Grids: Easing bottlenecks

Europe has made remarkable progress in developing renewable energy, but grids – both at distribution and transmission level, are struggling to keep up. Congestion, long connection queues and ageing infrastructure are holding back the energy transition. So, is the answer simply building more grid infrastructure; or making better use of the network we already have?

In this third episode of the Plugged In Summer Series, host Richard is joined by experts from across the electricity sector to explore how Europe can ease its growing grid bottlenecks. Frank Boerman-Lima shares insights from the front line of transmission system operation and cross-border electricity markets. Luuk Veeken explains how AI, forecasting and automated trading are helping integrate more renewable power, while Brian Lonn discusses the growing role of battery storage and flexibility markets in supporting the grid. 

Together, they explore how smarter market design, flexibility and digital innovation can unlock more capacity from Europe's electricity networks and keep the energy transition moving.

Host:

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News

Guests:

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert

Luuk Veeken, CEO, Dexter Energy

Brian Lonn, Head of UK Flexibility, Statkraft

Producer: Alexandra Carlon

Editor: Alexandra Carlon

#EnergyTransition #PowerGrids #RenewableEnergy #GridFlexibility #ElectricityMarkets #EnergyTransition #PowerGrids #CleanEnergy #BatteryStorage #AI #EnergyTransition #ElectricityMarkets #PowerGrids #GridFlexibility #Renewables

Transcript

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 0:00

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.

Where Congestion Hurts Renewables Most

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 1:12

This episode three of our summer series focusing on grid congestion and how to ease bottlenecks in the European transmission system gives me great pleasure to welcome Frank Boerman-Lima, who's flow-based capacity calculation expert, and also Luuk Veeken, who's CEO of Dexter Energy. A warm welcome to you both, gentlemen. 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?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 1:23

So 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. And not only generation, but also, for example, the flexibility that we need. So batteries and that type of thing are now on waiting lists. In the Netherlands, actually, it got so bad that even houses are now on waiting lists, just to give an indication of 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-border trading, so that you can make use of flexibility elsewhere in Europe. And there are still quite some bottlenecks that cause large price price differences, price spreads between zones.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 2:04

So the answer is more more grids or the better use of the grids, Frank?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 2:08

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 in which TSOs and DSOs are experimenting with different ways of managing and 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-border trade. So I it's really both. There's not one silver bullet.

Power Markets Move To 15 Minutes

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 2:47

One silver bullet. That sounds familiar, Frank. Now, Luke, you you said the energy transition is now happening every 15 minutes. What does that mean in practical terms?

Luuk Veeken, CEO, Dexter Energy 2:56

Yeah, so as of last October, the day-head market now clears in 15-minute blocks. And intraday and imbalanced settlement were already there. Well, for imbalance in in most countries. So now the entire chain from day-head to real time runs on quarter hours. So basically 96 prices a day instead of 24. Yeah, this is obviously required for trading of renewables, as forecast can change rapidly, but also as weather can have a significant impact between two 15-minute blocks.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 3:29

And so you you mentioned forecasting. So how is how is forecasting and automation changing the way renewable assets participate participate in power markets? Luuk.

Luuk Veeken, CEO, Dexter Energy 3:40

Yeah, what you see in the market is that you really are incentivized to forecast well. Because if you don't forecast well, you can basically not optimize your position after the day-ad market, for example, meaning you have significant imbalance risk because every megawatt hour you're you're not sold or bought correctly on day-ad or intra-day market will flow into imbalance, and imbalanced markets can be super volatile, especially as as more renewables are entering the market. So it's really a yeah, high need for energy companies to forecast this well, yeah, as positions continue continuously change due to weather and new weather forecast. Also, now we have 15-minute blocks. Yeah, 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 every few minutes. Also, you see now the shorter gate closure for intraday markets. And so the closer to real time you can trade, the more you can correct also over and under forecast. That is indeed only for cross-border trade. But then a lot of countries, if you're in in local markets, in the last, let's say, 30 minutes or 60 minutes, there's 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 where there's still some liquidity, but for the Netherlands, for Belgium, that's definitely a different different situation.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 5:22

I think before I turn to Frank and talk to him about his special speciality topic, Luuk, 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're buying external, you're combining everything. What does forecasting well mean in practice?

