All systems return to an equilibrium... eventually

Rimshah Javed on 2023-03-07

Business Development Manager

External shocks and the need for digitised connections in energy for enabling net zero

The UK and US (particularly California and Texas) are amongst the fastest decarbonising electricity grids in the world and are increasingly pushing the boundaries of green energy systems. External shocks, including COVID-19 and the Ukraine war, have accelerated certain trends, causing higher instability in the short-term but providing the opportunity to achieve an equilibrium at a higher level - in this case, a grid that is cleaner, more secure, and affordable. COVID-19 challenged grid reliability because of large changes in demand, and the Ukraine war threatened the security of supply.

The shift in consumer behaviour during national lockdowns lowered demand, but this was temporary. However, it is now clear that operating the grid with high renewable penetration was not. Since then, the UK has consistently achieved new records of wind generation with highest being close to 90% generation from renewables toward the end of 2022 and in January 2023.

The diagram below, from Energy Atlas 2018, recently trending, shows the system moving from the left side to the right.

Expected structural changes in the energy system due to increased use of digital tools

It shows that decentralisation and bidirectional flows are increasing the number of data points. To have visibility, control and management of this data, we require:

  • Digitisation of the actors and systems within a sub-sector.

  • Digitisation across the sectors, enabling connectivity and integration, for example across battery storage, electrification of vehicles, and individual end-users such as homes and offices.

What is missing?

There is an ongoing push toward vertical digitisation within companies, systems, and sectors, but we need greater collaboration to enable digitised connectivity across the complete ecosystem to enable net zero. At present, countries and regions are focusing on building infrastructure connections with their counterparts. For example, at a national level, the UK is building the Viking Link, the world’s longest electricity interconnector, with Denmark, and similarly, in the US, at a regional level, the Ten West Link project will connect electric substations in Arizona and California. Increasing digitised connectivity along with infrastructure connections, across countries and regions will enable the system operators to better predict, manage, and control the grid for exporting and importing electricity, during varying system conditions.

At present, such digitised linkages are not standardised or built to abstract complexity for all players. This can be enabled by a centrally regulated policy. For example, in retail banking, regulation pushed for common standards for open banking. This ensured the use of standardised APIs, enabling data sharing and connectivity. It avoided duplicating effort and processes for the same outcomes and so reduced costs for participants and end-consumers. This has resulted in innovative solutions and made the UK a fintech hub.

Repeatable technological systems and processes may be harder to devise and implement, resulting in additional complexities, such as increased cybersecurity needs and the technical challenges of each new interface. However, if done correctly, reducing manual processes improves operational efficiency and financial returns. The diagram below, taken from the presentation of Piclo’s Data Engineer, Adrian Shelley, captures this dynamic.

Improving data interfaces

Looking at the macro picture, energy cuts across all sectors, and for complete digitised connectivity, we need to engage outside our own industry. Teodora Kaneva of techUK recently emphasised this point in an Innovate UK event. She said that we need to design multi-dimensional policies for greater collaboration and engagement with telecoms and transport companies whose infrastructure underpins the energy infrastructure.

One particular reform being evaluated under the UK Government’s Review of Electricity Market Arrangements (REMA) Consultation in 2022 was nodal pricing. One criticism was the UK’s lack of computational capabilities, raising the question of whether we should modernise digitally so fast. However, to address the energy trilemma, data availability and digitised connectivity are exactly what need to be pushed within and across systems.

For flexible assets like batteries, it is worth looking in more detail at the interaction with external systems for optimisation, and how individual organisations can push for innovation towards greater digital connectivity and integration.

Interactions with external systems

In the UK, many of the day to day operations and markets still rely on highly manual processes. This is evident in the Balancing Mechanism (BM), the Electricity System Operator’s (ESO) main tool for balancing supply and demand close to real time. As more smaller units enter the BM, the ESO control room engineers have more assets to manually dispatch (more buttons to press). This results in smaller assets being consistently overlooked in favour of larger units, even when the smaller units are the cheapest option. Industry has long been calling for BM technology reforms to be prioritised to ensure efficient dispatch of assets of all sizes. A fully digitised BM is the only way to achieve this, and the ESO’s Open Balancing Platform initiative suggests that this is currently underway.

