Flexing it

Europe is set to fully decarbonise its energy system by 2050, with a huge impact on the way electricity is produced and consumed. 

This week’s pod takes a peek into the brave new energy world,
and discusses flexibility, aggregation and the future of trading. 

Host: 

•  Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Matthias Dilthey, General Manager DACH, Sonnen, 
• Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke, 
• Richard Sarti, Director Marketing and Sales, Nodes. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast, bringing you the most topical energy matters in an informal setting. Well, today we're actually at the Ewell Trade Fair, in essence, and listeners, if you've ever wondered what the energy system of the future. Will look like. Well then it's your lucky day because we've got representatives of the most exciting dynamic companies out there, or some of them anyway. So I'd like to warmly welcome Jan Aengenvoort from Next Kraftwerke welcome Jan. Thank you, Richard Sarti from nodes. Welcome to you, Richard. Thank you. And Matthias Dilthey from Sonen. Welcome to you Matthias. I'd like to start really by asking you Jan and Matthias, there's been a lot of discussions in Germany. Around the coal exit. How do you view the discussions at the moment and where do you think this will end up? Do you think they're likely to cut coal faster than they have announced? Or what are your expectations here?

Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke,: 1:01

I mean, not being in the coal business ourselves, it's just, uh, something that I would speculate on. But what we are seeing in the market as everyone else, of course, is that coal has been declining anyway last year, especially Ignite. So the question is, do we really need to buy them out anymore or will the market do the do it? On itself, we don't have the answer. We will see what's gonna happen. So there is also the chance, of course, that coal will stay online longer than it would need to just because they know they will get a payoff to, to be phased out by the government instead of by the market.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:34

What's your view here, Mathias? Do you think the markets would've seen the phase out? Anyway.

Matthias Dilthey, General Manager DACH, Sonnen: 1:38

Well, yes, I think this would have happened anyway, but now it's there is a clear schedule for it. To me, the most important fact is now that in the political discussion and in the media, there's a lot of talking about the phase out. Phase out of nuclear phase out of coal. Now. To me the most important point would be that we talk about phasing in new capacity.'cause we need a lot of new capacity to compensate that. And in the end we should have one integrated system, so not a system of renewable power plus system based on fossil fuel as a backup. So to say that wouldn't be a

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:14

proper market. So how do you propose that certainly Germany or the wider European market how should they phase in renewables?

Matthias Dilthey, General Manager DACH, Sonnen: 2:22

I think for Germany especially, we need a clear and consistent path for building up new capacities in the renewable sector and there's some political hurdles currently, you know, about the 52 gigawatt cap, for example, for the PV systems. Things like that are really not helpful. So we need the commitment to increase the renewable capacity and we need a clear plan to have re reliability for the market.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:45

Dropping the 52 gigawatt cap. Would be one way. What do you think, uh, y do you, do you share that?

Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke,: 2:50

Definitely. We I like the phrase of phasing in Definitely. Yeah. Because I completely agree. We are running two separate systems right now in Germany. We do have a new renewable energy based system in a way, and we do still have the old ways of of producing energy with conventional power plants and also in the regulatory. Arena, let's say. We still see that, especially when we're talking about flexibility markets later on, probably we see some progress that's been made to develop new kinds of regulatory schemes to enhance the deployment of, for example, flexibility of renewables, et cetera. Definitely. But we still see a lot of the old regulation that's still favoring base load capacity, for example. That's. I mean, that doesn't work with a, you don't need base load when you're talking about an energy system based on renewables like solar and wind. That's becoming that are becoming more and more cheap. So, uh, we need some new paradigm also in the regulatory world so that that regulation that still is not up to date anymore, gets kicked out basically. And right now we are running, as I said before, two systems parallel, basically, which is, by the way, expensive as well.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:58

What's your view here, Richard, about this sort of regulatory environment? What would you like to see to further boost the growth of renewables into sort of markets, the flexibility markets and, and the products that, that, that nodes offers?

