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The rising requirement for higher flexibility needed in power grids
Mar 29, 2021

This article first appeared in MIT Technology Review Arabia in March 2021, and was co-authored by Antonio Antonuccio, Senior Vice President DBX at Injazat, and Dr. Sameh El Khatib, CEO & Co-Founder of SmartWatt.

The rising requirement for higher flexibility needed in power grids
The rising requirement for higher flexibility needed in power grids

Today the resilience of power grids is exposed to rising risks, even in the presence of aggressive plans to add new generation capacity. This article discusses the rising requirement for higher flexibility needed in power grids. We address this by investigating the potential contribution of Demand Response, a well-established demand-side management program, successfully implemented in various countries around the globe, as a cost-effective tool to augment the resilience of the grid and support the secure and continuous provisioning of electricity.

The Rising Need for Grid Flexibility and Resilience

Grid Flexibility refers to the ability of a power system to maintain the constant balance between generation and load, despite uncertainty, resulting in secure grid operations and a growing capability to integrate, efficiently, volatile sources of power such as renewables1. Flexibility today is a strategic necessity in many different sectors, but it is especially crucial in the context of a power grid, a critical infrastructure of national prominence that is intrinsically challenging to plan, operate and maintain.

Resilience, in turn, is generally defined as a system’s capability to adjust back to normal operations following a contingency or an extreme event disruption. When applied to a power system, grid resilience is its ability to ensure a reliable supply of power meeting a rigid but fluctuating demand, given the occurrence of unplanned disruptions. Meeting power demand reliably requires therefore the capability to handle fluctuations with enough reserves or flexibility to take back the state of the grid to its technical equilibrium in the shortest possible time.

Higher levels of flexibility are required today as a result of the growing uncertainty associated with many intruding factors into today’s power systems, for instance, contingencies associated with severe natural occurrences such as extreme weather conditions triggered by global climate change. Moreover, the increasing role and incidence of green energy sources in power supply contributes to supply fluctuations, while increased asset electrification and rising electricity consumption results in new power grids constraints for energy generation, distribution and dispatching.

The Rising Cost of Grid Flexibility and Resilience

Flexibility and resilience have traditionally been addressed by grid operators and utilities through the building of extra centralized generation capacity as reserve and, more recently, by investing in local, renewable distributed generation and storage resources (DER) deployed across the grid. The Price of Security, the cost to enable higher levels of grid flexibility and resilience, is normally associated with the marginal cost of incremental reserves, or flexibility, from the generation side of the grid. This includes the huge Capex cost of building new thermal power plants and grid infrastructure to ensure that adequate power reserves will be available on the grid, although their actual use might be sporadic and confined to short periods of peak demand or of supply contingencies, resulting in a sub-optimal use of expensive assets and resources. In fact it can be estimated that the marginal cost of an OCGT power plant at 6% utilization can be around 200 $/MWh, while the capex cost for a CCGT power plant ranges at around 700,000 $/MW. The higher the uncertainty, as mentioned earlier, the higher the need for flexibility and hence the associated costs for society and potential inefficiencies.

Demand Side Management and Demand Response

A more economical and efficient way to enhance grid flexibility is to provision it from the end-users side through demand-side management. This allows the grid operator to not only reduce the frequency and extent of load peaks, but also to reduce actual consumption, at any given moment and location across the grid, to the level required to meet available instantaneous power.

One Demand-Side Management program, that falls within the overarching paradigm of a new “digital” power grid and can be used to provide economically higher flexibility and resilience, is Demand Response (DR). These programs exploit and harness end-user flexibility, i.e. the capability of a consumer to reduce their demand and consumption of electricity at specified times and for defined durations, through the notion of an “Aggregator”. Such an aggregator accumulates and consolidates power flexibility from a portfolio of end-users and trades this flexibility with the grid operator. The economics of this trading is based on a multiple factors, including the characteristics of the offered flexibility such as duration, notification period requirement, and time of use, which also defines in what market and for what type of reserve margin the offered flexibility will be used by the grid operator. The business model of aggregation, along with the ensuing economics dictating the flow of money in the program, is fairly simple but the detailed application can become quite complicated given the level of restructuring, liberalization, privatization and deregulation of the electricity sector and electricity market governing framework, including the one covering the energy and ancillary services trading.

