get that installed soon enough? Yeah, I'm not sure. You know, these are obviously the key questions that look what's you view Frank? I think it's important to remember that the word congestion is an umbrella term, right? So there is not a single congestion thing. So for example, if a lot of people have home batteries, you will create congestion in your street and blow up the local transformer that is a different issue than if you have a congestion issue on tenant level. And so there are also different solutions to this. I do definitely think that in general batteries can both worsen it like the example that it just gave or help with it. It really depends on the interplay with the the the local physical grid and how you operate it together with the TSO. And I think batteries can help quite a lot with volatility indeed on imbalance markets or on the day head markets, etc. While on the other hand, again, it depends on how you execute them. Because it is also a thing at least in the Dutch imbalance market where we have a very active passive imbalance system that clearly the market is highly oversaturated, which means that the TSO the tenant will call for something that we call state to, which effectively means without going too much details that everybody gets to fine and everybody has to pay no matter what imbalance state you are if you're helping the grid or not. And this is caused by an overreaction by the imbalance market. And there are definitely some batteries that play here, not only, but also in the wind parks, etc. And if you just keep building batteries and you sell them with default, you know, you're going to make golden mounts of gold on the passive imbalance market, it's not true because the markets are oversaturated. But it does really help with a lot of other timeframes. So it's really nuanced line on where and how you use it, whether it will be helpful or not. Luckily, of course, most of these systems are quite flexible. So the main problem is physically build them. Once you're physically build them, you know, how you operate them is usually a matter of a switch of software. So I do think more is definitely better, but I really do hope that people think really well about their business case and how on which market basically they put their system is out of you can get really surprised at the end of the year when you get the invoice. Look, did you want to come in here? What I was thinking is a problem is that indeed what what Frank says congestion plays on different levels like a national level and yeah basically the smallest level as well. But a battery is not always incentivized to play on all those levels. So basically now a battery mostly can earn money either optimizing sort of self-consumption well at some point in time not as of now but start of 27. Or playing on the national level that there are obviously many other like more locational problems which currently the batteries are not able to to play a role in. And that is also I mean every every episode of the system not a nodal system. So in that sense the whole grid fee structure is also not really representing the real price you have to pay right so that that that's a household basically the whole year pays the same price for its grid is actually quite weird in a sense. And the same also for these batteries why is location or timing why is that not an element of the pricing structure. I know it's really hard to change that right but if you really want the whole whole residential CNI everybody to contribute to this to solving this problem yeah they also need to get the right incentives and that is currently not the case. Yeah nothing that's a very good point and so that at least my final question for you guys really which is if you Frank could implement one major reform to Europe's grid infrastructure or market design what would it be? Oh what one wish only of the idea I have multiple wishes but I think the most effective one would be an overhaul of the permitting system to to unify it to make it a European basically because a lot of local things now to streamline it without trampling over the rights of citizens but in a way that we can speed it up. Thank you Frank and look properly introducing price signals also in the use of in the use of grids do that in a way that is then harmonized between countries basically with that enabling everyone to to to basically participate also in this transition and actually solve the problem. So look and Frank thank you very much indeed for being guests on the bloodthin podcast. So we've heard why grid congestion has become one of the biggest obstacles to Europe's energy transition and why building more infrastructure alone won't solve the problem. The next question is how existing networks can be used more intelligently that's where flexibility comes in batteries demand response and smarter trading are increasingly helping system operators manage congestion balance renewable generation and unlock more value from the grid to explain how that's working in practice I spoke to Brian Lohn head of the UK flexibility at start craft. I warm welcome to the plug in summer series of Brian. Yeah thank you very much for having me it's great to be here. So we're talking about congestion and grid bottlenecks and and how to ease those my opening question is really about how it how it affects traders power traders in particular how are congestion and cutelments changing the way traders and asset owners optimize their portfolio as Brian. So in our case for our portfolio of distributed flexible generation. Cutelment and congestion is it's generally creating opportunities in order for us to position assets in a way that they can help the grid and the market design and GP is such that assets can generally perceive extra payment for when they're doing something which helps the grid. So for example the at the distribution network level there's time of use based tariffs which incentivize generation at times when the grid is congested and those kind of market signals help us to steer the assets in a way where they not just not only maximize value but also benefit the grid by deferring grid reinforcement works. So it's not necessarily a negative thing. Not necessarily for an asset which is flexible where you can re-optimize your schedule based on the market signals that you see coming through and do things which actually help the grid. What kind of assets are we talking about here predominantly battery storage but also flexible reciprocating engine portfolios. There's got anything that can dispatch based on based on price signals. And Brian just just for those listeners who may not be aware of what kind of capacity you have in in the UK market because it has a little bit about sort of you know in terms of batteries and other such distributed generation. So we have a contracted portfolio of about four and a half gigawatts of distributed flexibility of that about two gigawatts is operational currently and that's a fairly even split between reciprocating engines and battery storage with some other technologies such as Hydro and Power to Heat also included. Going forward we're seeing very strong growth in battery storage and expect that's how the portfolio to go very rapidly over the coming years. When you have congestion when you have you know I like to price as well and can tell me this is absolutely an opportunity for batteries and the bond response right? Yeah exactly that batteries are very flexible they can absorb power when there's too much in a given area they can release it