This is Dana Perkins and you're listening to Switched On. Each week on this show, we bring in different BNF analysts to talk about their research, and this week we're going to focus on grids, more specifically grid flexibility. It's no secret that power grids are strained in locations all over the world. Sometimes they're coping with aging infrastructure or additional capacity installations in the form of intermittent sources like solar, or changes to power demand resulting from more electric vehicles on the road, and often they're not very flexible and the technology to manage things can be lagging. In developed economies where blackouts are uncommon, we've come to expect access to power to be readily available whenever we want it, So today we're going to get into some of the things that utilities are doing to adapt and ensure that that remains possible. The solution being featured is the emergence of local flexibility markets. Sanjit Sangera leads bnaf's Grids and Utilities team, and he's joined today by Felicia Amanov, who is the lead author on a recent report titled Europe's Local Flexibility Markets aiding a strained grid BNF subscribers will be able to access the full report on BNF dot com or at BNF go on the Bloomberg terminal. If you want to hear more episodes or share this show with others, subscribe to this show and give us a review. But right now, let's start our conversation on local flexibility markets, what they are, where they are, and how significant of a solution they could become. Sanji, welcome to the show.

This is Dana Perkins and you're listening to Switched On. Each week on this show, we bring in different BNF analysts to talk about their research, and this week we're going to focus on grids, more specifically grid flexibility. It's no secret that power grids are strained in locations all over the world. Sometimes they're coping with aging infrastructure or additional capacity installations in the form of intermittent sources like solar, or changes to power demand resulting from more electric vehicles on the road, and often they're not very flexible and the technology to manage things can be lagging. In developed economies where blackouts are uncommon, we've come to expect access to power to be readily available whenever we want it, So today we're going to get into some of the things that utilities are doing to adapt and ensure that that remains possible. The solution being featured is the emergence of local flexibility markets. Sanjit Sangera leads bnaf's Grids and Utilities team, and he's joined today by Felicia Amanov, who is the lead author on a recent report titled Europe's Local Flexibility Markets aiding a strained grid BNF subscribers will be able to access the full report on BNF dot com or at BNF go on the Bloomberg terminal. If you want to hear more episodes or share this show with others, subscribe to this show and give us a review. But right now, let's start our conversation on local flexibility markets, what they are, where they are, and how significant of a solution they could become. Sanji, welcome to the show.

Hi Danna, thank you for having me.

Hi Danna, thank you for having me.

And Felicia, thank you for being here.

And Felicia, thank you for being here.

Great to be here.

Great to be here.

So we're here to talk about grid flexibility and some innovations on that side that have to do with markets. But before we get to the market flexibility end of things, we like to do a history lesson at the beginning of every show, which is how traditionally flexibility has been handled when it comes to the grid.

So we're here to talk about grid flexibility and some innovations on that side that have to do with markets. But before we get to the market flexibility end of things, we like to do a history lesson at the beginning of every show, which is how traditionally flexibility has been handled when it comes to the grid.

Yeah.

Yeah.

Sure, I think we need to maybe start with what the term flexibility means as well, because it's kind of an ambiguous term.

Sure, I think we need to maybe start with what the term flexibility means as well, because it's kind of an ambiguous term.

Really, back to basics, Okay, here go, Yes, so.

Really, back to basics, Okay, here go, Yes, so.

We'll start there.

We'll start there.

So, one of the critical challenges of operating a power system is balancing supply and demand. So an electrical power system has to be instantaneously balanced supply and demand all the time. And this is what a system operator, a grid operator, is spending much of their time doing.

So, one of the critical challenges of operating a power system is balancing supply and demand. So an electrical power system has to be instantaneously balanced supply and demand all the time. And this is what a system operator, a grid operator, is spending much of their time doing.

And they have to do this across all types.

And they have to do this across all types.

Of time ranges, so second to second, minute to minute, hour to hour, and they're looking even further out to make sure that they'll be able to do this. And they're also trying to do it both at a system level, so think of like the entire Great Britain power system, as well as at a kind of a local regional level.

Of time ranges, so second to second, minute to minute, hour to hour, and they're looking even further out to make sure that they'll be able to do this. And they're also trying to do it both at a system level, so think of like the entire Great Britain power system, as well as at a kind of a local regional level.

So they want to make.

So they want to make.

Sure that each region doesn't have too much power being produced or consumed, because what can happen then is the individual power lines supplying that region will get congested or overload, and that can cause issues with the failure of those equipments.

Sure that each region doesn't have too much power being produced or consumed, because what can happen then is the individual power lines supplying that region will get congested or overload, and that can cause issues with the failure of those equipments.

So this is the game that we're in, right.

So this is the game that we're in, right.

We're trying to balance the power system cross time, cross space, and we're doing this constantly. Flexibility is the word that we use about how we're going to go about solving that problem, right, and so here we're talking about taking a generator and either taking its output the production of it up or down. We could take a point of consumption and maybe we could reduce it or even maybe ask it to be raised artificially at a point in time. And battery storage technology is in there too, somewhere in between generation and demand, and it could be charging or discharging. And so these are the tools that we have at our disposal. And historically, you know, most of the flexibility was being provided by generators, and not even just generators large clustered like the large generator sitting in a single spot, and so flexibility was highly centralized and consolidated. This is now changing, Like you know we've spoken here before, generation fleet is changing, and also consumption patterns are changing, and so where we're going to get flexibility from will also have to change. And so the rise of markets come about as a means of solving this problem of taking flexibility from a vast number of distributed assets and being able to solve challenges of flexibility both at a system and.