Richard Sarti, Director Marketing and Sales, Nodes: 4:10

We see that regulation is moving at different pace across Europe. We've been looking at the UK market for instance, and that's been very progressive in this area. But Germany seems to be at the other end of the spectrum in that front where their focus is more about building out network operations rather than actually managing flexibility and capacity. Markets are moving at a different pace. This makes it challenging to identify sort of new solutions, new parameters in which markets should operate under. So we are looking at how to engage with government regulators in order to sort of put forward our proposals, our concepts, uh, which is really about sort of trying to unlock the flexibility at the local level, working with the DSOs or the DNOs as they become DSOs, um, and then trying to actually create a real value for flexibility. At the local market, but then also allowing it to integrate across the market all the way up into the wholesale area. So, so yes, we are seeing pro progress, but as ever, progress is never fast enough. Okay.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:07

And do the regulators and the DSOs and these market participants that you mentioned, do they have a. Willing year.

Richard Sarti, Director Marketing and Sales, Nodes: 5:12

I think that the clean energy package, I should say, has caused people to listen because of the directive within that about creating flexibility markets. But I think that the question is how they interpret that and how they choose to roll it out is the real challenge. And as I say, we're seeing progress in some areas and slow progress in our others. Working with the DSOs initially is the main objective from our perspective, because they're the ones that are trying to manage the network and hopefully through that we bring in the flex providers and then try and create that. Market for them. Ultimately,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:42

we'll come back to flexibility markets and how the market is changing in that way. But Mattias, if I can just stay with the regulatory side of things, what would be on your. If I say the regulatory wishlist, you know, what would you, you know, most want from, from the regulators or, or the policy side of things?

Matthias Dilthey, General Manager DACH, Sonnen: 6:00

Well, in general, I would be happy if especially households and residential sector would be more in the focus because. I think there's a big potential. I have a number in mind that the German regulators told about eight to 10 gigawatts of home batteries in 2030. What is expected? And that's a huge capacity, and it would be a pity not to use that capacity. And it's it's decentralized flexibility. We do a lot of projects. A lot of effort to, to show, to prove that this flexibility can be used, especially in Vs with Zos and Tezos. But the regulatory framework is not there for these small units to really properly take part in that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:41

Although the clean energy package that Richard mentioned had a lot about flexibility and about presumes would, is that helpful?

Matthias Dilthey, General Manager DACH, Sonnen: 6:49

Well, I would say it's, um. On a, on a European level, it, there's a very clear focus on that, which is good. But in Germany, I still miss the full commitment. Yeah. So I would be happy that a direction from Europe is more rolled out with the, to the German regulatory situation.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:08

So you'd agree with Richard in the sense that they need to be, they need to speed up, they need to keep pace with the markets course. Yeah, sure. If we talk about the flexibility and how it affects your companies.'cause I think maybe some of the listeners aren't quite aware of, for example what Sonin does. So maybe in a few words, could you explain Mattias?

Matthias Dilthey, General Manager DACH, Sonnen: 7:26

Sure. I mean, our main task is to, um, provide customers a solution, which is more than just buying a PV system. Them plus a battery. So of course, customers are interested to push the energy transition forward. They want to be independent, they want to increase their self consumption. So they do a very important step. But for us, it's key to not only provide this hardware but at the same time to show how smartly the devices can be used. And that's why we do a lot of. Projects and do what we call the son and VPP to help stabilizing the grid by, for example, doing primary reserve control in Germany. But of course, we focus other products as well, so especially we think on the local. Level, there will be in the future, there will be a big need for decentralized flexibility where it really matters where exactly are the units. And that's where our customers, because it's a lot of them, they are spread all over the country, all over the world, where we are very in a very good position to provide that. But as I said, we can show that it works technically, the framework and kind of a flexibility market is not yet there.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:37

When you're saying eight to 10 gigawatts of potential flexibility out there, I mean, that's enormous. That's, you know, 10 nuclear reactors in a sense. So how about you a Jan? Could you explain a little bit about what, what next does and how it offers the flexibility it offers?

Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke,: 8:50

So next RAF is the operator of a large scale virtual power plant. Just like zn, we are in the business of being an aggregator to get flexibility for energy markets from decentralized units. We have networked around 7,500 megawatts already, and we use that capacity to kind of squeeze out the flex. Stability from it. And we have a couple of thousand megawatts basically that be tender on short term reserve markets for TSOs in different European countries. Also for an optimized dispatch on wholesale markets. So we are networking, not households like Zon, for example but more the generation side of distributed energy sources. So wind, solar, but especially flexible dispatchable sources like hydro and bioenergy, et cetera. And also dispatchable consumer. As flexible consumers, but large scale in c and i commercial and industry consumers. That's has been fun over the last couple of years, I'm sure. Yeah. And we are now looking forward to finding new markets to deploy that flexibility to basically,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:50

I mean, your home market is Germany and there's there, there's still room to, to to to grow there and, and, uh,

Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke,: 9:55

in Germany. Yeah. I mean, if you're looking at flexibility prices on the German markets there is not that much music, let's say right now. So we see over capacities on flexibility markets in Germany. If you're looking at balancing reserve markets from the TSOs for example. And then again, we do see a lot of progress. Let's say of potential and energy trading per se. So our, for example, our PV portfolio is growing daily. So we are already, today we are the largest PV trader in Germany and also the largest bioenergy trader in Germany. So, uh, there will be new capacity on the PV side that needs someone to, to balance and to network and to trade and to forecast that, that PV electricity, but. One focus definitely of our company is right now in the international business, so we see a lot of interest worldwide in setting uppp and setting up virtual power plants. So we are offering our VPP as a service solution to basically end everyone who wants to build up a virtual power. Planned, and we are not necessarily being the ones then in other countries setting up or running the system in a way that we have the contract with the customer that we are bidding into the markets ourselves, but we are providing the technolo, the technology for third parties to use, basically.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:07

And Richard, how, where does Nodes fit in in here? Are you the one sort of piecing these. These kind of players putting them together, how, how does this work for, for you guys?

Richard Sarti, Director Marketing and Sales, Nodes: 11:15

Absolutely. So, uh, the concept of nodes is to create a a localized marketplace to trade flexibility and that marketplace needs to be independent. So, um, and that provides a sort of a transparent arrangement for market participants to, to come to market, alleviate some of the constraints in areas provide value to flexibility in those areas of constraint. I mean, we believe that in order to. Move towards a more sustainable future. Localized markets is the way to go in order to unlock that the value of that flexibility, but also to help defer grid investment, capital expenditure large capital expenditure projects with grid operators. Rather than just building out more capacity, which we've done historically is better utilized the availability in those areas. And the concept of nose was born out of exactly that alleviating sort of a grid constraint in a small area of Christian sun. In southern Norway where we managed to defer about 5 million euros of of investment by sort of unlocking that, um, that flex in the area. So the concept is sort of is proven. We see now that with companies like we have here today with virtual power plants and aggregators, different types of flex providers and the rise of the prosumer, that these markets are gonna become much more important in order to drive towards if we're to achieve these goals that are being set. Around sustainability and the transition away from a carbon based economy.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:39

It's not so much about building new capacity or new wires. It's about making use of what's already there in the most flexible way possible. Is that

Richard Sarti, Director Marketing and Sales, Nodes: 12:47

absolutely. And this has huge positives for consumers because ultimately they're not footing the bill for these capital these capital intensive projects. It's good for government as well because it's actually utilizing the market more efficiently. And it also. Brings in new players, new technology, which ultimately is gonna be the catalyst that drives us towards this more sustainable future.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:09

Absolutely. Is. Would you agree with that? Mathias?