Types of Demand Response programs

A Demand Response program aims at “changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high demand (peaks), high wholesale market prices or when system reliability is jeopardized”2. Demand Response programs can be divided into two categories: Price-Based Demand Response (Tariff option), when users are induced to modify their consumption patterns through the use of tariffs and exploiting the price elasticity of power demand; and Incentive-Based Demand Response (Program option), when the end users accept to reduce their consumption at specific times and for defined durations in exchange for economic incentives such as rebates on electricity bills, bill credits or the payment of fees. The latter type of DR program has the highest potential to provide “virtual” reserves and enhance grid flexibility at a cheaper overall marginal cost than the construction of incremental generation capacity. This is done by harnessing the potential power consumption reductions that end-users can achieve, with minimal effect to their comfort or overall level of energy utilization. By aggregating such reductions and providing it to the grid operator as a virtual, but firm, flexible capacity to be used during a contingency to balance demand and supply, or even during normal grid operation as a reserve, Demand Response can represent a valuable source of flexibility and resilience to power grids. With Demand Response, a significant portion of grid power demand is then transformed from a rigid burden to a cheaper alternative option for gaining flexibility and ensuring that the grid continuously operates under safe security margins and can avoid catastrophic black outs. Participants to the Demand Response program can also benefit, as at least 50% of the cost of an incentive-based Demand Response program is attributed to payment or rebates given to those end-users who join the program and provide the needed flexibility.

Demand Response as a National Initiative

While passive, price-based Demand Response programs, which rely on differentiated pricing and other incentives to stimulate the adoption of more virtuous behaviors, have been widely implemented in many countries, including the GCC region and the UAE, the roll-out of active, incentive-based Demand Response programs post the initial pilot phase hasn’t been consistent across geographies and countries mainly for three main reasons:

  1. Regulatory Support – support is required in terms of enactment of new regulation, spanning from the technical standards and specifications applied to the ICT infrastructure used to ensure the reliable functioning of the platform and enabling the communication flow between the grid operator and all the end users enrolled in the DR program, to the operational procedures governing the transactions and also the market structures that would allow for profitable, predictable and equitable renumeration for all involved parties;

  2. Technology Availability – it is not possible to envision a transformation of the power sector to harness end-user flexibility as part of the dispatch process, if the tools and the technology needed to meet every facet of the requirements are not available. This includes sensors able to read multivariate data, the communication channels needed to ensure an immediate response to requests from the grid operator or from the utility, the platform to acquire and handle such large data sets, the algorithms to perform near-real time analyses and controls, and the mechanisms to make such data and ensuing load controls reliable and secure;

  3. Expertise Readiness – this refers to the know-how required to harness data, apply advanced analytics on such data to drive actionable intelligence, and deep knowledge in power sector operation and economics. Such expertise is unique to the geographical landscape and end-user sector in which such transformation is to be applied. In fact, the fabric of a power sector in each country is usually unique in terms of topology, market structure, regulatory framework, as well as of social requirements and stakeholder dynamics.

Be that as it may, an initial implementation of a proactive, incentive-based Demand Response programs doesn’t necessarily need to wait a full enactment of regulatory changes. Even before organized electricity markets (day-ahead, real-time, ancillary services, etc.) are created and regulated, the local utility company or grid operator can take the responsibility to act, directly or indirectly, as the Aggregator, leveraging the help of a strategic partner to access the technology and expertise required to design, set up and run such a program.

The emirate of Abu Dhabi was the first in the Gulf Cooperation Council (GCC) to design and implement reforms aimed at moving away from a wholly government-owned vertically-integrated electricity market structure, and starting from 1998, several policy, legislative, structural and institutional reforms were introduced to Abu Dhabi’s electricity sector and the related water desalination industry3.

Due to population rise and economic growth, and despite the negative impact of the Covid-19 pandemic, Abu Dhabi’s energy demand is projected to increase steadily over the next decade and consumption rates projected to increase each year until 2035. In order to slow the growth of energy consumption and help balance supply and demand, Abu Dhabi has embarked on a Demand Side Management and Energy Rationalization Strategy that has a high potential to reduce electricity and water consumption by 2030. The fact that Demand Response has been identified as one of the key initiatives in this ambitious and far-sighted plan, coupled with the proven ability of UAE government entities to be trailblazers in the region and also globally, significantly strengthens our expectations of an upcoming adoption of this tool in the UAE.

In this regard, Malaffi and Hassantuk, both co-created by Injazat, represent interesting case studies of how different UAE government entities have been able to accelerate the deployment of emerging technologies to materially enhance the range, quality and cost of the services provided to UAE citizens and enterprises by entering into a Public-Private Partnership (PPP) with a capable, committed and trustworthy private sector organization.

1 Smart Grid Flexibility Markets – Entering an Era of Localization, CleanTech Group, April 2020

2 Benefits of Demand Response in Electricity Markets and Recommendations for Achieving Them, US Department of Energy, 2006

3 Abu Dhabi Electricity Sector: Features, Challenges and Opportunities for Market Integration, KAPSARC, February 2019

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