We're trying to balance the power system cross time, cross space, and we're doing this constantly. Flexibility is the word that we use about how we're going to go about solving that problem, right, and so here we're talking about taking a generator and either taking its output the production of it up or down. We could take a point of consumption and maybe we could reduce it or even maybe ask it to be raised artificially at a point in time. And battery storage technology is in there too, somewhere in between generation and demand, and it could be charging or discharging. And so these are the tools that we have at our disposal. And historically, you know, most of the flexibility was being provided by generators, and not even just generators large clustered like the large generator sitting in a single spot, and so flexibility was highly centralized and consolidated. This is now changing, Like you know we've spoken here before, generation fleet is changing, and also consumption patterns are changing, and so where we're going to get flexibility from will also have to change. And so the rise of markets come about as a means of solving this problem of taking flexibility from a vast number of distributed assets and being able to solve challenges of flexibility both at a system and.

A local level.

A local level.

Well you're talking about system versus local. Let's define that even further as well, because when I think about the system level, the system itself is getting more complex. We're adding a wider variety of different energy sources onto it, and things are being put in various different locations. Are we still talking about creating flexibility and complexity at the local level when it comes to working with utilities. Are we actually talking about individuals, So I'm thinking of a home generator or a home power wall that would then give them backup power or does it really just depend on whether or not there's a lot of solar and a feed in tariff in that particular market structure.

Well you're talking about system versus local. Let's define that even further as well, because when I think about the system level, the system itself is getting more complex. We're adding a wider variety of different energy sources onto it, and things are being put in various different locations. Are we still talking about creating flexibility and complexity at the local level when it comes to working with utilities. Are we actually talking about individuals, So I'm thinking of a home generator or a home power wall that would then give them backup power or does it really just depend on whether or not there's a lot of solar and a feed in tariff in that particular market structure.

So yeah, I think we're talking about both really, But what we think is most exciting is the distributed small stuff, and that can be people's homes. It can be rooftop solar and batteries in people's homes. It can be an electric vehicle charger, and even at a slightly larger level, it can be things like in an individual public charging station for cars. That's where we come into these new types of flexibility markets. So local flexibility markets are these markets that are run by distribution grid operators. So distribution grid operators are the guys that run the local grids that bring in the power into our homes. And as there's now more and more new low carbon technologies connecting at the low levels of the grid, the operators need new tools to tackle this. So it's all the rooftop PV, all the evs and things like heat pumps that are replacing gas boilers, and a market is just a way of paying someone to behave flexibily. You can kind of get different types of flexibility also, for example through a tariff, so someone can have a flexible tariff where during a certain time of the day your price is lower. But by doing it in a market mechanism, you can do more complex things, so you can create these situations where you can have both demand side flexibility and generation side flexibility play against each other. So I think a good example is found in the UK where one distribution grid operator is running a market where you can pay people to actually increase their consumption in the middle of the day when solar generation is high. How that market solves, How that price solves. It turns out that it's more expensive to pay people to increase their consumption then you could also instead pay the solar plant to stop generating. So you kind of have these two alternative solutions competing against each other on price, and whoever can provide it the service at the lowest cost gets the contract.

So yeah, I think we're talking about both really, But what we think is most exciting is the distributed small stuff, and that can be people's homes. It can be rooftop solar and batteries in people's homes. It can be an electric vehicle charger, and even at a slightly larger level, it can be things like in an individual public charging station for cars. That's where we come into these new types of flexibility markets. So local flexibility markets are these markets that are run by distribution grid operators. So distribution grid operators are the guys that run the local grids that bring in the power into our homes. And as there's now more and more new low carbon technologies connecting at the low levels of the grid, the operators need new tools to tackle this. So it's all the rooftop PV, all the evs and things like heat pumps that are replacing gas boilers, and a market is just a way of paying someone to behave flexibily. You can kind of get different types of flexibility also, for example through a tariff, so someone can have a flexible tariff where during a certain time of the day your price is lower. But by doing it in a market mechanism, you can do more complex things, so you can create these situations where you can have both demand side flexibility and generation side flexibility play against each other. So I think a good example is found in the UK where one distribution grid operator is running a market where you can pay people to actually increase their consumption in the middle of the day when solar generation is high. How that market solves, How that price solves. It turns out that it's more expensive to pay people to increase their consumption then you could also instead pay the solar plant to stop generating. So you kind of have these two alternative solutions competing against each other on price, and whoever can provide it the service at the lowest cost gets the contract.

So that's a great example, And you brought up some of the mechanisms that can be used in order to bring this to life, so flexibility through tariffs and a local flexibility market. There are a few other ways though, and some of them used more historically where these kind of bilateral contracts and maybe no longer fit for purpose. Given how come flex the system is? Can you talk about the role though, of regulation in flexibility and how that fits in with this whole universe in terms of how this actually happens, how flexibility comes to life.

So that's a great example, And you brought up some of the mechanisms that can be used in order to bring this to life, so flexibility through tariffs and a local flexibility market. There are a few other ways though, and some of them used more historically where these kind of bilateral contracts and maybe no longer fit for purpose. Given how come flex the system is? Can you talk about the role though, of regulation in flexibility and how that fits in with this whole universe in terms of how this actually happens, how flexibility comes to life.

Regulatory models for flexibility have existed for some time, right, and so this is I would say it, so you can mandate a certain amount of flexibility in grid codes that every single load customer that connects to a grid or any type of generator connection that connects to the.

Regulatory models for flexibility have existed for some time, right, and so this is I would say it, so you can mandate a certain amount of flexibility in grid codes that every single load customer that connects to a grid or any type of generator connection that connects to the.

Grid will also have to follow.

Grid will also have to follow.

And so this would this plays a certain role, right, So this is kind of a minimum boundary of flexibility that everyone should have to provide if they want to be able to be part of the integrated system. So traditionally, for generators, this is kind of like it's a droop setting. So this is maybe a bit of a technical term, but generators have this droup characteristic such that if they're connected on the power system, their output has to be able to slide up and down based on the frequency of the power system that they're connected to, and.

