This is the second of a series of articles on the rapidly evolving domain of grid edge markets. Our first article highlighted the need for innovation to overcome operational risks associated with increased penetration of DERs as they become aggregated and orchestrated via virtual power plant technologies, and raised the question:
How do we manage the system so that customers are able to optimise the value from their investments AND ensure that the security and reliability of the network is maintained?
In this article, we explore a potential solution via the introduction of a DER management and market platform.
The future marketplace
MHC believes that a management and market platform for distributed energy resources (DERs) is a key component of the grid edge marketplace of the future. The platform supports the customers’ desires to connect DERs and get the most value possible from them (to reduce their power bills). It also works to maintain the security and reliability of the physical network that facilitates many of customer value streams. To explain how, first it is important to understand the components of this future grid edge marketplace.
Wherever possible MHC has tried to use the terms outlined in the Electricity Network Transformation Roadmap to ensure consistency with the emerging nomenclature surrounding these new concepts.
Figure 2: An overview of the future grid edge marketplace
- DERs – The distributed energy resources such as PV, battery systems and controllable loads purchased by customers and installed behind the meter. These DERs can be grouped into an aggregated source of flexible capacity (e.g. additional supply, reduced demand) to support the balancing of supply and demand on the grid.
- Controllers – DERs need to be integrated with a controller unit which enables remote control and acts to optimise the operation of the system in response to remote communication signals. For DERs to be integrated into the DER platform they need to be able to provide defined power products, be visible on the platform, and be remotely scheduled and dispatched.
- Aggregators (A1-A3 above) – Organisations (including retailers) who have a contractual relationship with a customer that allows them to interact with the customer’s DER under certain circumstances, in return for financial compensation.
- DERMS – Distributed Energy Resource Management Systems (DERMS) which orchestrate the activity of the DERs in the VPP, sending signals to the DERs to influence their behaviour in order to provide value for customers and the system. Each Aggregator will have one or more DERMS to manage the DERs in their fleet.
- Market value streams – There are an increasing number of markets that DERs can access via their aggregators. Some may ultimately be accessible without the need for an aggregator (e.g. for very large customers), but in the main, we assume the need for some sort of intermediary to provide sufficient scale for economic trading activity. These value streams could include:
- Reliability and Emergency Reserve Trader (RERT) payments from AEMO to customers for demand response capability during emergency activation events. This source of market value has recently been supplemented by additional funding via the ARENA Demand Response Competitive Round.
- The wholesale electricity market (NEM) which provides a strong price signal to customers based on the supply and demand situation in each jurisdiction.
- The frequency control and ancillary services (FCAS) market, which has been recently made accessible to bidding by aggregators.
- The network optimisation market (NOM). Currently, this market is in the form of the RIT-T and RIT-D which have only recently seen the involvement of DERs. GreenSync’s non-network solution to a United Energy RIT-D in the Mornington Peninsula is one example. In the future, it is envisaged that this market is digitised to become a digital network optimisation market (dNOM), where a range of network services can be provided by aggregated DERs responding to more granular locational and temporal price signals in near real time.
- Another emerging market is being referred to as the distribution level energy market (DEM) where DERs ultimately trade with other customers via many-to-many or peer-to-peer relationships. These arrangements could be facilitated in the near term by a retailer arranging for energy trading within their customer group. Powershop’s “Your Neighbourhood Solar” is an example of this market.
- Other potential markets to add to this growing list include a market or value stream for fast frequency response (FFR) services, which is currently the subject of a Finkel Review recommendation and, of course, the potential value from the National Energy Guarantee (NEG). The ESB explicitly states “customers who have flexible dispatchable demand, including solar and storage, will be able to participate in the short-term hedge market”.
The platform solution
Central to this future marketplace is the DER management and market platform – A digital platform providing a standardised link between multiple aggregators and their DERs and multiple value streams to optimise the performance of the system. GreenSync’s Decentralised Energy Exchange (deX) is an example of this platform. The platform can be thought of as having two layers:
- A physical management layer, or DER Management Platform, which provides for registration and visibility of the DERs, details of their characteristics and location, a communication link to the DERs to enable the DERs to respond to market signals, and details of the physical constraints of the network to ensure that the DERs act in a way that maintains the reliability and security of the network. This layer is the domain of the distribution system operator (DSO).
