Bringing down power sector carbon emissions means pushing fossil fuels off the grid. If current trends hold true, most of the generation options that replace them will come in the form of variable renewables, like wind or solar.
It is no secret that greater proportions of variable renewables cause a headache for grid operators. A more variable power supply increases the challenges involved with balancing supply and demand.
The difficulty is that high penetrations of wind and solar push down power prices at peak generation hours, sometimes even into negative territory. This reduces profit margins for grid operators and generators alike, making it harder to bring more renewables onto the grid.
Battery storage can and will address this issue to a certain extent. As the cost of batteries and other energy storage options fall, grid operators will be better equipped to balance out the effects of a more variable generation fleet.
But relying primarily on battery storage to deliver grid flexibility may not bring the rapid improvements needed to meet the most aggressive climate targets.
A recent study published in the journal of Nature Communications found that an immediate phase out of all fossil fuels would result in a 66% chance of limiting global temperature rise to 1.5C.
The study’s findings reinforce those of the Intergovernmental Panel on Climate Change’s special report last year, which found that remaining within 1.5C of warming requires anthropogenic carbon emissions to be substantially reduced within the next twelve years.
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To achieve the grid flexibility gains needed to deliver deep-decarbonisation within this timescale, all options will need to be explored. This is particularly true of solutions that can be implemented with existing technologies.
One such solution is working with the most energy intensive industrial consumers to modify their energy consumption patterns. Taking this approach, grid operators can curtail a consumer’s load when there is more strain on the system, and ramp it up when there is surplus generation. This practice is referred to as industrial demand-side response, or DSR.
Residential DSR technologies like smart metering have grabbed most of the headlines in recent years. But without alternative power options like home batteries, generators or micro-CHP units, the ability of residential consumers to alter their power consumption habits is limited. The gains from residential DSR have so far proven to be incremental.
A demand-side response policy which focuses on energy-intensive industry can potentially be far more impactful. Because it targets the largest consumers, it can also bring the largest gains. What’s more, we’ve been doing it for decades.
Industrial DSR programmes in Europe actually predate the liberalisation of the electricity markets. But they were introduced to improve reliability – helping to resolve network congestion issues and preventing peaks in demand from overwhelming the grid. For this reason, DSR has typically played second fiddle to generation in electricity market design.
This is true even of markets explicitly designed to foster low carbon options, such as the UK capacity market established under 2013’s Electricity Market Reform (the EMR, since put on hold by a surprise EU court ruling late last year).
The EMR required generators to bid four years in advance to cover an agreed share of capacity (the amount of power required to meet the estimated peak demand). Successful bidders could be paid for this service in addition to selling power to the grid on a dispatchable basis.
Although demand responsive consumers also had a place in the UK capacity market, their role was limited to a secondary round of bidding intended to plug gaps in the anticipated capacity a year in advance.
Transitioning to a renewables-based power grid may mean rethinking how we view demand-side response. The challenge is less about developing new technologies than it is about improving regulations, incentives and market structures.
The idea that should inform future policy making is fairly simple: generation and consumption are two sides of the same coin. If demand at any given moment outstrips supply, grid operators can respond either by dispatching energy resources, or by curtailing the load.
If the preconditions for a demand responsive energy system are satisfied, then neither option is inherently preferable. The grid operator can choose whichever option is the most cost-effective on a moment-by-moment basis, allowing DSR, battery storage and peaking power plants to compete freely with one another and driving down prices.
Taking this approach could have profound implications for the speed at which renewables can be scaled up. DSR services are the most remunerative in power grids with the largest diurnal swings in generation output.
The implication is that the more variable renewables are brought onto the grid, the greater the incentives are for industries to participate in DSR. And the higher the load that can be considered demand responsive, the better adapted the grid is to sustain a higher proportion of variable generation.
Unlocking these types of synergies requires that the systemic barriers to market participation are removed. Several amendments have been proposed to the existing regulations to achieve this.
For instance, the incentive structures for DSR need to accurately reflect the economic benefits conferred on the grid operator and other consumers as a result of industry participation. Providing clarity about incentives allows industrial consumers to more accurately determine whether the value derived from DSR exceeds the potential costs in terms of interruption to industrial processes.
Other examples include enabling, as far as possible, the aggregation of smaller bids, to increase the number of players able to enter DSR schemes, or adjusting forms of legislation which can potentially come into conflict with DSR, such as those intended to promote energy efficiency.
Making these changes at a European level would be big news for the renewable energy industry. According to a 2012 study from the Fraunhofer Institute of Systems and Innovation Research, the load management potential of heavy industry in Europe could amount to as much as 16 GW.
Automation and DERs
In the near term, regulatory changes can make the biggest difference. But they will still be unable to increase participation in industries for which DSR is fundamentally uneconomic, or not practically feasible. Expanding the role of demand response is where technology does have an active role to play.
For instance, lost or unproductive working hours pose a significant barrier to industrial DSR participation. But with higher levels of automation in energy-intensive industry, labour costs become less of a handicap. Unpredictable or uncongenial working hours also cease to be an issue.
Distributed energy resources, such as batteries, CHP units and biomass-fired generators will also be a valuable asset. By making industrial consumers less reliant on the grid for a continuous supply of energy, DERs can drive DSR participation in sectors for which temporarily pausing industrial processes is not an option.
Finally, there are so-called cross-sectional technologies, such as compressed air, ventilation, and heating and cooling. These technologies consume energy in cycles, rather than at a consistent rate. Some studies have shown that these cycles can be shifted to optimise grid performance.
The bottom line, however, is that both the regulatory and the technological pathways will require energy-intensive industry to engage with regulators and utilities. In the absence of meaningful dialogue, it is unlikely that the desired result of a more flexible, integrated and demand-responsive energy system can be achieved.
If you’d like to participate in this dialogue, you can. Join us at the Energy Transition World Forum this May, to hear from stakeholders in the energy sector and heavy industry about how best to deliver deep-decarbonisation. Hear more about industrial DSR, zero-carbon technologies, battery storage, new market designs and more.