And so this would this plays a certain role, right, So this is kind of a minimum boundary of flexibility that everyone should have to provide if they want to be able to be part of the integrated system. So traditionally, for generators, this is kind of like it's a droop setting. So this is maybe a bit of a technical term, but generators have this droup characteristic such that if they're connected on the power system, their output has to be able to slide up and down based on the frequency of the power system that they're connected to, and.

This was the way.

This was the way.

This is a certain type of flexibility that they every single generator that's connected to the system to.

This is a certain type of flexibility that they every single generator that's connected to the system to.

Be able to provide.

Be able to provide.

Otherwise the system is just not reliable. But this was quite significant when you'd have large consolidated generators providing this type of service, and it's diminished over time as we've gone to more distributed resources, and so you end up, you know, is regulatory mandated grid codes the right way of getting flexibility on a system as we move forward, right because you know, we can talk about it being contracted through these codes, through tariffs, and through markets. So I think a blended approach is ultimately what we're seeing evolve. Like different markets have gone down different paths, and markets are kind of a newer form of bringing flexibility to the system that we're seeing used more and more.

Otherwise the system is just not reliable. But this was quite significant when you'd have large consolidated generators providing this type of service, and it's diminished over time as we've gone to more distributed resources, and so you end up, you know, is regulatory mandated grid codes the right way of getting flexibility on a system as we move forward, right because you know, we can talk about it being contracted through these codes, through tariffs, and through markets. So I think a blended approach is ultimately what we're seeing evolve. Like different markets have gone down different paths, and markets are kind of a newer form of bringing flexibility to the system that we're seeing used more and more.

So the market's this newer form of getting things done in this space. Let's talk about some examples. So you brought up the UK. Where else is this being done and how are they implementing it?

So the market's this newer form of getting things done in this space. Let's talk about some examples. So you brought up the UK. Where else is this being done and how are they implementing it?

So the UK has been one of the first European countries to start implementing this concept, so already in twenty nineteen, local distribution grid companies here we're running trial tenders to get these contracts in place, so for example, sign a contract with a number of electric vehicle charging operators to get those chargers to turn down stop charging at times requested. But we're seeing this increasingly in other countries as well. So the Netherlands is an example of a distribution grid that is already facing a lot of grid congestion, so that means that a lot of the time there is more power trying to flow through those lines than the lines can physically accommodate. So then to keep the grid in a safe state, they needed solutions, so they started implementing a type of local flexibility market which was actually tied to the wholesale market for power, but the design of this market was actually again more geared towards large established whether it was generators or consumers such as industrial consumers, and we haven't seen that much small, local, even residential stuff being contracted through this market. But last year they changed their policy and now we're starting to see more flexibility contracts being implemented in the Netherlands as well. In the Nordics, so mainly Norway and Sweden, they're also running local flexibility markets there. The challenge is more on cold winters, so you have a lot of electric heating in Norway and Sweden, and as people are also now starting to have, say an EV charger, you want to make sure that they're not running their heat pump at max capacity at the same time as they're charging their EV. So in the Nordics, these markets are typically contracting for just a few months a year, and in many places in Europe what's becoming a real challenge is how to manage the peaky generation of solar and in particular rooftop solar. If people are not at home in the middle of the day and all this power is blasted into the distribution grid, you kind of want to have some market mechan to incentivice that either being stored in batteries or that your neighbor can consume that that's soldar.

So the UK has been one of the first European countries to start implementing this concept, so already in twenty nineteen, local distribution grid companies here we're running trial tenders to get these contracts in place, so for example, sign a contract with a number of electric vehicle charging operators to get those chargers to turn down stop charging at times requested. But we're seeing this increasingly in other countries as well. So the Netherlands is an example of a distribution grid that is already facing a lot of grid congestion, so that means that a lot of the time there is more power trying to flow through those lines than the lines can physically accommodate. So then to keep the grid in a safe state, they needed solutions, so they started implementing a type of local flexibility market which was actually tied to the wholesale market for power, but the design of this market was actually again more geared towards large established whether it was generators or consumers such as industrial consumers, and we haven't seen that much small, local, even residential stuff being contracted through this market. But last year they changed their policy and now we're starting to see more flexibility contracts being implemented in the Netherlands as well. In the Nordics, so mainly Norway and Sweden, they're also running local flexibility markets there. The challenge is more on cold winters, so you have a lot of electric heating in Norway and Sweden, and as people are also now starting to have, say an EV charger, you want to make sure that they're not running their heat pump at max capacity at the same time as they're charging their EV. So in the Nordics, these markets are typically contracting for just a few months a year, and in many places in Europe what's becoming a real challenge is how to manage the peaky generation of solar and in particular rooftop solar. If people are not at home in the middle of the day and all this power is blasted into the distribution grid, you kind of want to have some market mechan to incentivice that either being stored in batteries or that your neighbor can consume that that's soldar.

So to put in context, and because you said this is a newer market, so we're just kind of getting started here about how much of power demand is actually being treated this way in Europe when it comes to flexibility.

So to put in context, and because you said this is a newer market, so we're just kind of getting started here about how much of power demand is actually being treated this way in Europe when it comes to flexibility.

So currently the volumes dispatched are quite small. It's about six gigawatt hours of flexibility in a twelve month period stretching across twenty twenty two and twenty twenty three when we kind of pull the data for each of these markets that are doing it, and so to put that into context, that's zero point zero zero one percent of annual power demand in the countries that are actually doing this flex But thought of another way, you know, they're probably around twenty thousand assets that have been activated to provide flexibility over the course of the year. And so these are these are small markets today, and especially if you compare them to the size of like the transmission congestion markets that are much more developed and have been around for a while. They are small, but they are growing.