when there's a shortfall and also demand side response and increasingly we have some demand turnout assets in the portfolio which are very interesting because they can help absorb excess power when there's too much renewable generation in a specific area. I mean is there a for example potential for you know people to look and see what starts comes doing in GB say and potentially other markets as well say we're going to do exactly what they're doing with that then water down the effect of how you optimize your portfolio? I think there would be a certain element of potential cannibalization of opportunity if that would happen but a lot of the congestion and network reinforcement opportunities those are so very site specific that probably less impact of additional competition now because that's where are the asset owners that we work with and the developers that we work with that's where they can help their projects perform better by finding locations where they unlock additional value because they are in a congested area for network. But there's a certain advantage to being a first mover here right? Yeah absolutely and also it's a scale business as well the algorithmic trading and optimization tools that we've developed that requires substantial scale and we were fortunate to come into the market quite early to build on other technologies that we developed for other markets and pull them together with any use case in GB and now export to other European markets the flex optimization techniques that we've developed for GB as batteries are starting to take off in continental Europe and the Nordics. And so in terms of our goals versus humans here Brian what once the ratio there in terms of the way that you trade or optimize that portfolio? Execution is done predominantly by Algos but with tight human oversight so our portfolio is monitored by a 24/7 team of traders we have a team of analysts who are always watching what's going on with the optimization looking for areas where we can improve so we seek to automate as much as possible things which can be automated which are repeatable where timing to execute matters that frees a pet space for the traders and the analysts to think about new trading strategies ways that we can improve our systems to capture more value and and yeah things that are beyond the routine. So you have them these Algos or these machines on it on a very tight leash then. Exactly we always need to be in control of what's happening with the portfolio we need to understand why something is happening because that's very important for the overall stability of the grid and of course for the commercial results as well. I'd like to move on to some other markets you know particularly and silvery markets but intraday as well so how how are intraday and balancing markets evolving as renewable generation grows? We have seen quite a growth of liquidity in the intraday markets in GB over the last five years or so when we start out this business trading opportunities were fairly limited beyond about 90 minutes from delivery on the intraday market if you're trading the more granular half-hour products that's changed and the spreads are not too punitive going you know up to maybe three four hours out regularly. So generally we're seeing intraday markets become more liquid and that's also probably supported by more market participants adopting algorithmic trading systems a growth of distributed flexibility in the market just providing also more liquidity and the balancing mechanism is also an area where we've seen tremendous change over the last last few years the system operator in in GB has made great investments in being able to effectively dispatch distributed flexibility in batteries and that is starting to to really pay off and we're seeing that the dispatch of the batteries that are portfolio is becoming much more efficient less issues with skips. What a skips are yeah. As it's not being instructed although they they were in merit. So we're seeing more of a merit order-based dispatch and there's some more work which the system operator is doing to give better visibility of future state of charge which should further unlock the potential of batteries in the balancing mechanism and the wholesale markets. Are you seeing that replicated in other parts of Europe as well? It seems like other European markets, you know, they're in some ways ahead. Some of the kind of pan European market mechanisms are really exciting. But for storage integration, it seemed like GB is one of the leaders in Europe right now. And that's why we're talking to you, Brian. Would you say current market signals are strong enough to incentivize flexibility investment at scale? So we have seen a tremendous build out of battery storage in GB without too much support. So they these assets can participate in the capacity market, which gives them some long term contracted income. But otherwise these assets were being built merchant or supported with long term tolls or floors from a utility off-taker, such as ourselves. So that has unlocked over 10 gigawatts of storage in GB. We're seeing also the long-duration energy storage cap and floor, potentially unlocking another tranche of flexibility into the market. So so far the market has brought forward a good amount of flexibility, whether or not that will be enough to achieve the clean power 2030 targets is yet to be seen. Because there are not too many opportunities to hedge these kind of assets and secure meaningful contracted revenues. So if we're looking forward now, Brian, what needs to happen over the next five years to ensure that flexibility becomes a core part of not just the UK's, but the European power system? I think we need to see that these assets are being utilized to their full potential by the TSOs, because that will give investors the confidence that if they go ahead and invest in these assets, they will get the returns that they're targeting. I think in some markets, there's quite penal capacity charges and a reform of capacity charges would also probably unlock another wave of investment because I would remove quite a substantial fixed cost from from the assets and network capacity charges for a storage asset, which is in many cases going to be doing something, doing something which is supporting the grid, charging them high, high standing charges when they're actually bringing benefit to the network is potentially not appropriate. Having clarity on the merchant outlook for the assets, getting to an appropriate cost base for the assets and ensuring that the assets can at least participate in the capacity mechanism appropriately. Those are kind of a minimum to ensure that flexibility continues to be investible across Europe. And then if that's not enough, potentially additional subsidy procurement rounds are going to be required. And potentially more harmonization of the regulatory framework around these kind of assets. I think that would always be helpful to take best practice from the different markets and enroll that out more widely. That would certainly be beneficial. Fantastic. Thank you very much for being a guest on the Plug-Din Summer Series, Brian. Yep, thank you very much for having me. And to you listeners, thanks for listening to this episode of Plug-Din. If you enjoyed this discussion, please like, rate and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday. Finally, you can head to monsoons.news.com for more news and analysis from our team of journalists across Europe and beyond. See you next time. [Music]