Technological advances are allowing Europe to transform its power systems. What’s important now is to keep supply and demand balanced. Fabien Roques, Senior Vice President of Compass Lexicon and POWER-GEN Europe and Renewable Energy World Europe Advisory Board member discusses how flexibility is more important than ever. Read what he has to say below.
As Aesop’s fable of the oak and the reed begins, there is a storm coming. The tall and mighty oak proudly boasts that only he will be strong enough to survive the oncoming winds and that the humble reed in his shadow will surely perish for being too weak. The reed remains quiet, but come the morning the oak has broken in two while the reed remains standing.
The moral of this story? Flexibility is vital. And today’s energy industry should take note.
The sector is undergoing a profound transformation and to weather the turbulent changes of a switch to renewables, power generators will need to bend like the apocryphal reed. As the stubborn oak discovered to its cost – resistance is futile.
What’s driving this? In a word, renewables. After years of discussion we’re finally moving into a new power paradigm, with renewable generation and active consumers – the so-called pro-summers – at its core – and at quite some speed.
Of course no paradigm shift is without its challenges, and the energy transition is no exception. While renewable power and active consumer participation bring many benefits – such as access to clean and sustainable energy – it has its drawbacks too.
As we all know, renewable sources only provide power intermittently, so in order to accommodate them into an old system designed for centralised fossil fuel generation we need to provide greater balance.
As with any issue of supply and demand, the problem should be tackled at both ends. It’s not enough for governments to tinker around the edges of supply and expect it to have the desired effect without also working to bring demand back into line.
We need to treat the issue like a dance, with supply and demand moving in harmony – not a never-ending game of catch up.
On the supply side, flexible forms of fossil fuel generation will become increasingly valuable. Instead of big plants that take time to ramp up and down, let’s consider open cycle gas turbines (OCGT) or advanced combined cycle gas turbines (CCGTs). And smaller scale microgeneration, such reciprocal engines, heat pumps, or community generation support that fills in gaps at a local level.
But the real action lies on the demand side.
First, demand response measures can ensure we make the most of the electricity we’re producing. By putting the power quite literally in the hands of customers, we can flatten out spikes in demand through financial incentives. By allowing consumers to buy electricity at a cheaper rate off-peak everybody wins. It reduces the pressure on power to perform while also putting a little extra money back into customers’ pockets. We’ve got the tools to allow us to do this at the industrial users end – we now need to give it to the smaller household consumer of energy too, through tools like smart meters and smart regulation, tariffs and incentives.
And of course we have storage – which has the potential to provide control by allowing us to use all the energy we produce, rather than wasting the excess when demand is low only to be caught short when we really need it. If storage becomes a genuinely mass technology, the implications for the electricity industry will be huge. A marriage between storage and renewables could fundamentally change the economics of electricity – putting an end to the need to plug those gaps.
Yet while we’re still unsure which technologies and business models will win out, governments and regulators will be crucial to ensuring that at least some do.
And this is the crux of the issue. The power market can flex, but this ability isn’t innate as it is to the reed. The sector is more like a skyscraper. It’s a hugely impressive feat of human engineering, which serves a great number of customers but is strong and sturdy – and flexibility can only be enabled with a modern structural framework.
The state of said regulation and market design varies greatly across the continent, with different countries having put in place different market arrangements. In a study called Toward the Electricity Target Model 2.0, we mapped the key differences across Europe as well as the reforms required to establish a sound regulatory and market framework going forward.
The disparity of capacity mechanisms is highlighted as one of the key issues. Countries such as the UK, France, Poland, Italy, Ireland and Greece have implemented or are implementing a capacity market, while others such as Germany or Belgium have chosen rely on an energy only approach combined with a strategic reserve of plants to ensure security of supply.
Another area of disparity is the opening of the whole European market to demand response operators as well as storage operators. This is currently possible in some countries such as the UK and France but not yet possible in others such as Spain and Italy.
Better integration of renewables is also needed across the continent. This is underway in most countries for large scale installations, through mechanism reforms and the introduction of balance responsibility.
This structure across the continent is essential. Governments and regulators need to provide a robust framework that both levels the playing field between power producers, demand response and storage providers, and incentivises the market to deliver flexibility at the lowest possible cost for customers through a blend of supply and demand side approaches.
Of course this isn’t to say that customers shouldn’t pay for flexibility – they are, of course, its ultimate beneficiaries. But it is the responsibility of governments to look out for European citizens’ interests by helping us to keep the lights on as cost-effectively and sustainably as possible. And this requires smart regulation and a fresh look at market design.
But it doesn’t have to stop there. Europe is ready to develop an international framework too. Most of the regulatory and market design issues are still dealt with at the national level, and there would be large benefits in having a more coordinated approach.
Europe working together to ensure a flexible system that works for all? Now that’s a powerful prospect. One which learns lessons from the fates of the oak and reed, realising that to weather the winds of change the sector will need to accommodate renewable generation within a flexible approach.
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