So currently the volumes dispatched are quite small. It's about six gigawatt hours of flexibility in a twelve month period stretching across twenty twenty two and twenty twenty three when we kind of pull the data for each of these markets that are doing it, and so to put that into context, that's zero point zero zero one percent of annual power demand in the countries that are actually doing this flex But thought of another way, you know, they're probably around twenty thousand assets that have been activated to provide flexibility over the course of the year. And so these are these are small markets today, and especially if you compare them to the size of like the transmission congestion markets that are much more developed and have been around for a while. They are small, but they are growing.

So that's the question, it's how is it going? Is this going to be something that other countries are looking at and then going to in theory adopt in the future, because really that's it's a bit of an experiment, right and that is what happens. The first movers essentially work out all the kinks and uncover the things that need to be fixed and have we gotten through the working out the kinks phase or have there been a number of things that kind of come up in these different countries that you think will stand in between wider adoption.

So that's the question, it's how is it going? Is this going to be something that other countries are looking at and then going to in theory adopt in the future, because really that's it's a bit of an experiment, right and that is what happens. The first movers essentially work out all the kinks and uncover the things that need to be fixed and have we gotten through the working out the kinks phase or have there been a number of things that kind of come up in these different countries that you think will stand in between wider adoption.

First, I think we haven't still quite gotten over the part where all the kinks are being worked out, but there's like constant improvement. And in the markets where this has been done for a number of years, such as the UK, we've seen the volumes increasing every year and also the design of the contracts changing. And yeah, one of the things that's been happening is in the first trial runs they put in these really long term contracts so you would get kind of security for five years forward that if you were an EV charging operator and you've responded to the calls to provide flexibility, you would get paid a certain amount. But that turned out to be quite hard to navigate, both from the distribution grid side, who's the buyer of the service, and from the EV charging provider side, because the EV charging provider doesn't know exactly how many chargers and where they will have them in five years, and the grid operator might not know exactly which power line can be congested. So I think that's like a big challenge on how to design a good local flexibility market is how do you define how local you should go, Because if you're on just one street, it's probably a bit too small. And if that's one street is so congested that you can't deal with it, you probably just need to put in a new power line. But when we're talking like a slightly larger area, say a neighborhood, you could already start having enough assets that can compete against each other and provide flexibility at a sensible price. But in Germany, when they try local flexibility markets in twenty twenty one, they didn't see high enough volumes to become comfortable that these markets could work. So what they saw was that only a small number of assets bid in. So whether that's small batteries or again my favorite example, electric vehicles, if you have just a couple of them, they can essentially dictate the price and it ends up not being the most cost effective solution. I personally think that was just kind of feature of it being so new, and I think click Germany maybe gave up a little bit to it too early. And yeah, it would be interesting to see if they they give local flexibility markets a chance at some later point. Overall EU legislation is kind of pushing towards this direction because it's seen as a fair way of remunerating either people or companies who contribute to the sustainable operation of the power grids. And I think a last challenge to really get those volumes and get that competition, I think need automation. So especially when you're relying on the really small stuff like residential flexibility, Like you don't want to force people to like sit in the dark or go hungry to provide flexibility you want to have, Like I think just an EV charger is just the perfect thing because your car is just going to be plugged in for so long anyways. And if you have software controlling the charging and you put in a time when you want your car to be fully charged, you don't really care when that's happening. You don't have to worry about it, and your car can just help the power system, you can get a bit of money back, and your life isn't disrupted in any way. So I think that type of automation is where we need to move forward this to really work out.

First, I think we haven't still quite gotten over the part where all the kinks are being worked out, but there's like constant improvement. And in the markets where this has been done for a number of years, such as the UK, we've seen the volumes increasing every year and also the design of the contracts changing. And yeah, one of the things that's been happening is in the first trial runs they put in these really long term contracts so you would get kind of security for five years forward that if you were an EV charging operator and you've responded to the calls to provide flexibility, you would get paid a certain amount. But that turned out to be quite hard to navigate, both from the distribution grid side, who's the buyer of the service, and from the EV charging provider side, because the EV charging provider doesn't know exactly how many chargers and where they will have them in five years, and the grid operator might not know exactly which power line can be congested. So I think that's like a big challenge on how to design a good local flexibility market is how do you define how local you should go, Because if you're on just one street, it's probably a bit too small. And if that's one street is so congested that you can't deal with it, you probably just need to put in a new power line. But when we're talking like a slightly larger area, say a neighborhood, you could already start having enough assets that can compete against each other and provide flexibility at a sensible price. But in Germany, when they try local flexibility markets in twenty twenty one, they didn't see high enough volumes to become comfortable that these markets could work. So what they saw was that only a small number of assets bid in. So whether that's small batteries or again my favorite example, electric vehicles, if you have just a couple of them, they can essentially dictate the price and it ends up not being the most cost effective solution. I personally think that was just kind of feature of it being so new, and I think click Germany maybe gave up a little bit to it too early. And yeah, it would be interesting to see if they they give local flexibility markets a chance at some later point. Overall EU legislation is kind of pushing towards this direction because it's seen as a fair way of remunerating either people or companies who contribute to the sustainable operation of the power grids. And I think a last challenge to really get those volumes and get that competition, I think need automation. So especially when you're relying on the really small stuff like residential flexibility, Like you don't want to force people to like sit in the dark or go hungry to provide flexibility you want to have, Like I think just an EV charger is just the perfect thing because your car is just going to be plugged in for so long anyways. And if you have software controlling the charging and you put in a time when you want your car to be fully charged, you don't really care when that's happening. You don't have to worry about it, and your car can just help the power system, you can get a bit of money back, and your life isn't disrupted in any way. So I think that type of automation is where we need to move forward this to really work out.

So I see how this works with the owner of the EV hypothetically, so this person who's trying to figure out when to charge their vehicle. And I certainly understand it from the utility level because it decreases the peak amount of supply that you actually have to produce. But what I really want to know is who's making money out of this.