- A commercial trading layer, which contractually connects the DER to a buyer, defines the service agreement between a buyer and seller and confirms the service does not conflict with other terms and conditions associated with the physical constraints under which DER is registered on the platform. This layer also reconciles that the DER acted in accordance with its instructions and facilitates market settlement. This layer is the domain of the distribution market operator (DMO).
As the physical constraints of the local network are configured into the platform by the DSO, it is reasonable to assume the most efficient marketplace has one platform for a given geographic region of a DSO – possibly the region managed by the DNSP, but it could also be smaller areas or micro-grids.
So, returning to the example issues highlighted in our previous article, how does the existence of the platform help?
- Issue 1 – Excessive reverse flows: the platform enables the DSO to limit its export restrictions to only a small number of DERs around a constrained network asset at a specific time, rather than placing a blanket ban across the entire distribution area. This enables greater penetration of embedded renewable generators on the network.
- Issue 2 – extreme collective DER orchestration: the platform is configured by the DSO with rules which limit the collective behaviour of the DERs to fit within the physical operating constraints of the network. While this is not intended to impact the normal operation DERs and their response to market signals, it prevents against extreme response which risk network reliability and security.
- Issue 3 – a constrained network limits market response: the platform enables the DMO to define market rules to resolve situations where DERs are constrained from responding to market signals due to network constraints.
- Issue 4 – authenticating DER responses: the platform enables the DMO to define a consistent approach to the measurement and verification of DERs response to support market settlement.
The future still has a few kinks to iron out…
While the existence of the platform resolves some issues for the future grid edge marketplace, it also raises a whole lot more questions that need to be explored. These include:
- The role of the DSO. The DNSP is an obvious option for the DSO, and in our view a logical solution with platform an essential tool to ensure a secure and reliable system in the future. However, the DNSP also has another role to play in this marketplace – facilitating the NOM. The NOM requires DNSPs to publish its requirements (e.g. a price signal for temporary demand reduction to defer network augmentation) and provide payments to the customers whose DERs are used to meet these requirements. But if the DNSP is setting limitations on the way the DERs can respond via its configuration of the platform and it is participating in the market via the NOM value stream this could be seen as an opportunity to bias the market response in its favour. Is this concern valid? How can it be resolved?
- The role of the DMO. With a clear role in managing the commercial elements of the platform, a vibrant marketplace needs an independent DMO. That rules out the aggregators/retailers, the DNSPs and the technology providers. Who is best placed to perform this role? And what rules govern their behaviour? Arguably this is a competitive service and should be provided by the most efficient service provider. But this could be seen as risky. Other options include AEMO, but this is a huge undertaking for a single organisation – especially as there will be multiple platforms across Australia.
- Integration with AEMO and TNSPs – how these new platforms interface with AEMO and the transmission system needs to be carefully considered as energy trading and flows need to be coordinated between the transmission and distribution systems to ensure system balancing, power quality and to enable market efficiency. The question of how this interface is managed and how visibility of localised DSO level operations flows up to AEMO to balance the needs of the system all while protecting the privacy of customers is a key challenge for the industry to overcome.
MHC has recently worked with ARENA and the ENA, via its role in the A-Lab, to explore these questions and the immediate priority is to help inform the early grid design and data sharing arrangements that networks need to begin to explore.
The exciting thing about this future is that the technology to enable it is being built today, in Australia, and it is being trialled with Australian customers to deliver real benefits to the system and to customers. Australia is leading the world in progress towards this future and there is significant opportunity in our ability to solve these issues and export the solutions to the world.
Our next article in this series will focus on the transition ahead for network businesses, as they evolve to incorporate the functions of the DSO.
If you are interested in emerging grid edge markets and want to understand how they will impact your organisation and what you can do to make the most of this opportunity and manage the risk – contact Paul Minnock at PaulM@marchmenthill.com
 CSIRO and Energy Networks Australia 2017, Electricity Network Transformation Roadmap. Synthesis Report: Future Market Platforms and Network Optimisation.
 Energy Security Board, Advice on a retailer reliability, emissions guarantee and affordability, October 2017