Many European countries are making good progress towards decarbonising their electricity supply through increasing the proportion of electricity coming from renewable sources. But managing the intermittency of generation from some these sources such as PV and wind presents a challenge to Transmission System Operators (TSOs), who are responsible for ensuring the stable and secure operation of the electricity transmission network.
The costs involved in maintaining a stable supply are significant: the UK’s TSO, National Grid, for example, spends around £1bn per year (around a quarter of its total income) procuring ‘balancing’ or ‘ancillary’ services. These services are needed to balance the electricity grid, ensuring enough electricity is available (and at the right times) to meet demand and to maintain the right frequency of electricity.
Our upcoming European Heat Summit will discuss the range of possible solutions to this European challenge, one of which is the widespread adoption of combined heat and power technologies; in particular, residential-scale micro-CHP.
Synergies with the favoured approach to decarbonise heat
Dispatchable, distributed natural gas-fired generation – such as micro-CHP – could help to provide this service, and at a lower carbon cost than diesel generators, which are the more established option right now in many places. Residential micro-CHP is also well-placed to help meet demand at peak times like winter evenings, as operation is often linked to household occupancy.
As well as this, a fact often over-looked by policy makers is that their preferred low-carbon heating option – heat pumps – will require the most power at times when pure renewables are not likely to be generating at full capacity. Micro-CHP offers a solution to this: when one household is using a micro-CHP unit to heat their home, they could be exporting the generated electricity to run their neighbour’s heat pump.
But would this be worthwhile? What level of remuneration is currently available for micro-CHP users for providing this service? That’s the question we’ve looked to address in our latest report for the Delta-ee Micro-CHP Research Service.
We examined the additional revenue which could be available to micro-CHP through providing electricity to the ancillary services market, and the capacity market, in two of the ‘beach-head’ markets for micro-CHP: the UK, and Germany.
Some value added – but not enough, unless there are changes to the regulatory framework or the current micro-CHP proposition
Armed with our in-depth knowledge of the micro-CHP industry’s products, we calculated the annual revenue that a residential micro-CHP system (1kWe) could earn from participating in 6 key value streams offered by TSOs:
FIGURE 1: ELECTRICITY MARKET SERVICES ANALYSED IN OUR LATEST REPORT
In both Germany and the UK, the additional revenue that can be accessed from these services is fairly low: below £150/€150 a year per kilowatt of micro-CHP electricity, and often less depending on the specific service provided. At current product prices, this is not enough to make a significant improvement to micro-CHP’s net present value or payback time.
The most valuable services – the ones concerned with maintaining the right frequency on the grid –require very fast activation times: usually sub 30 seconds. This is outside the ability of most micro-CHP technologies, although if they were to be paired with battery technology this would be a different story - more on this later.
An important logistical point is that access to many of these services also requires aggregation into fleets of at least 1MWe capacity: another challenge for micro-CHP, both in terms of number of units needed, and the costs associated with the necessary hardware and communications equipment. A few companies have explored the possibility of a virtual power plant (VPP) of individual but remotely connected micro-CHP units (e.g. Lichtblick in Germany) but none have yet been able to deploy at scale.
Other revenue streams more valuable for micro-CHP – and easier to access for customers
Our conclusion: the traditional ancillary services and capacity market in the UK and Germany are not set up to reward micro-CHP for its role in grid balancing. There is not enough financial reward available for a company to look to build a proposition around providing support to the grid through these mechanisms – and this does not look set to change any time soon.
More traditional micro-CHP value streams – such as enhancing self-consumption, or the subsidy schemes available to end-users in these markets – are both worth more, and easier to access on an individual unit basis. There are also a number of other “values” which micro-CHP units could look to access or tap into in order to make the proposition more appealing for customers – such as increased self-reliance.
Bundling with battery storage will increase the end-user value micro-CHP can offer
The ‘wildcard’ in this story could be the opportunity opened up by adding a battery to the micro-CHP proposition. As well as allowing access to the more valuable frequency response services (if deployed at scale), on-site electricity storage would also enhance self-consumption of electricity from the micro-CHP, plus tap into customers’ desires for independence from the grid or “energy autarky”, or a feeling of greater energy security.
And this strategy – adding a battery - is something we are already seeing emerge as a proposition from some of the major micro-CHP players like BDR Thermea and Viessmann, as show-cased at this year’s ISH trade fair in Germany.
FIGURE 2: BRÖTJE ECOGEN 1KW STIRLING ENGINE WITH ~8KWH LI-ION STORAGE BATTERY (LOWER HALF OF THE UNIT), ON DISPLAY AT THE ISH FAIR IN FRANKFURT, MARCH 2017.
Battery and micro-CHP costs will both need to fall some way yet to make the individual customer economics stack up. But with tens of thousands of home battery storage systems already installed in Germany among PV owners, and recent news that E.ON is launching a solar PV + battery offering in the UK, the concept of home electricity storage is certainly gathering steam, and could add extra ‘oomph’ to micro-CHP, on an individual level at least. More long-term, blockchain technology and peer-to-peer energy trading could help to unlock value, without needing to meet the requirements of frameworks designed for more centralised generation.
Find out more…
For more detail about our work on the value of micro-CHP send me an email; and if you are interested in the concepts of heat and electricity sector coupling and emerging business models, you can join us to discuss at the Delta-ee European Heat Summit. Information and registration options are available on the Delta-ee website here.