So I see how this works with the owner of the EV hypothetically, so this person who's trying to figure out when to charge their vehicle. And I certainly understand it from the utility level because it decreases the peak amount of supply that you actually have to produce. But what I really want to know is who's making money out of this.

So currently in the UK, where we have a data on who's making money, it's been utilities with residential consumers, so Octopus energy is a big one. And then we have some virtual power plants that aggregate many small things like batteries and EV chargers and in some cases even things like a really small gas turbine that's sitting at the distribution level. At the moment, the amount of money to be made is it's not huge volumes yet because the overall contracted volumes are quite small. But we are seeing that in comparison with, for example, the payments that the transmission system operator are doing to tell wind power to shut off. This is happening in the UK and also in Germany, where there's at times so much wind generation that there's not enough capacity on the power grid to transport it, and the wind farms are being paid quite a bit to be turned off. And if we're comparing the price of that with the price of these local flex ability solutions, it's competitive, so we think there's room for that to grow and can help both with managing the grid and also with absorbing renewables locally so you don't have to always transmit them over such long distances.

So currently in the UK, where we have a data on who's making money, it's been utilities with residential consumers, so Octopus energy is a big one. And then we have some virtual power plants that aggregate many small things like batteries and EV chargers and in some cases even things like a really small gas turbine that's sitting at the distribution level. At the moment, the amount of money to be made is it's not huge volumes yet because the overall contracted volumes are quite small. But we are seeing that in comparison with, for example, the payments that the transmission system operator are doing to tell wind power to shut off. This is happening in the UK and also in Germany, where there's at times so much wind generation that there's not enough capacity on the power grid to transport it, and the wind farms are being paid quite a bit to be turned off. And if we're comparing the price of that with the price of these local flex ability solutions, it's competitive, so we think there's room for that to grow and can help both with managing the grid and also with absorbing renewables locally so you don't have to always transmit them over such long distances.

I think ultimately the goal here is to find more economic outcomes for a system, right, and so curtailing renewables is one tool we have in the toolbox, but it's not always the most economic thing to do, and like it could be that turning up load is actually a more economic way of managing the system, and so having that it actually will result in rates going down for consumers, even though there will be other people who are making money off of this. The other thing to note here is fundamentally we're sitting in a power grid that needs to be expanded basically across Europe. So we've done some analysis internally we think that the capital expenditures on an annual basis in Europe basically need to double by twenty thirty, in large part to integrate a bunch of renewables, but.

I think ultimately the goal here is to find more economic outcomes for a system, right, and so curtailing renewables is one tool we have in the toolbox, but it's not always the most economic thing to do, and like it could be that turning up load is actually a more economic way of managing the system, and so having that it actually will result in rates going down for consumers, even though there will be other people who are making money off of this. The other thing to note here is fundamentally we're sitting in a power grid that needs to be expanded basically across Europe. So we've done some analysis internally we think that the capital expenditures on an annual basis in Europe basically need to double by twenty thirty, in large part to integrate a bunch of renewables, but.

Also to support an electrifying load.

Also to support an electrifying load.

So the buildout of this grid, you know, it's a very difficult thing to do, and on the transmission system we need to do it. We also need to do it on the distribution grid. On the distribution grid, this is in cities. We're talking about digging up every single city street in some places, right in order to accommodate heat pumps and evs like. This is quite an undertaking, and so the role that flexibility can play in being able to provide another tool other than putting.

So the buildout of this grid, you know, it's a very difficult thing to do, and on the transmission system we need to do it. We also need to do it on the distribution grid. On the distribution grid, this is in cities. We're talking about digging up every single city street in some places, right in order to accommodate heat pumps and evs like. This is quite an undertaking, and so the role that flexibility can play in being able to provide another tool other than putting.

In a power line is crucial.

In a power line is crucial.

And so part of what this is is deferring that spend or maybe even foregoing the spend entirely in certain regions if you can have a baseline of flexibility in a larger region. And so, yes, like there's cash flows that will go in different pockets, but fundamentally, right pairs stand to benefit from a more efficient system that can use flexibility comprehensively.

And so part of what this is is deferring that spend or maybe even foregoing the spend entirely in certain regions if you can have a baseline of flexibility in a larger region. And so, yes, like there's cash flows that will go in different pockets, but fundamentally, right pairs stand to benefit from a more efficient system that can use flexibility comprehensively.

As we go about doing this and creating this more flexible, more dynamic space for the grid, there's a necessity for more enhanced technology and those companies are new entrants into this space. Can you talk a little bit about the different types of technology that are really going to be required in order for this to really take off.

As we go about doing this and creating this more flexible, more dynamic space for the grid, there's a necessity for more enhanced technology and those companies are new entrants into this space. Can you talk a little bit about the different types of technology that are really going to be required in order for this to really take off.

Yeah, that's a great question.

Yeah, that's a great question.

So doing all of this requires new technologies, right, and control centers.

So doing all of this requires new technologies, right, and control centers.

Are already quite modern places.

Are already quite modern places.

And like there's a certain prudence that's needed in modernizing a control center because ultimately these are costs that get again passed down to rate pairs, and so each expenditure is incurred slowly. But there's a number of systems that are needed to really realize this new form of flexibility that's so decentralized.

And like there's a certain prudence that's needed in modernizing a control center because ultimately these are costs that get again passed down to rate pairs, and so each expenditure is incurred slowly. But there's a number of systems that are needed to really realize this new form of flexibility that's so decentralized.

And so like the way I'd like to think about it.

And so like the way I'd like to think about it.

Is, instead of wrestling like a one ton elephant, you're actually wrestling like one ton of mice, right, And so you need different tools to be able to.

Is, instead of wrestling like a one ton elephant, you're actually wrestling like one ton of mice, right, And so you need different tools to be able to.