The operational inefficiencies are further evident in (geographical) markets where the services are disaggregated across multiple providers. In California, an asset owner can expect to have up to four counterparties to optimise a battery: a trading desk managing the trading strategy, a Scheduling Coordinator (SC) responsible for directly bidding, scheduling and settlement, and a separate entity for market integration of the asset with the ISO. Often, the owner is unaware of an issue until the SC sees that the asset is unresponsive to dispatch instructions sent by the grid operator, CAISO. The SC then emails the owner, who notifies the outsourced bidding team and the operations team. In this case, communicating information in real-time itself is impossible as by the time all parties involved are informed, the status may have changed. In such a system, while any individual entity involved may be digitised, the linkages and interactions remain weak, and real-time management and control seems highly unlikely.

The good news is that new initiatives are arising to push toward digitising systems and processes within companies, and the lessons of innovation can be replicated externally. This further builds a case for driving investment not only in individual sectors but also enabling digital connectivity.

Using digitised systems within organisations

Individual entities can determine how to gather and leverage the data and build digitised solutions in-house, with highly digitised companies having external processes and systems as the restricting factors. Companies like Arenko can already demonstrate this value, consistently delivering high financial returns for our customers in a fast-changing landscape through advanced digitised capabilities, in the following ways:

  • Getting in early

    Being the first to enter new (energy) markets generates returns prior to market saturation. Our speed and ability to adapt to new markets is well known in the UK and is due to the well-designed software and software development processes. Arenko entered the Dynamic Containment (DC) service on day 1 of its operation in October 2020, while many providers struggled to prequalify. Additionally, from April 2021, assets not registered in the Balancing Mechanism (BM) service, needed to qualify for Real Time Monitoring (RTM) to continue delivering DC to National Grid ESO. Arenko was the first provider to qualify a non-BMU RTM battery. This included setting up high resolution operational metering and accurate, automated communication channels with ESO to pass complex conformance testing.

  • Generating higher returns than the industry average

    In 2022, Arenko was the top performing battery optimiser, generating £167/MW/year, using our automated platform. This allows our human traders to focus on strategy, instead of manual tasks. Similarly, from January 2019 to April 2020, Cornwall Insights conducted an analysis that showed that batteries operated by Arenko in BM generated significantly higher profits.

Average £/MW/day for potential battery BMUs

For international markets, we license our software to trading desks and asset owners including in mainland Europe and the US. Toward the end of 2022, we launched our Nimbus product suite. In a few months, we have received widespread interest in Nimbus Asset, which provides and makes data usable for improving operational efficiencies and reducing costs.

However, regardless of the successes of individual entities, the systems they interact with are crucial to determining the digitisation capabilities as a whole.

A new approach for connectivity

Digital connectivity is critical to ensure a sustainable energy system of the future that provides value for customers whilst supporting security of our electricity supply. We do not currently have the capability to fully digitise operations within the interactions of a single sub-sector (in this case battery storage). Digitising across sectors, nationally and internationally, is a step further. The benefits of digitised connectivity need to be pushed, along with digitisation in isolated systems, as they can optimise our predictive response and management capabilities within and across systems. This year, Arenko is the only UK based battery technology company selected in the AWS Clean Energy Accelerator programme. As a part of this, we will collaborate with Enel, Iberdrola, EDF, Siemens Energy and others, to find innovative data solutions for enabling net zero. This type of interactive participation across various players is crucial for developing common digitised standards and accelerating the energy transition.

Laura Sandys, former Chair of the Energy Digitalisation Taskforce’s (EDiT), summarised this perfectly in 2022: “We’re going from 400 players in the energy sector to hundreds of millions, and [associated] actions and assets. That will not be delivered in an analogue way – [or] actually the system will collapse. The system requires a totally new approach to connectivity to interoperability, to visibility.”

In the absence of mature digitised capability within systems and digitised connectivity across, we may settle at a lower energy equilibria despite the external shocks. However, as discussed here, the tools and systems to mitigate this are becoming more accessible.