Forecasting And Automation For Trading

Luuk Veeken, CEO, Dexter Energy 5:42

You both forecast how much power your portfolio will produce, for example, your solar panels or wind parks. But it also means you need to include all the new information available. So if you're making a day-ahead forecast, this is often mostly based on weather models, so global or local weather models. As you move near time, other data gets important as well. Think about your own SCADA data. So your production data, they often tell you very different stories than your weather model data, what you're producing. We need to be able to take that into account, let's say one hour, two hours, three hours before delivery. And then really close to delivery, other data plays a role as well, like for example, satellite data. So we at Dexter, we build an internal weather model predicting how clouds will move over Europe, and that our customers can use that updated forecast to trade better, let's say uh 30 to 30 minutes to one and a half 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 having their own forecast model, but also buy, let's say, six, seven different forecasters, and they have a layer on top of that where they combine the best of both worlds, given the country or the the asset. So that is really what we think is is best in class forecasting. And the same is is actually for for price forecasting as well, and be able to use that also in your decision making.

Flow-Based Market Coupling Explained

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 7:38

Yep. Makes sense. Frank, you know, return returning to the topic of this episode, which is grid congestion and TSO bottlenecks. How has flow-based market coupling changed the way cross-border electricity flows are managed? And has it also helped to ease some of the congestion that we see on those cross-border points?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 7:56

The most basic fact is that it's a more efficient method, right? So you make use of more of the grid than you would in a simple ATC-NTC world. And so that helps. It just makes the pie larger, you know, for the market.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 8:12

Could you just explain ATC and NTC to those those listeners that may not be familiar with that?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 8:16

Oh yeah, so the main the old way is very simple. You have a single number per time unit, which is now, as Luke said, 15 minutes in their head and also an intraday. You have a single number per border 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 Netherlands to Germany, it is possible that from a grid perspective, there is more import possible from Belgium to the Netherlands. Flowbase does that. Flowbase no longer does a single number, it it gives you a domain, a set of constraints, and 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 basically advantage one. And advantage two is transparency. So the way that TSOs publish HC numbers is highly intransparent. So it's usually quite at least in the old days, it 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 border direction and you do something with that, and that's all the information you have. Nowadays, in the flow-based domain, you not only have upfront very clearly all the constraints and how the grid works, but 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 two main advantage pillars, at least in my eyes, for market participants. Right? You know, up front there's more capacity, you know upfront more about it, and exposed you get better analysis tools for it. And there are also, of course, a lot of companies 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 but 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 Flow-based made sure that there was a Nordic common grid model. Before that, most A to C calculations were not based on a common grid model. Flowbased helps with that because it needs that. So it's the first step if you want to implement such a thing. So that's a little bit more invisible, but I think just as just as important from a bit operator view.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 11:03

The invisible hand, but it's also a very important hand because it also shows you where those great bottlenecks are.

Why Grid Build-Out Takes Years

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 11:08

So I want to talk about more about renewable penetration here and and the rapid expansion of renewables, which you know Europe's received, you know, very clearly this is the second, the current crisis is the second in in four years, and obviously there's there's increased cause to accelerate the green transition, which means building more renewables, but it also means building grids. So are the networks expanding rapidly enough, Frank, in Europe?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 11:34

I think it's fair to say it's not rapidly enough, right? I mean, if it would be rapidly enough, we would not have the congestion issues that we have today. You will always have a little bit of issue because you can never perfectly forecast what is happening. And building grid assets usually takes much longer than building generation and load assets, some exceptions left. And that means that TSOs need to do a certain prediction, and predictions can always be wrong. So it will never be be 100%. But I do think that at the moment there are a lot of issues, and and they're yeah 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 a 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 their 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 grip building is simply a very slow process. And once you do it, of course, that it stands a hundred years, right? So it's a certain investment, but it takes a while.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 13:13

So you're basically a plea for patience and for understanding for the TSO that trying the HUDs.

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 13:19

Yes, and that is really frustrating. And I understand that, right? It's really frustrating if you want to build, I don't know, a solar park or a wind park or whatever, and you hear 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 the EU grid package, which is trying to do that. Although I sometimes have the feeling that the 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 subsea cables for long HVDC but also for wind parks. So after a while, they're all reserved for a certain period. And then yeah, you can throw all the money in the world, but you can't just randomly buy a ship like that. So stuff like that is really the the practical bottlenecks that you can see right now.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 14:34

I think those kind of the technical details. The devil is always in the details, isn't it, Frank? But but Luuk, turning to you here, I mean, you know, we're we're talking about increased renewable penetration, the grids aren't quite keeping pace, but what are the biggest sort of balancing and operational challenges that you you see out there at the moment?