Take on this challenge.

Take on this challenge.

So one of which is an advanced distribution management system. It's commonly termed as an eighty m ASS. So this is in a control room. Imagine, you know, you need some sort of blackscreen software like the Bloomberg terminal, but this is what they're using to look at the distribution grid and a lot of data is flowing into it, much like the Bloomberg terminal itself, and people can and observe what's going on and make decisions. Now within that there is a specialized application called distributed Energy Resource Management systems or dorms, and that's one such technology that's integrated on an ADMS that allows these operators to control and operate the great and use flexibility. So it's like a function maybe on a Bloomberg terminal. And so the building up of these software over time has really come from the outside. There's been a lot of outside players that have pioneered some of this software, and then over time there's been acquisitions and a lot of the larger industrial companies that have the credibility in the control room have acquired and built.

So one of which is an advanced distribution management system. It's commonly termed as an eighty m ASS. So this is in a control room. Imagine, you know, you need some sort of blackscreen software like the Bloomberg terminal, but this is what they're using to look at the distribution grid and a lot of data is flowing into it, much like the Bloomberg terminal itself, and people can and observe what's going on and make decisions. Now within that there is a specialized application called distributed Energy Resource Management systems or dorms, and that's one such technology that's integrated on an ADMS that allows these operators to control and operate the great and use flexibility. So it's like a function maybe on a Bloomberg terminal. And so the building up of these software over time has really come from the outside. There's been a lot of outside players that have pioneered some of this software, and then over time there's been acquisitions and a lot of the larger industrial companies that have the credibility in the control room have acquired and built.

Up this expertise themselves.

Up this expertise themselves.

The other piece of technology that's crucial here is the tendering platforms themselves. And rather than having like a single tendering platform that everyone has anchored onto, there is a sea of tendering platforms. Like in Great Britain there's a number of them, the largest of which is peak Low, which covers about sixty percent of the flexibility tenders, and it has expanded to Italy and Portugal. Goal in Norway and Sweden there's a platform called nodes which facilitates most of the tenders. In July twenty twenty three, expand it to Poland and the Dutch DSOs and TSOS developed a platform called go packs in Enodies the French dso there's another one there. So you have a number of these kind of platforms that have evolved either within the utility or outside of the utility framework itself. These platforms are used to figure out what type of flexibility is needed, what that product is, and then attracting the providers of that flexibility to the utility to solve the problems.

The other piece of technology that's crucial here is the tendering platforms themselves. And rather than having like a single tendering platform that everyone has anchored onto, there is a sea of tendering platforms. Like in Great Britain there's a number of them, the largest of which is peak Low, which covers about sixty percent of the flexibility tenders, and it has expanded to Italy and Portugal. Goal in Norway and Sweden there's a platform called nodes which facilitates most of the tenders. In July twenty twenty three, expand it to Poland and the Dutch DSOs and TSOS developed a platform called go packs in Enodies the French dso there's another one there. So you have a number of these kind of platforms that have evolved either within the utility or outside of the utility framework itself. These platforms are used to figure out what type of flexibility is needed, what that product is, and then attracting the providers of that flexibility to the utility to solve the problems.

I think it's interesting to compare the tendering platforms that have been developed in house by utilities, where the French distribution gride operator en IT this is one example, and then compare that with for example, Pichlo in the UK. And we've seen that Enidis was trying to in some ways like reinvent the wheel and do some of the things that the UK had already sort of stumbled on, and they kind of went through that same pro and in their first attempts of tenders they didn't get much participation at all, and part of it was because the way to sign up to these tenders was just so complicated that you didn't get the participation. Then, on the other hand, actors like PICCLO and nodes have kind of learned a good way to run these tenders in one market, and then they're like exporting that technology platform and also the knowledge about how to run these tenders and markets to other countries. And yeah, we've seen that as a driver.

I think it's interesting to compare the tendering platforms that have been developed in house by utilities, where the French distribution gride operator en IT this is one example, and then compare that with for example, Pichlo in the UK. And we've seen that Enidis was trying to in some ways like reinvent the wheel and do some of the things that the UK had already sort of stumbled on, and they kind of went through that same pro and in their first attempts of tenders they didn't get much participation at all, and part of it was because the way to sign up to these tenders was just so complicated that you didn't get the participation. Then, on the other hand, actors like PICCLO and nodes have kind of learned a good way to run these tenders in one market, and then they're like exporting that technology platform and also the knowledge about how to run these tenders and markets to other countries. And yeah, we've seen that as a driver.

How important are the tenders and kind of how much of the market are they actually involved with.

How important are the tenders and kind of how much of the market are they actually involved with.

I think the tenders are the start of the market, right. So typically we sometimes use the word tenders when we mean longer term contracts, and then we use the word market when we're talking about trading say one day ahead or one week ahead. But overall, in some sense is the same thing. It's just the timeframe of how long you lock in a price for. But in any case, for a flexibility market to work, you need some type of marketplace where all these different players can look at what's offered in terms of contracts, in terms of locations, in terms of kind of size of the units you need to have, and then in an easy way bid into that. And I think that's sometimes a challenge for the new types of service providers in the flexibility space, for example, the virtual power plants, is how to navigate these type of markets in many different countries if everyone's kind of doing it in their own way. So at the transmission grid level, so much of this has been standardized through many years of collaboration between transmission system operators in Europe, but at the distribution grid level, in many ways, everyone is kind of still doing their own thing, and I think for this to really scale in like a smooth way, some type of standardization would make things a lot easier for the industry.

