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Future energy systems: Decentralisation and virtual power plants

Technological innovation and new trends could produce a much more flexible, resilient and efficient energy grid. Will regulators be bold enough to unleash the true power of these new systems?


A walk around Osaka’s Dotonburi district is an energetic affair. Rainbow-coloured mozzarella hotdogs are just one of the wacky things on offer. I enjoyed the iridescent cheese whilst taking in the neon lights.


These vivid lights inspired futuristic cityscapes in the Blade Runner films but to this day, they are powered by an electricity grid that has remained largely unchanged for over a hundred years. The same is true of grids the world over. However, we could be on the cusp of radical change.


Cities and authorities are grappling with how to power a clean, low-carbon future filled with electric mobility, homes and robotics. Trillions of connected devices and associated data centres could be consuming a fifth of global electricity by 2025.


In the developing world, more and more people will have access to electricity for the first time. There is also the prospect of greater demand for air conditioning as incomes (and temperatures) rise. All these factors add fervour to the collective scratching of heads.


Global annual electricity demand is predicted to increase by 57 per cent by 2050, compared with 2017. The UK’s demand at peak times in 2050 could be 42 per cent higher than today’s, according to the National Grid.


The challenge for the energy sector is not only to meet this future demand while decarbonising, but also to create a more flexible, resilient and efficient system in the process.


As well as betting big on hydrogen as a key solution for long-term interseasonal renewable energy storage, Japan is exploring decentralisation and digitalisation of the grid, through numerous projects, including in Osaka.


Decentralisaton comes full circle


Before large-scale electricity grids were rolled out in the 1900s, electricity started off local, and decentralised, with a patchwork of micro-grids operating across cities. Factories and housing estates had their own independent generators and cabling networks.


These isolated micro-grids were then integrated and centralised. Larger ‘utility-scale’ power stations served homes and businesses across whole cities, and could be situated many miles from where the power was used, due to the advent of Alternating Current (AC).


We may be coming full circle, then, if decentralisation initiatives today take root and spread this time brought by advances in renewable energy technology, energy storage and the power of data, as opposed to Edison and his lightbulb.


Distributed Energy Resources


Decentralisation involves home-owners, small communities or businesses owning and operating electricity generation and/or storage assets largely for their own use.


These assets, or Distributed Energy Resources (DERs) as they are known in the sector, are growing year on year and include: solar photovoltaic (PV) panels, wind turbines, and lithium-ion battery storage (e.g. in electric vehicles, e-bikes and e-scooters).

Source: Navigant Research
Source: Navigant Research

[The Navigant Research image above shows global distributed solar PV plus battery storage capacity (MW) and vendor revenue: 2017-2026]


The potential benefits of decentralisation include: greater resilience, preventing widespread power outages; more flexible daily use of stored energy from intermittent renewables; cheaper energy; and bottom-up decarbonisation.


Trading energy with your neighbours


Decentralisation unlocks the possibility for owners of DERs to trade surplus energy with each other peer-to-peer (P2P), potentially making the traditional role of an energy company redundant. Energy companies are aware of the threat decentralisation poses, and are actively exploring what services they could provide in the new paradigm. Consumers can now also produce energy, creating a new market actor - the ‘prosumer’.


Kansai Electric Power Company (KEPCO) announced two projects in 2018 to research and pilot P2P solar PV electricity trading in Osaka, Japan. The pilot will use blockchain technology from Australian company, Power Ledger, to record the transactions.


David Martin, Co-founder, Power Ledger, said: “The trial will see KEPCO share meter data from participants, initially up to 10 homes, at the chosen sites in Osaka City, Japan.


“We are providing KEPCO access to the Power Ledger trading platform to facilitate and monitor energy trading between participants.


“If we want fundamentally different outcomes from our energy system, we need to adopt a fundamentally different approach.”


“If we want fundamentally different outcomes from our energy system, we need to adopt a fundamentally different approach.”


Another KEPCO project will research the economic aspects. The company explained in a statement: “We have started empirical research on the determination of the price of surplus electricity generated by photovoltaic power, and a new system capable of direct trading.”


KEPCO aren’t the first to explore this area either. New York City’s Brooklyn Microgrid, led by LO3 Energy, demonstrated a blockchain-based P2P solar energy transaction in 2016. The number of residents signed up to the scheme has grown to around 500 today, with 60 operating rooftop solar PV plus battery storage (the prosumers), and the rest (the consumers) using the locally produced energy.


The microgrid’s energy marketplace is due to go live this year, with a period of simulation first, before real money and energy change hands.


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Local ‘prosumer’ in Brooklyn Microgrid (Source: Brooklyn Microgrid)
Local ‘prosumer’ in Brooklyn Microgrid (Source: Brooklyn Microgrid)

LO3 has designed and built a bespoke smart meter system for its microgrid projects. The system communicates electricity usage in real-time to cloud-based marketplace software and also allows solar and battery resources to be controlled remotely.


Digitalisation and automation will be key if P2P energy trading is to scale up.


Daniel Mee, Senior Manager – Energy Systems Architecture at Energy Systems Catapult, explained: “I don’t think most people are going to get up in the morning and decide to sell the next half hour of their energy to the local convenience store. Then after breakfast, trade energy with someone else. It’s not going to be practical. If it’s to take off at scale, then it has to be automated.”


Energy Systems Catapult is the UK government’s innovation centre for energy, and there’s plenty of activity in this space in the UK. EDF Energy and UCL are currently trialling a P2P energy trading scheme in Brixton, London again using blockchain. Residents of Elmore House will be able to choose whether to use or trade energy from a solar PV array and battery storage installed on the roof, through an app.


