Demand side response and VPPs in a changing market

Demand side response and VPPs in a changing market
Azad Camyab, CEO, Pearlstone Energy

Dr Azad Camyab, founder and CEO of the London-based company Pearlstone Energy, talks about the challenges and opportunities of virtual power plants (VPPs) in the burgeoning UK market with Smart Energy International.

Countries across Europe have been facing increasing challenges with the demand to wind down fossil fuel generation and replace it with growing shares of renewables and other clean energy.

These have been exacerbated – and the need accelerated – with the onset of geopolitical tensions, specifically the Russia-Ukraine conflict and the reduction of particularly gas supplies into the region.

This has led to tight capacity margins, i.e. the difference between supply and demand, which in the UK for example could fall to below 2% during the winter months and increase the risk of high energy prices for larger electricity users and in a worst-case more widespread blackouts.

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“This is where demand side response comes in. It offers a cheaper and greener alternative to building new generating capacity and could make a meaningful contribution to managing the security of supply and reducing energy consumption,” says Camyab.

“The cleanest and greenest energy is the energy not used!”

Back in 2015, Camyab with over 25 years in the industry formed Pearlstone Energy as a demand side response provider – or in the parlance of today an ‘aggregator’ – with a focus on large commercial and industrial (C&I) users which have the potential flexibility availability.

“This fast-growing market is all about using energy more intelligently; providing flexibility that enables National Grid to balance Britain’s electricity system cost-effectively,” he says.

As the market has evolved, the number of balancing service requirements and products has grown, increasing the potential attractiveness of demand side response from the customer perspective.

Camyab says Pearlstone offers a variety of demand response ‘products’.

“As well as helping our clients to reduce their CO2 emissions and contributing to their sustainability goals, they will receive a new revenue stream by enabling them to sell the energy they don’t need at certain times, for short periods, and which currently they can’t sell on their own.”

UK demand side response potential

In the UK, the current demand side response level is less than 2GW, but in its Future Energy Scenarios report National Grid has projected that the requirement could reach 6GW by 2030 and 16GW by 2050 – an 800% increase in less than three decades.

And there are almost two million potential C&I buildings that could participate, not to mention the small but potentially in the future significant residential component as electric vehicles and other distributed energy resource ownership grows and regulation opens that market.

Camyab explains that Pearlstone, an approved aggregator by National Grid, recruits its participating customers directly as well as through ‘channel partners’ such as building management system manufacturers or energy services companies with portfolios of customers with existing relationships. Pearlstone then assesses the flexibility potential at participants’ sites based on evaluating their half hourly metering data and integrates its technology with their building management system.

“For business customers, it can be confusing to navigate the different products and routes to market. There are cultural, informational and behavioural barriers and senior buy-in and cross-business commitment is often required,” he says.

“Confidence is critical and can be undermined by conflicting sales messages from demand response providers. Industry standards are needed and are being developed. Demand side flexibility should link into the significant opportunities for energy efficiency.”

Based on experience the typical demand response availability averages 200kW per facility, primarily from HVAC and air handling equipment and the value of that to the company can reach approximately £8000 (US$10,000) per annum.

Customers with multi facilities could secure revenues and savings in the region of £50,000/MW per annum.

Data demands

At the heart of demand side response delivery is data with the volumes increasing as the requirement moves closer to real time while at the same time the cyber risks have increased and are becoming of more concern.

“As electricity customers are increasingly putting their trust into aggregators to allow access to building controls, the highest levels of cyber security should be addressed using platforms such as the OpenADR digital security certificates and multi-layered encryption to minimise any potential risks,” Camyab advises.

“The benefits of OpenADR protocols and standards are clear. It provides a non-proprietary, open standardised interface that allows providers to communicate demand response and transactive energy signals directly to existing customers using a common language and existing communications such as the internet.”

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New demand side response products

Alongside its own technology, Pearlstone has recently entered into a partnership with Generac Grid Services (formerly Enbala) with its Concerto platform, with which it plans to grow its flexibility offerings with bidding into National Grid’s short term operating reserve (STOR) and Distribution System Operator’s (DSO) flexibility markets.

Looking further ahead the company intends to continue its automation of processes to ensure scalability as the distribution network operators transition to DSOs and local network management and flexibility enhancing services become essential for balancing supply and demand.

Beyond reducing energy consumption, battery storage and electric vehicles, particularly fleets, offer additional opportunities for demand side response, while peer-to-peer and wholesale trading offer considerable potential value.

“A favourable regulatory regime and support and positive price signals will facilitate the uptake of demand side management,” says Camyab, adding that it will also be a driver of behavioural change.

As an example, he mentions the proposed UK treasury rules that will require large companies and financial institutions to set out detailed public plans on how they will meet their climate change and net-zero targets.

“This clearly is a positive step for considering demand side initiatives in large industrial and commercial facilities – to promote and implement meaningful carbon reduction strategies at scale.”

Challenges and opportunities

However, this evolution does not come without challenges and Camyab cites one as communicating to remote devices, processing and analysing the data, and, forwarding it on to a market in the required time window and at the required speed and accuracy.

Another is that while National Grid has been streamlining its demand response requirements, enabling the new balancing services such as STOR daily auctions and DSO flexibility schemes have brought another level of complexity.

“With most of our customers, we start with one service, but our aim will always be to add more. The question we’ve been grappling with over the past year has been how to do this effectively and reliably. From a regulatory perspective, we insist on keeping it simple and steady as it takes time to change our systems.”

The good news is that there are a number of enterprise investment scheme funds keen to engage, as well as a growing number of corporates looking for an efficient demand side response solution.

And alongside, there also are a growing number of companies uniquely able to offer this to the market at low cost, including utilities such as Enel, Centrica, Engie, Shell and BP, which have entered the market by investing in or acquiring providers such as Enernoc, Restore, KiWiPower, Flextricity, Limejump and more recently Blueprint Power.

“We liken demand side response to Uber and Airbnb in the sense that we don’t own assets but have access to them, like they do, and it frustrates me that it doesn’t get more attention but that concept is starting to resonate with our customers and investors and we think it’s the future,” Camyab concludes.

Dr Azad Camyab will address the visitors of Enlit Europe via a virtual session on the Digitalisation Hub.
Register to attend the event in Frankfurt (29 Nov – 1 Dec) to learn more about demand side management and more.