I think the tenders are the start of the market, right. So typically we sometimes use the word tenders when we mean longer term contracts, and then we use the word market when we're talking about trading say one day ahead or one week ahead. But overall, in some sense is the same thing. It's just the timeframe of how long you lock in a price for. But in any case, for a flexibility market to work, you need some type of marketplace where all these different players can look at what's offered in terms of contracts, in terms of locations, in terms of kind of size of the units you need to have, and then in an easy way bid into that. And I think that's sometimes a challenge for the new types of service providers in the flexibility space, for example, the virtual power plants, is how to navigate these type of markets in many different countries if everyone's kind of doing it in their own way. So at the transmission grid level, so much of this has been standardized through many years of collaboration between transmission system operators in Europe, but at the distribution grid level, in many ways, everyone is kind of still doing their own thing, and I think for this to really scale in like a smooth way, some type of standardization would make things a lot easier for the industry.

We've gone through a lot of examples that are all based in Europe. Is there anywhere else in the world that's looking at this or is this is Europe essentially the sandbox for everybody else right now?

We've gone through a lot of examples that are all based in Europe. Is there anywhere else in the world that's looking at this or is this is Europe essentially the sandbox for everybody else right now?

So we've looked at this closely for Europe. But we also know that Australia is doing quite a bit on local flexibility markets. They have, again a lot of distributed solar resources, which makes it a good good market to do this kind of thing. Piclow has also expanded their services to the US, so they're running some tenders in New York. So Europe is not the only place where it's being done. But we see these markets starting to pop up in places where you're starting to have a lot of distributed resources. So in countries that have been a bit slower with moving with their energy transition or they're just relying on you know, old fashioned hydro power to decarbonize, there's not as much need for this type of innovation.

So we've looked at this closely for Europe. But we also know that Australia is doing quite a bit on local flexibility markets. They have, again a lot of distributed solar resources, which makes it a good good market to do this kind of thing. Piclow has also expanded their services to the US, so they're running some tenders in New York. So Europe is not the only place where it's being done. But we see these markets starting to pop up in places where you're starting to have a lot of distributed resources. So in countries that have been a bit slower with moving with their energy transition or they're just relying on you know, old fashioned hydro power to decarbonize, there's not as much need for this type of innovation.

I keep asking questions about how it's going and for examples, and what I really want to know is what's going to hap and in the future. So how big could this get and how important of a role could it really play in optimizing our energy system.

I keep asking questions about how it's going and for examples, and what I really want to know is what's going to hap and in the future. So how big could this get and how important of a role could it really play in optimizing our energy system.

So we've done some analysis at b and EF using our net zero scenario, and so I mentioned that today it's about zero point zero zero one percent of annual power demand. Based on the amount of flexibility we see being necessary in our net zero scenario, we think that these markets could be zero point one to zero point two percent of annual power demand by twenty thirty.

So we've done some analysis at b and EF using our net zero scenario, and so I mentioned that today it's about zero point zero zero one percent of annual power demand. Based on the amount of flexibility we see being necessary in our net zero scenario, we think that these markets could be zero point one to zero point two percent of annual power demand by twenty thirty.

So that's not too far away. So it'd be ten times the current levels. That's like somewhere between.

So that's not too far away. So it'd be ten times the current levels. That's like somewhere between.

Four to eight tarrawa hours rather than the six gig of what hours that I had mentioned earlier, with.

Four to eight tarrawa hours rather than the six gig of what hours that I had mentioned earlier, with.

That net zero scenario essentially operating under the premise that we reach at zero by twenty fifty. So what must be true in order for us to get there and kind of seeing that path forward.

That net zero scenario essentially operating under the premise that we reach at zero by twenty fifty. So what must be true in order for us to get there and kind of seeing that path forward.

Yeah, so the scenario is a fairly ambitious scenario that's paras aligned. It reaches less than two degrees sea of warming, and what it really does is also have a steep rise in renewable deployment this decade. And what accompanies that is a need for this flexibility, because as you scale up wind and solar projects, you end up creating a need for flexibility that needs to be met elsewhere, both at a system level because of the intermittency of this power generation, but also at a local level because you often end up putting these facilities in locations that are clustered together. So think of the north of the Great Brittain, Scotland in the north of Germany. So you end up with these clusters of wind projects and then creating congestion issues that need to be resolved, and this form of flexibility is part of the toolkit that can help solve those problems. So this is a net zero scenario output that shows kind of a bookend of how large this market could get in the near term. Even then, like it's still less than the size of the transmission market today. So these numbers aren't unfathomable, so to say that the local flexibility on the distribution grid is still less than but getting into the realm of the transmission congestion market.

Yeah, so the scenario is a fairly ambitious scenario that's paras aligned. It reaches less than two degrees sea of warming, and what it really does is also have a steep rise in renewable deployment this decade. And what accompanies that is a need for this flexibility, because as you scale up wind and solar projects, you end up creating a need for flexibility that needs to be met elsewhere, both at a system level because of the intermittency of this power generation, but also at a local level because you often end up putting these facilities in locations that are clustered together. So think of the north of the Great Brittain, Scotland in the north of Germany. So you end up with these clusters of wind projects and then creating congestion issues that need to be resolved, and this form of flexibility is part of the toolkit that can help solve those problems. So this is a net zero scenario output that shows kind of a bookend of how large this market could get in the near term. Even then, like it's still less than the size of the transmission market today. So these numbers aren't unfathomable, so to say that the local flexibility on the distribution grid is still less than but getting into the realm of the transmission congestion market.

So keeping on thinking about the future, as this is a space that is is actively changing, what are some of the ways you think that these markets might evolve as we go forward.

So keeping on thinking about the future, as this is a space that is is actively changing, what are some of the ways you think that these markets might evolve as we go forward.

