Case Study Interview: EnerNOC
Presented by the Association for Demand Response and Smart Grid
View a recording of this case study interview
Download a copy of the accompanying PowerPoint presentation here.
Download a copy of the transcript here.
Download a copy of the accompanying PowerPoint presentation here.
Download a copy of the transcript here.
National Action Plan on Demand Response (NAP)
Case Study Interview
Entelios - Tom Schulz
September 19, 2020
Dan: Welcome to another Case study interview, presented by the Association for Demand Response and Smart Grid, also known as ADS. The ADS mission is to develop and exchange information and expertise on demand response and smart grid among practitioners, policy makers, and stakeholders. This case study series is one of the ways that we try and do that.
My name is Dan Delurey, and I am Executive Director of ADS. On behalf of our organization I want to thank you for listening or watching today. I also want to thank the US Department of Energy’s Office of Electricity Delivery and Energy Reliability for helping to make this presentation possible.
Before I introduce our guest today, let me give you a little bit of background about what we mean by a case study interview. There are a number of case studies that you have read or that you can find out there on the internet, and a lot of those case studies focus on presenting the results or the data of a particular project or pilot. In the case of a case study interview, the emphasis is on identifying and capturing lessons learned. The focus is on interviewing one or more persons who were involved in something, and letting them talk about how things went and what they would have done differently. A case study interview is conducted by a private webinar, that we're going to do right now. Then it's available as a webcast that can be viewed by anyone. Also the transcript of the interview is available for those of you who would like to have that in addition to what you're doing now.
Today we have with us someone from an ADS member company, EnerNOC. I am pleased to introduce Tom Schulz, who is Senior Director of European Operations for EnerNOC. He is going to talk to us about how DR is being integrated into the electricity market in Europe. And, to talk to us about a particularly interesting episode involving DR in that market, that comes from early this year. Then he will talk a little bit about what it has been like to be a DR company in Europe. I'll mention that Tom's company in Europe is Entelios. Entelios is part of the EnerNOC family of companies. We'll learn a little bit more about that later on.
Tom, on behalf of ADS and the people that are watching and listening, thanks for being with us today.
Tom: Thank you for having me today. Happy to be here.
Dan: Great. Well why don't we jump into things here? Let's talk a little bit about the European market.
Tom: The European markets are quite different from the American markets, as we noticed five years ago when we got this company started. The company's name is Entelios. It was a startup company five years ago. The plan was always to bring demand response to Germany and then Europe. We hoped to transfer as much as possible of the software and processes over. But we had to reinvent the platform and the processes.
The energy markets here in Europe are liberalized and unbundled, and that happened in the mid 1990's. There is very strict separation between running the grid, which is 100% regulated, and completely open energy markets. These markets are energy-only; there are few markets for capacity. That is pretty much the case for all of Western Europe right now. Although in some countries we still find the incumbents in a central position. For example, in France the incumbent is still an 80%-90% monopoly. In other countries, like in Germany, we have a very strict separation of grid and markets. That is, on the one hand, of course very good for competition. On the other hand, it makes demand response difficult in the settlement processes.
When we look at demand response we can, at the moment in Germany, only play in the ancillary service markets and we'll come to that later in the conversation. In some new countries, like UK and France, we do have capacity mechanisms. We also have a slide later on giving an overview of Europe and how that is different from one country to the other. In general, demand response is relatively new. Demand response, in the sense of an emergency measure, of course has been used as long as you can think, but that is without compensation and in very non-intelligent ways. DSO or TSO can just shut off parts of the grid if necessary. But, that is used very, very rarely.
This will give you an overview of the markets here, where we look at the sizes of the markets, the structure of European power markets. In general, the EU market, in terms of total consumption, we look always at the twenty-eight member states in the EU here. It's almost as large as the US. Germany, of course, is only on part of it. I think we have 600 terawatt hours per year in total consumption. In terms of installed capacity, again EU is almost as large as the US. And, Germany has about 80 gigawatts installed capacity. Shared renewables is, as you might suspect, much higher in Europe and Germany. It's about 25% in electricity production that comes from all kinds of renewable sources, especially wind and solar but also biomass and hydro.
