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Why Australia is becoming a leading market for virtual power plants using residential energy storage

Given it’s one of the world’s top exporters of coal, Australia might not be top of mind when it comes to new energy. One area where it is ahead of the curve though, is virtual power plants (VPPs) using residential energy storage. Indeed, ignoring any near-term market disruption due to COVID-19, we see the potential for a doubling of residential storage assets taking part in a VPP over the coming year or so. This will take the installed base active in a VPP to 10,000 systems. Alongside Germany, this makes Australia one of the most active global markets we have seen. 

At Delta-EE, we decided to look at what has been fuelling this growth down under. Here, I set out some of the key reasons we identified: 

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The murky world of flexibility platforms

The word ‘platform’ is one of the biggest energy business buzz words of the 21st century. Across the energy industry everyone has been talking about them, developing them (or being told they need to develop one) and the demand side flexibility space is no exception to this. But what do we even mean by ‘platform’? Do all these flexibility platforms do the same thing? And if not, how do they fit together?

In the last few months, the Flexibility Research team has been looking in depth at the murky world of platforms to answer these questions. There’s been no simple answers, but through discussions with contacts across the sector we’ve developed a framework of four types of platforms and their capabilities. Whilst it’s still early stages, there are examples of each of these platforms interacting with each other to cover the full demand side flexibility value chain.

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A Flexible Demand Revolution is coming: What role for smart heat pumps?

The direction of travel is clear for European markets – demand side flexibility will be an essential requirement of the future energy system.

In some markets (e.g. Germany, France, Denmark), the first signs are there. In other markets (e.g. the UK), future penetration of renewables and increasing distribution network congestion will see increased requirements for flexibility – we see the demand side as well positioned to provide this flexibility. And drawing upon Delta-ee’s ongoing research in heat and distributed energy, one of our conclusions is that electric heating will be a key part - or even the key part - of this on-coming flexible demand revolution.

This view was backed up by 
the research for our new report on Smart Heat Pumps (from the Delta-ee Heat Pump Research Service).  I also saw evidence of the growing recognition of the role of heat pumps during some of the interesting discussions at our Heat Pump Roundtable in Paris last week (a convergence of utilities, heat pump manufacturers and other industry players, which i'll tell you about in a later blog...).  We see a huge amount of activity using heat pumps - and electric heating - as a flexible demand resource.  Examples include:
  • There are a huge number of demonstration projects across Europe testing how much flexible demand can come from electric heating (including heat pumps), and how much value this can create for customers, utilities and others.
  • There are many more “smart-ready” heat pumps on the market from manufacturers than 12 months ago (e.g. including from NIBE, IVT, Neura and several others);
  • Some utilities have already launched smart electric heat offerings, or are testing business models (e.g. Fortum, EDF);
  • A host of new players are finding business opportunities for themselves in the emerging smart market – for example HEMS companies (e.g. There Corporation), and independent aggregators (e.g. Voltalis).
What is a Smart Ready Heat Pump – And Why Are They Required?

We believe that value will be offered for flexible demand in the future. If heat pumps can exploit this value, and use it to create a better customer proposition, a part of this value will be shared with the customer.  And it is when the value is shared with the customer, that the flexible demand revolution will really translate into sales growth for heat pumps.

We have identified three key characteristics which differentiate ‘smart-ready’ heat pumps from ordinary heat pumps. Our competitor analysis reveals that a very small number of manufacturers fully meet all of these criteria – though many are taking steps in this direction:
  • Connectivity: The ability to remotely monitor and control the operation of the heat pump is a minimum requirement for any smart heat pump.
  • 2-way Communication: The heat pump should be able to accept dynamic signals from external sources (for example, weather forecasts, variable price signals, direct control requests)
  • Sophisticated Control Algorithms: The control system should be able to optimise performance through proactively preparing to meet demand AND providing flexibility.
Where’s The Money?

In our latest research on smart heat pumps, we identify five key value sources for flexible demand. While it is difficult to exploit many of these value sources today, we see developments in market and regulatory structures which will ultimately open up more of these value streams:
  • System operators paying for balancing services from flexible demand resources such as heat pumps
  • Distribution Network Operators avoiding the costs of grid upgrades by shifting the operating times of e.g. heat pumps away from peak times
  • Energy retailers creating value by shifting HP demand to periods with lower electricity costs
  • Energy retailers minimising their imbalance costs by using smart heat pumps to reduce the errors between actual demand and expected demand.
  • End customers benefiting through e.g. time of use tariffs enabling running cost savings, or even eventually ‘heat pump for free’ business models.
The way in which value is shared across the different stakeholders in the electricity value chain – and critically how much is shared with the customer - will determine the size and exact timing of the flexible demand opportunity.

