Power to the People – the Next Movement in Decarbonisation Performance

The 2020s have seen decarbonisation become a top priority for many governments and companies. Just as they built a competitive advantage in industries using the lowest Levelized Cost of Electricity (LCOE), future champions will cement their advantage by leading with the lowest Levelized Cost of Carbon (LCOC).

June 16, 2022. By News Bureau

The 2020s have made decarbonisation become a top priority for many governments and companies. One of our drivers for an industry’s competitive advantage used to be low-cost electricity. We will lose that advantage if we do not find effective ways to reduce the carbon used for making that electricity significantly.

Most markets are maximising their baseload generation mix’s renewable and non-carbon portions – saving money and reducing carbon.

A significant first step, yes, but to be at the forefront of decarbonisation, you must also be smart at grid balancing – filling the gap between renewables, baseload and peaking power. But what has changed in balancing that it suddenly needs to be called “smart”, and why is it relevant for decarbonisation?

Think of a weight scale; no matter how large the weights on either side, everything comes down to the point on which the balancing happens, the fulcrum; if that doesn’t work, there is no balancing. It is a relatively small but essential role. As you decarbonise, you move from cheap to clean electricity baseloads, such as Variable Renewable Electricity from wind and solar (VRE). You need to adjust your balancing technologies to keep equilibrium and ensure you have the right fulcrum (tools and strategies) to deal with your balancing – this is where the “smarts” come in.

The balancing act
An analogy will be helpful to illustrate the challenge. Imagine a classical orchestra that must broaden its repertoire to cater to a modern audience – consider Andre Rieu’s reinvention of the genre. The orchestra was configured to support classic stars (thermal baseload), but now it is adding some new stars (VRE). For both, the performance criteria are easy to set. But the stars cannot perform without the conductor and orchestra playing harmoniously (balancing).

This is where it gets tricky – the conductor must adapt the orchestra’s performance and composition without destabilising it. Senior musicians bring experience, maybe not always as sharp on the notes or adaptable to new playing styles, but with a fantastic ability to grasp the tone and mood and keep everyone playing in sync and motivated (legacy baseload). They remain essential to the performance. Simultaneously, you also need fresh talent to complement the new stars and deliver a wider musical variety. They may not always be as polished and established as the old guard but offer tremendous potential (new balancing technologies, storage, software and reintroduced older technologies – engines, flywheels, etc.).

The challenge of balancing the skills and performance ranges of the old and new orchestra members lies at the heart of optimal modern orchestra performance and enables the show’s stars to shine. You face a similar challenge when balancing your grid to maximise VRE and decarbonise.

So what then makes smart balancing? If we look at some of the leading utilities and electricity markets, they all exhibit the following characteristics when it comes to balancing.

“We need to redefine balancing with Flexibility, Synergy and Agility in mind.”

Targeting Flexibility at a portfolio level
Being smart in managing your current technologies and selecting the correct new technologies in your balancing fleet puts you at the forefront of effective and efficient decarbonisation. In balancing, there can be no one single perfect technology. Power companies delight in saying that their product X offers the best performance under condition Y. That is great, but performance never occurs under ideal conditions; instead, it must constantly adjust to varying conditions. A visit to any dispatch centre will show how often assets run under sub-optimal conditions. Thus the quality of performance over a range of conditions is crucial for effective balancing, and the performance range will keep growing as VRE penetration increases.

Your ability to maintain quality balancing under a range of conditions is a critical success factor. Just as the conductor must build an orchestra with a broad skill set to adapt to stars performing different genres, top decarbonisers assemble, measure and price balancing flexibility across their asset portfolio, not at an individual level.

Embrace diversity to create Synergy
The conductor needs to understand and correctly pair the skills of each musician to create an effective orchestra which makes all the stars’ performances memorable. Smart balancing does something similar, and much effort is currently going into understanding how to leverage synergistic effects.

First, each balancing asset’s current and future role and the interplay between assets is changing. Understanding the accounting and prioritising of balancing jobs is an increasingly vital aspect of being effective. For example, previous ancillary services, such as inertia, are now distinctly valued primary services. Just look at recent flywheel and synthetic inertia storage solutions.

Second, the effectiveness of the Energy Management System (EMS) will be essential to balance and create synergy between legacy assets and new technologies. To create synergy, you need to drive digitalisation and smart data between your generation, transmission and demand management. Similar to the conductor needing to match the orchestra to the star’s performance and the target audience.

The most successful systems will focus on the interoperability of multiple EMSs instead of the idea of a single system. The needs at distributed generation and balancing sites differ from those at the grid level. You will unlock more synergy when you embrace this fact.

New engagement and economic models for Agility
The modern orchestra must shrink, add or change musicians to adjust to the requirements of each venue and performance. Some musicians are not needed full-time, yet ensuring their availability when required is critical to guarantee the consistent performance of the orchestra – new contracting and reward models are necessary to achieve this.

The same holds for balancing services. If you allow too much specialisation in balancing jobs, the costs become prohibitive when using them. If assets are rewarded simply for providing availability, there is no incentive to maximise their value. A smart balancing portfolio means shifting your perspective.

First, shifting from an economy of scale approach in which you derive value when bigger is better (which works well for baseload and VRE) to an economy of scope. With an economy of scope, you create value by extracting as many uses from your asset as possible (the battery storage stack is a good example).

Second, shifting from an output (single job asset performance) to an outcome metric (contribution to overall system synergy), maximising the asset’s impact on the balancing portfolio.

To attract solutions for economies of scope and portfolio outcomes means rethinking procurement and finance options. Traditional Independent Power Producer (IPP) models are highly effective at delivering economies of scale. To attract economies of scope and outcome-focused solutions, other Public Private Partnership (PPP) models could allow better risk and reward allocation, encourage efficient balancing and accelerate decarbonisation. The Public-Private Infrastructure Advisory Facility (PPIAF) provides an excellent summary of different PPP models. You can find a quick overview of various PPP models in this post. Thinking more broadly about how you include assets into your balancing portfolio and being more agile in the economic, risk and reward models can improve returns and performance. Pushing your system to test these models at a pilot scale is often an effective way.

An outcome focused approach should be technology agnostic, enabling balancing solutions that stack multiple technologies (existing and new). Driving agility also means creating more flexibility in contracting – keeping stability where finance and investors require it but being more flexible on adjusting scope mid-contract to allow both parties to capture more value and better decarbonisation.

The next level of decarbonisation
This decade will continue to see massive changes in electricity generation, transmission, storage and use, with many expected and unexpected changes on the path to decarbonisation. On this path, all forms of balancing will play an essential role (including thermal technologies – engines and turbines). If we want to deliver an excellent decarbonization performance, we need to redefine our approach to balancing with Flexibility, Synergy and Agility in mind.

- Louis Strydom, Director, Project and Market Development- Middle East and South Asia, Wartsila.
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