System Stress From Forecast Errors

Luuk Veeken, CEO, Dexter Energy 14:52

The forecast errors are increasing. So wind ramp comes an hour earlier, or solar forecast that's a few percent off. That is creating an imbalance, and obviously the the yeah, also the TSOs are working hard to yeah to improve how this imbalance is shared. So Picasso is a great example where suddenly the huge part of this imbalance was then trick could be traded between countries, which helped a lot, but still you see also there's just more correlation, right? So when the sun shines, everyone's solar overproduces at the same moment, everyone is long at the same time, prices collapse, and we see negative prices far more often than we than we used to, and what you see now also with Picasso, 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 event where and I think Easter Monday was an example of where a lot of countries at the same time yeah, there was a lot more production than we than we expected, and then suddenly they can't exchange all these imbalances with each other because they're all at the same side, yeah.

Batteries Can Help Or Harm

Luuk Veeken, CEO, Dexter Energy 16:39

So all experiencing overproduction, and then you can get quite extreme prices and also extreme stress on the grid. Frank knows more about sort of how Tenet dealt with that, so I can't look in the control room, but I guess these these fatty vents are are posing a bigger risk now with more renewables in the system than they used to a few years back.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 16:39

An obvious answer, 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?

Luuk Veeken, CEO, Dexter Energy 16:55

So you see grid fees rising everywhere, also congestion, yeah, getting getting worse. So now also in Germany, in the beginning went really fast, but now also a lot of battery developers are hitting significant bottlenecks. So I think here as well, it's yeah, the build out is definitely not going fast enough, I would say, to also bridge sort of the adders 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 installed at this moment. And the question is, can we get that installed soon enough? Yeah, I'm not so sure.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 17:41

You know, these are obviously the key questions, Luuk. What's your view, Frank?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 17:45

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 I just gave, or help with it. It really depends on the interplay with the local physical grid and how you operate it together with the TSO. And I think batteries can help quite a lot with volatilities 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 imbalanced market, where we have a very active, passive imbalance system, that clearly the market is highly oversaturated, which means that the TSO, the tenet, will call for something that we call state two, which effectively means, without going too much details, that everybody gets a fine and everybody has to pay, no matter what imbalanced state you are, if you're helping the grid or not. And this is caused by an overreaction by the imbalanced market. And there are definitely some batteries at play here, not only, but also wind parks, etc. And if you just keep building batteries and you sell them with the thought, you know, you're gonna make golden mounts of gold on the passive imbalanced market, it's not true because the market's oversaturated. But it does really help in a lot of other time frames. So it's a 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 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. Because otherwise you can get really you can get really surprised at by the end of the year when you get the invoice.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News 20:05

Luuk, did you want to come in here?

Luuk Veeken, CEO, Dexter Energy 20:06

What I also think is a problem is that indeed what Frank says, congestion plays on different levels, like on national level and , 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. But there are obviously many other like more locational problems, which currently the batteries are not able to play a role in. And that is also, I mean, we have a zonal system, not a nodal system. So in that sense, the whole grid fee structure is also not really representing the the real price you're you have to pay, right? So 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, all the 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.

Two Reforms For Faster Progress

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 21:32

Yeah, I think that's a very good point. And so that leads me on to my sort of 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?

Frank Boerman-Lima, Flow-Based Capacity Calculation Expert 21:47

One wish only. Oh dear. I have multiple wishes, but I think the most effective one would be an overhaul of the permitting system. To unify it, to make it European, basically. 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.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 22:09

Thank you, Frank. And Luuk?

Luuk Veeken, CEO, Dexter Energy 22:11

Properly introducing price signals also in the use of grid, do that in a way that is then harmonized between countries, basically with that enabling everyone to yeah to basically participate also in this transition and actually solve the problem.

UK Flexibility And Congestion Opportunities

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 22:33

So Luuk and Frank, thank you very much indeed for being guests on the Plugged In 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 Lonn, head of UK flexibility at Statkraft. A warm welcome to the Plugged-In summer series, Brian.

Brian Lonn, Head of UK Flexibility, Statkraft 23:13

  Yeah, thank you very much for having me. It's great to be here.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 23:15

  So we're talking about sort of congestion and grid bottlenecks 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 curtailment changing the way traders and asset owners optimize their portfolios, Brian?

Brian Lonn, Head of UK Flexibility, Statkraft 23:34

So in our case, for our portfolio of distributed flexible generation, curtailment 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 in GPE is such that assets can generally receive extra payment for when they're doing something which helps the grid. So, for example, 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.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 24:15

So it's not necessarily a negative thing.