Digitalisation and automation will be key if P2P energy trading is to scale up.


Xavier Mamo, Director of Research & Development at EDF Energy, said: “This project in Brixton aims to show how small communities in dense urban areas could benefit from a low carbon and local energy system in a new and transformative way.”


It is currently illegal in the UK for consumers to buy and sell electricity between each other. However, the regulator Ofgem gave permission for the pilot to deviate from regulation. Permanent changes to regulation could help unlock this innovation further.


P2P energy trading has become more critical too, now that the UK Government-subsidised Feed-in-Tariff scheme for new small-scale solar and other renewable installations has come to an end. The scheme guaranteed a price for surplus energy fed back to the grid and will be replaced by a market-led pricing mechanism in 2020. Crucially, only large energy suppliers will be able to purchase surplus energy from households. Enabling P2P transactions could ensure a better functioning market, helping renewables navigate this tricky transition phase.


Seeing mobility as energy


In addition to home battery storage, EV batteries look set to form part of the decentralised future too.


At the end of 2018, the global EV stock of light vehicles was over 5 million, growing to between 162 and 548 million by 2040.


EV batteries can help with short-term storage of surplus energy e.g. from intermittent renewables and provide essential grid-balancing services. These include ensuring supply meets demand exactly, on a second-by-second basis, and keeping the electricity frequency constant.


UK energy company OVO is leading the world’s first large-scale Vehicle-to-Grid (V2G) project with Nissan. A specially built charger automatically feeds Nissan Leaf batteries when demand is low and sells excess energy back to the grid when demand is high.


The first charger was installed in December 2018, with funding for 1,000 households to take part in the two-year initiative.


It’s likely that we will see P2P energy trading projects that include EV batteries in the near future as well.


Annual e-bike sales China and the rest of the world: 2016-2025 (Source: Navigant Research)
Annual e-bike sales China and the rest of the world: 2016-2025 (Source: Navigant Research)

If the rapid rise of e-scooters, e-bikes, and e-buses continues, they could also be used as distributed energy resources in a wider Mobility-to-Grid (M2G) system. There are currently 200 million e-bikes in use across the world, predicted to grow to 2 billion by 2050. The electrification of the global bus fleet is well underway too, with 400,000 e-buses on the road today.


Cities with docked e-bikes, such as Lisbon, could prove fertile ground for demonstrating the concept in the short-term, as well as home-based grid connections for owners of e-bikes and e-scooters. For dockless e-scooters and e-bikes to be more useful to the grid, there would need to be a vast increase in suitable charging infrastructure in public spaces. Then could then be connected to the grid when idle, without impacting the operating model.


Vehicle-to-Grid (V2G) could pave the way for Mobility-to-Grid (M2G). Today, EVs are parked 96 per cent of the time, providing ample opportunity for V2G interactions. However, the shared autonomous EVs of the future are predicted to be parked much less. Therefore, the nature of V2G for driverless cars will be different, with potentially fewer grid services being suitable.


Incidentally, the ever-decreasing price of lithium-ion batteries is helping to drive decentralisation through the growth of EVs and home battery storage. The average battery pack fell 85 per cent from 2010-18.


However, other battery technologies are causing excitement too. Tesla completed its acquisition of Maxwell Technologies recently. Maxwell has a patented ultra-capacitor battery technology it claims has 45 per cent higher energy density than Tesla’s current crop.


Virtual power plant


Using digital technology to aggregate EV batteries and other distributed energy resources, including smart home appliances, into ‘Virtual Power Plants’ (VPP) is a concept that has gained traction in recent years. VPPs are also called Virtual Energy Systems (VES) and could be seen as analogous to the digital platforms disrupting the transport sector via Mobility-as-a-Service (MaaS).


Internet of Things technology can collect data from and remotely control these resources. Algorithms can then optimise the energy system across a local area or city to serve the needs of end customers.


Tesla is building the world’s largest virtual power plant in South Australia with support from government. The plan involves 50,000 homes equipped with solar PV and battery storage.


One-hundred homes were equipped in 2018 for phase one, and now a further 1,000 homes are being equipped for phase two before scaling up to 50,000 beginning in 2019. The initiative aims to lower energy prices and increase grid stability.



South Australia VPP (Source: Tesla)


The British and Japanese Governments are also keen to explore VPPs. In April of this year, the UK Government announced £102.5 million funding for four VPP projects: Energy Superhub Oxford, ReFLEX Orkney, Project Leo (Local Energy Oxfordshire) and Smart Hub SLES (West Sussex).


Tesla is building the world’s largest virtual power plant in South Australia.


Likewise, the Japanese Government recently approved additional funding for KEPCO’s VPP demonstrator project in Osaka, which started in 2016.


The project includes aggregating solar, home battery storage and EV batteries to optimise energy use and help keep the frequency of electricity supply on the wider grid, constant.


Osaka train company Kintetsu recently commissioned Tesla to install a 42-battery storage system to provide power to trains in the event of an outage. It will also help reduce demand on the grid at peak times. This energy resource has been connected to KEPCO’s VPP too.


Osaka’s neon lights, and electrical devices across continents far and wide, look to be on the verge of a system upgrade. Increasingly rapid decentralisation, driven by the advent of lower-cost renewable energy generation and storage technology, is making energy local once again.


Using digital innovation to harness the collective power of various distributed energy resources, including electrified mobility assets and P2P marketplaces, could produce a more flexible, resilient and efficient system.


It will take bold regulators, though, to fully release these disruptive forces that could leave century-old energy players looking for a new role.


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