August 17, 2022

Why energy flexibility is still only provided by large-scale power plants

Willi Appler
Regulatory Affairs

Household electricity prices are rising ever higher, and more and more end customers are investing in PV systems for self-generation. This means that gigawatts of photovoltaic and battery capacity will be installed in the coming months and years. However, these assets will most likely never make a contribution to the German power system, as their participation in wholesale and system service markets is blocked by regulation.

Electricity will become even more expensive in the short-term

Experts predict retail prices will rise to well over 60 cents/kWh. These estimates are probably conservative, as they do not yet take into account massive cost increases in network charges due to more expensive system services. Costs for balancing power and redispatch are also exploding due to increased generation and opportunity costs. Gas-fired power plants, among others, are still providing these services.

There is limited scope beyond self-consumption optimization 

So, those who can invest in a PV system to meet their own electricity needs. It is unclear how many installations manufacturers and installers will be able to handle in the coming months, but estimates run into six figures. And a large proportion of the installations will be done directly with a connected battery. 

This will create a gigantic pool of flexibility on a decentralized basis. On many days of the year, household batteries, by their very nature, are not required for constant self-consumption optimization. This means their flexibility could easily be made available for balancing power or intraday markets. With this, the need for conventional power plants shrinks and grid fees can be reduced.

Energy flexibility remains unused

However, building such a product for the German B2C market is currently not economically feasible. This is caused by a significant lack of smart meters and suitable metering concepts, combined with considerable bureaucracy on the DSO side. Anyone who wants to participate in the market with their PV system and battery must overcome a number of hurdles.

Regulatory hurdles prevent small-scale assets from energy flexibilities

Prequalification: Made for large plants 

The prequalification conditions for German TSOs have so far not been designed for small assets. It is true that there is the possibility to prequalify a pool of assets. However, this only applies if no new assets are added or existing ones leave the pool. As a result, prequalification has to be done repetitively, even if the assets and the local setup at the end customers are always identical - an unnecessary bureaucratic effort. 

Direct marketing of electricity: bureaucracy diminishes added value

Mandatory direct marketing for power plants that provide balancing power makes sense in principle to avoid the need for additional balancing energy. In reality, however, bureaucracy at the DSO level almost completely depletes the potential revenues. The registration process for a DSO to be able to directly market electricity alone leads to a high level of manual effort, as each DSO has its own requirements and no uniform communication channels exist. These processes can therefore not be automated or digitized. The uniform platform planned by legislators for DSO’s registration is therefore a step in the right direction. But even if it were to be completed on time (unlike Redispatch 2.0, for example), 2025 would be far too late.

Smart meters and metering concepts: the infrastructure is lacking 

Last but not least, metering options are prerequisites for direct marketing and the provision of flexibility. But the smart meter rollout is still far from reality. Nor can this be achievede with isolated single meters. The federal government’s new energy financing law stipulates that a second measurement must take place at the storage device for stored energy to be exempt. The fact that in most cases hybrid inverters are installed – meaning this must be measured in direct current (DC) before the battery – makes the measuring concept significantly more expensive. On top of this, most DSOs do not accept such metering concepts because they simply cannot manage them in their backend systems. Before the German Government released the Easter package,, energy quantities could be estimated in such cases, and rightly so. It is incomprehensible why such complex measurements are now also required by very small plants.

Small plants can do more – we just have to let them

All in all, this creates an unnecessary regulatory market entry hurdle for small flexibilities. This results in additional revenue for the previously prequalified large-scale plants, increased costs for grid users, and continued high minimum generation by conventional power plants. Small-scale plants could make a significantly greater contribution to the energy transition – but this can only be fostered by a determined legislator.

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