In my next blog on this topic I’ll be looking at some of the learnings from selected demonstration projects testing the use of heat pumps as flexible demand……..
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Recent Comments
Guest — Aaron Hanson
Great read. I know that Nest thermostat offers a program called Auto-Tune that works with utility companies to use smart heat pump... Read More
Tuesday, 11 February 2014 22:50
Guest — James
Great post!!This program will really help to use less energy....
Wednesday, 09 April 2014 08:42
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Takeways from E-world trade fair in Essen, Germany

The German federal government’s decision for a nuclear withdrawal until 2022 and the resulting topic of “energy revolution” dominates the energy industry agenda in Germany, as was clear from my visit at the E-world energy & water trade fair held last week at Messe Essen on February 5-7.  The fair had more than 600 exhibitors from the fields of the electricity, gas and water industries, energy technology and energy efficiency.

As I would have expected, energy trading, renewable energies and energy efficiency were all very visible themes at the fair, with many companies promoting their products and services in these areas.  But some of my main takeaways from E-world include:

Virtual Power Plants (VPPs) attracting lots of interest and activity:
  • I heard there were 9 companies at the fair promoting their VPP technology, and talked with several of them.  Some companies are clearly at an earlier stage of development than others, but many (including Delta-ee) believe VPPs will play an increasingly important role in the new energy economy.  Vattenfall’s VPP project is one of the most advanced.  It is now moving into a second phase with the intention of including new technologies into the VPP such as cooling, hydrogen production, storage heaters and batteries.  An announcement is planned this week regarding the addition of a 2MW battery to the VPP in Berlin.  The company clearly has some ambitious aims for its VPP technology and project, not least giving it a route to grow nationwide in Germany away from its core Berlin and Hamburg markets.  It has also launched its own “Virtual Heat & Power” VHP label as a new technical standard for heat pumps and CHP - follow this link VHP for more details.  Whether the VHP label will be able to gain traction with manufacturers and be attractive for customers remains to be seen - especially given other labelling initiatives, such as the "Smart Grid Ready" label recently agreed by heat pump manufacturers (see this link Smart Grid Ready).

CHP is on the upswing:
  • The market trend in Germany is definitely positive and improving.  The revisions to the CHP law last year have had a positive impact on the market – although it seems that some customers are still reluctant to invest even though the economics look increasingly attractive.  Perhaps this reflects the weak economic outlook, or customer fears of new technology.  Tax regulations are a concern for suppliers developing contracting and financing models.  If the end-user owns the plant then EEG tax is not applied to his consumption.  However, if the plant is owned by a third party (eg an ESCO), the end-user becomes liable to pay the EEG contribution.  As the EEG contribution is now €5.3c/kWh this can have a significant negative impact on heat contracting business models.  Lawyers specialising in this field, and with contract models that can avoid this issue, are very much in demand.

Data services and smart home is already a crowded space:
  • There are lots of what look like “me too” vendors – variations on the same theme of home hub, sub-metering and website/smart phone interfaces.  Many vendors are positioning themselves as software companies that are essentially service providers to a customer facing organisation – ie the energy supplier.  I am mystified (along with many others I suspect) why some large energy suppliers are trying to develop their own proprietary smart home propositions.  The utility propositions I saw appear over-engineered and expensive in comparison to smaller, nimble players that are innovating quickly.  After all even a two year smart home contract for €25/month (and say €5/month thereafter) will be a tough sell for many customers – so making money is not going to be easy for anyone in this space, especially if you have a high cost base.

Delta-ee will be attending ISH in March and Hannover Messe in April and we’ll be sharing our thoughts in due course – and if you would like to meet up at either event please do get in touch.

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Recent Comments
Jan Hughes
I like the idea of the VHP (Virtual Power Plant Ready) badge. Almost like a GTI badge on a car - or a 4G enabled badge on a mobile... Read More
Wednesday, 13 February 2013 12:02
Guest — Andy
The problem with with any new label is that manufacturers will hate having to meet different labels and different standards - they... Read More
Wednesday, 13 February 2013 12:25
Guest — Tako
Hi Andy, I've read your articles about data services and smart homes. Very interesting views. I think there is a potential role f... Read More
Wednesday, 27 February 2013 21:12
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