Aussie start-up Reposit Power have an exciting vision, whereby households can store their solar energy and collectively sell it on the wholesale spot market. But like a lot of things in the energy world, a German company called Next Kraftwerke has been doing this sort of thing for six years already, with astounding results.
What do Next Kraftwerke do?
They provide commercial energy customers with the opportunity to buy and sell their electricity, allowing them to benefit from the price fluctuations in the energy spot market. They do this via two mechanisms –
- a Virtual Power Plant (VPP) which aggregates small generators and sells their power on the spot market when the price is high enough.
- b) selling retail electricity to customers at a cost which reflects the true wholesale spot rate, up to a fixed price ceiling
Next Kraftwerke show that when consumers, generators and pro-sumers are given the chance to opt-in to a more cost-reflective market structure – everyone wins, including the greater good.
Electricity is a dumb market
As a one-time student of economics, I’m fascinated by anything that optimises market efficiency. More efficient markets can lead to better outcomes for participants, and ultimately less wasteful use of resources. Electricity is one highly inefficient market – plagued by overcapacity, over-investment and over-pollution.
In Australia, the energy regulators failed the people to the tune of $16 billion dollars between 2010 and 2015. This was the amount of network capacity upgrades which could have been avoided via distributed energy solutions, according to the Institute for Sustainable Futures. But the bigger network got built, and the prices went up.
Above – MUST WATCH The Chaser explains electricity prices rises in Australia ( laugh out loud entertaining)
One key regulatory failure of our electricity market is that energy users are not exposed to the true cost of electricity, which can fluctuate wildly on the wholesale spot market. The relatively fixed energy retail price – designed to protect consumers – creates a market distortion which removes the incentive for demand-side participation. It could be argued that flat pricing has not protected – but actually hurt consumers – and been a key contributing factor to Australia’s very high delivered energy costs.
Smart business fixing a dumb market
In Germany, 2009, Hendrik Sämisch (economist) and Jochen Schwill (engineer) were postgraduate students at the University of Cologne researching the potential of standby generators to provide grid services via an aggregated Virtual Power Plant (VPP). The opportunity they found got them so excited that they quit their PhD’s and started Next Kraftwerke.
In the beginning, Jochen and Hendrik cold-called hospitals and factories all over Germany to see if they wanted to use their idle emergency generators to earn extra cash. The customers said yes. Soon, they developed the software and control devices to build their first Virtual Power Plant (VPP).
Now, Next Kraftwerke have grown into one of the success stories of the German Energy Transition and are paving the way for the future of the electricity market.
The Next Kraftwerke Virtual Power Plant (VPP)
Today their VPP comprises of 2600 distributed generators between 100kW and 20MW in size. The VPP includes variable generators such as wind and solar farms, as well as schedulable generators like cogeneration and biogas, and balancing plants such as emergency generators. The combined capacity of the virtual power plant is 1.5GW – the equivalent of large coal power station. In 2014 alone, the VPP sold A$300 million (€184m)worth of distributed energy onto the wholesale market.
Each schedulable plant is fitted with a control device (the ‘Next Box’) which can scale up or down the power plant via a software algorithm which optimises participation in two markets:
- Frequency regulation market – transmission network operator pays Next Kraftwerke on a minute-by-minute-basis for ‘balancing services’ which help keep the grid frequency at 50Hz.
- The wholesale energy market – generators sell to the spot market when the price is optimal.
Check out the Virtual Power Plant game to get a feeling for how these markets operate.
A new way to sell energy
In recent years, Next Kraftwerke have allowed customers to buy energy as well. Commercial clients opt-in to buy electricity with full or partial exposure to the wholesale spot market, up to a fixed price ceiling.
Next Kraftwerke analyse weather and market data to send each customer weekly and daily forecasts of markets prices so the customer can best manage their energy loads. In most cases, however, loads are turned off remotely using Next Kraftwerke’s control systems. They have found that commercial customers have a strong price elasticity of demand when the process is seamlessly automated and applied to technologies which can be turned off temporarily, such as cooling and heating systems, grinding processes and flexible pumps.
For example, the water coming in to the dykes in Northern Germany must be pumped out daily by huge pumping stations to avoid water seepage, resulting in monstrous power bills. Simply by shifting loads, the customer was able to reduce their electricity charges by 30%. This is great for the customer and for the common good – we all benefit through more stable wholesale prices.
What’s next for Next Kraftwerke?
In 2014 the company was recognised as the Energy Start-up of the Year, and also won the German Entrepreneur Award 2014 and the Harvard Clubs of Germany Innovation Prize. According to Hendrik, this is just the beginning. “We are adding new generators every week. Small, decentralised actors are the key to reaching 100% renewable energy”
Having already expanded to France, Belgium and Austria, I ask whether Australia is in their sights. “Not in the near future, but we’re always open to opportunities. Europe is a big market for us to expand into right now”. The company also has it’s sights set on residential customers in the long-term.
Lessons for Australia
Regulators need to speed up the shift to more liberal market mechanisms for electricity customers. The Next Kraftwerke experience shows that many commercial and industrial customers are gaining a greater understanding of their electricity and are more willing to engage with market forces.
To their credit, the AER changed the NEM rules in 2012 to allow the aggregation of small generators to form a Virtual Power Plant. After two years only 8 aggregators have registered (including Enernoc, GoEnergy, Diamond Energy and some biogas and hydro generators) however – as far as I’m aware – none are doing any serious aggregation like Next Kraftwerke.
So, a massive gap in the market? There is an opportunity!