Matthias Dilthey, General Manager DACH, Sonnen: 13:11

Well, it's, I think both, we need a new capacity as well, especially in Germany. We, we talked about the cold phase out and the nuclear phase out before, and it's clear that we need new capacity. Especially in the residential sector, I think there is still a lot of room, but it's, yes, it's the market integration of of assets and it's the flexibility which is key there because as I said before the point is to come to an in. Integrated system in, in the end where the flexibility is part of the system and it's always good to use what is all already there, but I think that's not sufficient. Yeah. Okay.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:46

You need additional capacity or additional grids in terms of what you offer the market. I mean, is there is a direct challenge to the established suppliers in Germany? Is it not? I mean, if we look at say, 20, 30 years down the line, I mean, will we all just be, you know, operating with a local grid with. Of the PV and then a battery maybe in a, in a calming there will there be no, no need for big centralized units anymore.

Matthias Dilthey, General Manager DACH, Sonnen: 14:13

Well, that's a good, that's a good, good question. I, I think there is a fundamental change in the energy system and of course it's getting more and more decentralized. I don't believe it will be in the end, it will just be fully decentralized. There will be some units, some bigger units still, but of course it's a fundamental shift and um, I think we are currently in a phase where, where you are in the middle of this change. Yeah. The, the traditional big plans are leaving the market more and more and they have to be re replaced. And to, to our opinion is really a good idea. To be pretty much focused on these decentralized assets because given the huge range of options, how to use it, how to use it in a very local way, that's really interesting for the future because I think it will not be anymore the only key to stabilize the grid on a high level, talking about the frequency, for example. But it'll be more and more local if you talk about charging of electric vehicles and things like that. It can go down to very specific local areas, and there I think it's helpful to have decentralized assets.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:18

A few years ago blockchain was a massive hyped concept, but still exactly. But you worked with it. Could you say say what blockchain means to Sonen?

Matthias Dilthey, General Manager DACH, Sonnen: 15:27

Yeah. It's a great technology and it is offering the chance to have a huge scale up and to automate things and to handle a large amount of small units. We did projects using blockchain technology and we are still in it's quite normal that the hype is so to say over the top now. Yeah, that's true, but it's kind of normal. If you look at the typical curves, how this works, then it's normal to have a certain cool down before you reach a plateau of productivity in a way that you really see the. Technology being used. Yeah. And that's, I think, where we are going to, and we are very interested in these in these projects. We will push them forward and to me yes, it may be not the same hype, but it's now getting more and more real.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:11

Jan, would you agree with Mathias that we are, you know, it's becoming more local.

Jan Aengenvoort, Head of Communications and Market Research, Next Kraftwerke,: 16:14

We are definitely become, we need to become more local. I think if you're looking at, uh, German flexibility markets today, you, you will see that on a top. Top down approach. Basically you will see that the most mature markets, and you mentioned that earlier as well, Mathias, is that the TSO markets, let's say the control reserve balancing energy markets, they are already pretty open to new players, to aggregators. And by the way, aggregators already have a substantial market share there. And then if you're looking further down to the wholesale market to let's say spot markets, et cetera, there we see still some roadblocks not. By the markets themselves, but by things like the huge amount of surcharges on the energy price, that makes it not a very good incentive basically to to use it for flexibility. So let me make an example. If we go to a let's say a steel mill or water company that, that utilizes a lot of pumping, that could be ed, and we are telling them, okay, we could save you up to 20 or 30% of your energy costs. Basically they say, oh, 20, 30% of my energy cost, that's great. But then we say, okay, but only on the energy price. Right. You know? Yeah. From the wholesale market, energy, price, not what you are paying. Yeah. Yeah. And um, they say, okay, but now I have, still have 15 cents or whatever that I pay, uh, to, uh, to the DSO to the government or whatever, you know what I mean? So, or the, or the levies and all the levies and the grid charges and yeah. The price signal doesn't really get through. Let's say and then we have the local level where we have a lot of potential. I completely agree also on the generation side, on the small scale or medium scale generation side, and on the larger scale con consumer side. But we do not have any markets at all except for some very good first, let's say, tests to establish something like that. But for a private company like ours we need to make money somehow. There was, there is no market where we can bid into. Basically our control system doesn't care. You know, if we tell our control system bit into the TSO zone of Tenet or bit into the DSO zone of whatever, doesn't really make a difference. I mean, you have to upgrade it. Of course, you it's not something that you do in two seconds, but it's completely feasible. It's no, no problem. But there is no price signal from the DSO level coming into. Our, let's say a virtual power plant right now. And this should change definitely so that we can use the flexibility on the local level to minimize the costs for good extension, et cetera. So what we think in general is there will be a merit order of flexibility, just like we have a merit order of capacity right now. And in the future when we are looking at solar and wind that are incredibly. Cheap to produce. We will need to have so many options to evolve, to revolve around solar and wind. And there will be somewhere order of flexibility on the local level, on the national level, whatever. And there will be competing prices and competing technologies home batteries versus bio energy and whatever c and i consumers versus large scale batteries and pumped hydro and so on. And then we will see a good market.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:10