Brian Lonn, Head of UK Flexibility, Statkraft 24:17

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.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News 24:29

What kind of assets are we talking about here?

Brian Lonn, Head of UK Flexibility, Statkraft 24:31

Predominantly battery storage, but also flexible reciprocating engine portfolios, basically anything that can dispatch based on based on price signals.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 24:41

And Brian, just for those listeners who may not be aware of what kind of capacity you have in the UK market. Can you tell us a little bit about sort of you know in terms of batteries and other such distributed generation?

Brian Lonn, Head of UK Flexibility, Statkraft 24:53

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 a very strong growth in battery storage and expect that's how the portfolio to grow very rapidly over the coming years.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 25:16

When you have congestion, when you have negative prices as well, and contailment, this is absolutely an opportunity for batteries and demand response, right?

Brian Lonn, Head of UK Flexibility, Statkraft 25:26

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.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 25:50

I mean, is there a, for example, potential for you know people to look and see what Statkraft doing in GB, say, and potentially other markets as well, say, we're gonna do exactly what they're doing. Would that then water down the effect of how you optimize your portfolio?

Brian Lonn, Head of UK Flexibility, Statkraft 26:05

I think there would be a certain element of potential cannibalization of opportunity if that were to happen. But a lot of the congestion and network reinforcement type opportunities, those are so very site-specific that probably less impact of additional competition there because that's where our 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 of the network.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 26:38

But there's a certain advantage to being a first mover here, right?

Brian Lonn, Head of UK Flexibility, Statkraft 26:42

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 pool them together with a new 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.

Algos With Human Control

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 27:13

And so in terms of algos versus humans here, Brian, what's the ratio there in terms of the way that you trade or optimize that portfolio?

Brian Lonn, Head of UK Flexibility, Statkraft 27:22

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 up headspace for the traders and the analysts to think about new trading strategies, ways that we could improve our systems to capture more value and things that are beyond the routine.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News 28:05

So you have them, these algos or these machines on a very tight leash then.

Brian Lonn, Head of UK Flexibility, Statkraft 28:10

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 just very important for the overall stability of the grid and of course for the commercial results as well.

Intraday Liquidity And Balancing Changes

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 28:25

I'd like to move on to sort of other markets, you know, particularly ancillary markets, but intraday as well. So how are intraday and balancing markets evolving as renewable generation grows?

Brian Lonn, Head of UK Flexibility, Statkraft 28:36

We have seen quite a growth of liquidity in the intraday markets in GB over the last five years or so. When we started 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 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 few years. The system operator in in GB has made great investments in being able to effectively dispatch distributed flexibility and batteries, and that is starting to really pay off. And we're seeing that the dispatch of the batteries in our portfolio is becoming much more efficient, less issues with skips.  

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 29:41

  What a skips? sorry. Yeah.

Brian Lonn, Head of UK Flexibility, Statkraft 29:43

Assets not being instructed, although they were in merit. So we're seeing a 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.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 30:02

Are you seeing that replicated in other parts of Europe as well?

Brian Lonn, Head of UK Flexibility, Statkraft 30:06

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 would seem like GB is one of the leaders in Europe right now.  

Investment Signals For Flexibility At Scale

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 30:25

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?

Brian Lonn, Head of UK Flexibility, Statkraft 30:31

So we have seen a tremendous build-out of battery storage in GB without too much support. So 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 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.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 31:27

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?

Brian Lonn, Head of UK Flexibility, Statkraft 31:38

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 that would remove quite a substantial fixed cost from the assets and these network capacity charges for a storage asset, which is in many cases going to be do 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 mechanisms appropriately. Those are kind of a minimum to ensure that flexibility continues to be investable across Europe. And then if that's not enough, potentially additional subsidy procurement rounds are going to be required.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 32:48

And potentially more harmonization of the regulatory framework around these kind of assets?

Brian Lonn, Head of UK Flexibility, Statkraft 32:55

I think that would always be helpful to take best practice from the different markets and roll that out more widely. That would certainly be beneficial.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 33:06

Fantastic. Thank you very much for being a guest on the Plugged In Summer Series, Brian.

Brian Lonn, Head of UK Flexibility, Statkraft 33:10

Yeah, thank you very much for having me.

Final Takeaways And Listener Ask

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News 33:12

And to you listeners, thanks for listening to this episode of Plugged In. 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 montelnews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.