I think the price of local flexibility is an interesting thing to think about. So presently it can vary quite a bit, right because these markets aren't necessarily deep, and so we've seen prices ranging on a monthly basis between sixty four to sixteen hundred dollars per mega wad hour, so it's quite a wide range. I think the average was around four hundred if you took every single monthly data point. Over time, we think prices will be pushed down as the number of resources become available to markets become more rich, and the price of flexibility could be much lower than one hundred dollars per mega wild hour. One other thing that we kind of notice about the evolution, and we've kind of alluded to this, is that the role that ebs will play, and we think electric vehicles are going to be important part of the future flexibility landscape. So it's interesting because fossil fuels are competing against electric vehicles on the road, but they're also going to ultimately compete against them in the flexibility landscape because right now, the king of flexibility is actually a gas turbine on a power system. That's where most markets are getting their flexibility. But if we start shifting towards electric vehicles, you know, there's one more thing that vehicles are kind of coming after gas with. And so when we look at the data from the UK, which again is you know, it's still early data, what we found was that the electric vehicles held the largest amount of the flexibility contracts in terms of capacity. So there's about five hundred megawatts of flexibility contracts awarded to electric vehicles, and if you look at how much are they being used, then yes, you'll see that gas is actually being called on more regularly than evs, even though more evs.

I think the price of local flexibility is an interesting thing to think about. So presently it can vary quite a bit, right because these markets aren't necessarily deep, and so we've seen prices ranging on a monthly basis between sixty four to sixteen hundred dollars per mega wad hour, so it's quite a wide range. I think the average was around four hundred if you took every single monthly data point. Over time, we think prices will be pushed down as the number of resources become available to markets become more rich, and the price of flexibility could be much lower than one hundred dollars per mega wild hour. One other thing that we kind of notice about the evolution, and we've kind of alluded to this, is that the role that ebs will play, and we think electric vehicles are going to be important part of the future flexibility landscape. So it's interesting because fossil fuels are competing against electric vehicles on the road, but they're also going to ultimately compete against them in the flexibility landscape because right now, the king of flexibility is actually a gas turbine on a power system. That's where most markets are getting their flexibility. But if we start shifting towards electric vehicles, you know, there's one more thing that vehicles are kind of coming after gas with. And so when we look at the data from the UK, which again is you know, it's still early data, what we found was that the electric vehicles held the largest amount of the flexibility contracts in terms of capacity. So there's about five hundred megawatts of flexibility contracts awarded to electric vehicles, and if you look at how much are they being used, then yes, you'll see that gas is actually being called on more regularly than evs, even though more evs.

Have been contracted.

Have been contracted.

And that's partly because gas is just available when you need it, it's up and running, it's reliable, and with evs, even though you've contracted them, you're not guaranteed that you're going to be able to deliver the flexibility when you need it from that capacity. But as the fleet of evs grows and becomes you know, these kind of mind boggling numbers of capacity that we expected be that will only make it a more deeper resource that can be drawn against to provide that flexibility. So we think that this is going to be an important resource to watch as we go forward.

And that's partly because gas is just available when you need it, it's up and running, it's reliable, and with evs, even though you've contracted them, you're not guaranteed that you're going to be able to deliver the flexibility when you need it from that capacity. But as the fleet of evs grows and becomes you know, these kind of mind boggling numbers of capacity that we expected be that will only make it a more deeper resource that can be drawn against to provide that flexibility. So we think that this is going to be an important resource to watch as we go forward.

I mean, because evs are ultimately batteries, and I do expect that that predictability is really important. So then are they contracting mostly with companies who actually have fleets of commercial vehicles or is it in consumer isn't trying to do the price signals there, So.

I mean, because evs are ultimately batteries, and I do expect that that predictability is really important. So then are they contracting mostly with companies who actually have fleets of commercial vehicles or is it in consumer isn't trying to do the price signals there, So.

Usually the DSO is unlikely to contract directly with the consumer, so it would be done either through their utility so their electricity supplier, or through a separate charging operator.

Usually the DSO is unlikely to contract directly with the consumer, so it would be done either through their utility so their electricity supplier, or through a separate charging operator.

So that's pretty unpredictable because you don't know how people's preferences will change, or there could be holidays in there. I guess you have to look at the entire year and see how people move around and have all that backward looking data.

So that's pretty unpredictable because you don't know how people's preferences will change, or there could be holidays in there. I guess you have to look at the entire year and see how people move around and have all that backward looking data.

Yeah, exactly, And I think again that's where to some extent, having large enough numbers, so as electric vehicles become more and more popular, at some point there will be so many of them that even if one doesn't show up, you reach a point where it's sort of like statistically quite likely that enough of them will show up. And that's why it makes sense to operate chargers as a fleet. And it gets technically challenging, of course, to do that with so many different chargers. So I think we looked at the five hundred megawatts that Sanjeet was talking about in ev charging, I think that means something like forty two fifty thousand electric vehicles, depending a bit on the assumptions you make about the size of the charger. So that's already a lot of coordination, and that's why you need sophisticated technological solutions and software to make that possible. But we're already seeing that happening to some extent.

Yeah, exactly, And I think again that's where to some extent, having large enough numbers, so as electric vehicles become more and more popular, at some point there will be so many of them that even if one doesn't show up, you reach a point where it's sort of like statistically quite likely that enough of them will show up. And that's why it makes sense to operate chargers as a fleet. And it gets technically challenging, of course, to do that with so many different chargers. So I think we looked at the five hundred megawatts that Sanjeet was talking about in ev charging, I think that means something like forty two fifty thousand electric vehicles, depending a bit on the assumptions you make about the size of the charger. So that's already a lot of coordination, and that's why you need sophisticated technological solutions and software to make that possible. But we're already seeing that happening to some extent.

So just another example of all of the different ways that the different facets of the energy transition, all these different industries really are coming together. Senji Felicia, thank you very much for joining today.

So just another example of all of the different ways that the different facets of the energy transition, all these different industries really are coming together. Senji Felicia, thank you very much for joining today.

Thank you for having us.

Thank you for having us.

Thank you.

Thank you.

Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANIF should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.

Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANIF should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.