So this is on the generation and maybe also on the supply side, but on the demand side. But what does it mean for trading, Richard? I mean, you come from a, from a trading, um, background. What does it mean for how we buy and sell electricity or even gas?

Richard Sarti, Director Marketing and Sales, Nodes: 19:23

That's a very good question, but first of all, I'd just like to sort of comment on something that Y just said, which is of course, which is quite interesting, where you talk about a top down approach. And I, and I think that that historically has been the case. And one of the things that nodes is, is addressing is a bottom up approach, is to look at that localized. Market area, look at setting or creating prices in that area in order to drive forward the flexibility and make it more available and create that value that you are seeking, um, when you build those assets or when you take ownership of those assets and managing on behalf of other people. So I think it's really important, and to hear you say that gives me confidence because it means that we are on the right track. Yeah. Um, so, and this is where the frustration comes in, around how quickly the market can evolve. Because we are constrained by regulation. We're constrained by thinking about how the grid is operating. And so, um, where we enter into these pilot projects, which is great, to prove the concept, we need to think about, well, what do we do after the pilot project? How do we evolve that in order to create the market that it's actually proving? Can and needs to exist. So I think that's, so I just wanted to comment on that. Um, Richard, going back to your question, which is about the trading element and how that could work, I mean, I think initially what we are looking at on the nodes concept is really about managing the capacity at this point, but where the capacity creates the imbalance and then being able to trade that energy and and manage that imbalance arrangement within the wholesale market. There we'll start to see sort of more of the traded element and the value that comes in. And you talk about integration, Mateos, where we integrate. That flex market with the wholesale energy market. And then we talk about sort of, um, connecting that with the gas market and managing the constraints in those networks as well. And so we do see a sort of a whole new ecosystem materializing about how energy will be managed, how capacity will be managed, and how it will be traded.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:10

I mean, we're talking about, as, as Richard said, a new new ecosystem. It sounds incredibly complex as well. I mean, is this. Is this a, a job where the machines will take over, Mathias?

Matthias Dilthey, General Manager DACH, Sonnen: 21:21

Oh, I think that's already taking place. I have in mind that since five, six years, it, it is started already. That especially in the intraday market, in the continuous trading there, it started that algos, uh, were created and they are taking part in the market and that makes absolute sense. I mean, this is a very fundamental market. There's a lot of products at the same time. I mean, every quarterly hour, every hour is a single product. You have to follow. The price is changing. And of course, if you want to optimize your system, if you want to optimize your portfolio, you do a lot of trades there. This is just impossible to do it manually properly. So it's to me it's pretty clear that this is the way it goes and. What I have in mind is that already more than half of the volume or so is already done by algos.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 22:06

It's a brave new world out there. The machines could be taking over. That's all we can cover today. That's all from E World, from the Monte Weekly podcast. So many thanks to you, Richard, to Jan and Mattias for joining this week. Remember to keep up to date with all the news on Monte online and follow us on Twitter, LinkedIn, and you can subscribe on Apple Podcasts and Spotify, and it's goodbye from me.