Electricity consumption per capita -- that is an interesting one. Although, of course, the EU and especially Germany is a highly industrialized country and living standards are quite high, we European electricity consumption per capita is only approximately half that of the US. The same holds true for CO2 emissions: about half of the US emissions. Then we picked another interesting statistic here, which gives an impression of how the system works and it's very stable. You see in Germany we have about 15 minutes of interruption in the grid services or in supply per year. That compares to almost four hours of system interruption in the US.
What's going on here? We actually have something that the veterans in the business call the “European copperplate.” That makes it possible to separate the grid operations from the market operation. The grid is assumed to be 100% reliable, and the markets can then act on top of it.
Here we go for who are the actors in the European markets. Of course we have the European Commission. The European Commission is not a central government for all the member states, but it can give direction and guidelines. One of the tools they have is they can issue directives and then the member states have about two years time to follow and implement that in national legislation. We have National Regulatory Authorities in each country. We have the associations called Agency for Cooperation of Energy Regulators (ACER). For example, for the regulators but also, of course, for the TSO's, the DSO's and everybody's trade association is well represented in Brussels.
Dan: Tom, we think, here in the US, of there being large, state-owned utilities in Europe. How does that factor into what we're looking at on this slide right now?
Tom: Maybe that's a preconception. State-owned utilities don't exist any more in the countries that I know of. Historically, you do have municipal utilities owned by the cities. They are an important part of the generation in Germany and in grid operation, in the DSO network. But, for example, in Germany you have four main big energy companies that were then broken up into their grid operation parts and their generation and retail parts. In France, you have this one big player, EDF. They are still at the monopoly position and have 80% of the retail market.
Dan: I think EDF is one of the things that came to mind in asking that question. But thank you for that explanation. Let's stick with Germany here and let’s talk about DR and also the 25% renewables penetration. That is certainly a curiosity factor for those of us here in the US.
Tom: Let's talk about DR first and then what this renewable influx of fluctuating power actually means. This slide here that we're looking at has been created by the SEDC, the Smart Energy Demand Coalition. That is a trade association of demand response players on the European level. This is our representation, our voice to the European legislators. The SEDC created this map to show how different the different countries are when it comes to implementation of DR.
Let's look at France and the UK, they're green. That means they had programs already where demand response was able to participate, or they're coming up with new programs. And that is very much, actually a capacity market or capacity mechanism. On the other hand, large countries like Germany in the center there, we do not have a clear regulatory framework for DR. What we, as a company, are doing is we're disguising as generation capacity and we're going into the balance control markets or reserve markets as if we were generators. Of course, that is not a good position to be in. We are making good progress in getting clearer regulations so we can participate in all market segments, the energy-only market and then the upcoming capacity markets.
Dan: Not the best situation for DR, but yet, as we've noted a high push to put in renewable energy.
Tom: Exactly. This is what has been happening the last almost 30 years in Germany. Germany is pushing for more renewables. We have a program that is phasing out all nuclear power plants and there is a big energy efficiency push. This is a snapshot of today, we have about 25% of power generated coming from renewables.
Unfortunately, we don't have as much hydro as Switzerland or Austria. Most of this renewable energy comes from newly installed wind and solar. It's this famous renewable system or legislation with feed-in tariffs that make that possible. You can call it a big subsidy, but technically it's not a subsidy but rather a reallocation scheme. All this cost that is there from building up this new infrastructure is reallocated to the power consumers. That is still going on.
When you have a lot of wind and solar power in your system and it's now sometimes much more than 30%, of course, there are hours and days where there is so much wind and power that it's almost more than the whole country can use. You have a lot of fluctuations in the system. These fluctuations, when we go on increasing the share of renewables over the next years, will lead to ramping up and ramping down for the residual power plants of about 12 gigawatts in a quarter hour. The system cannot handle these ramps that will come to us. There will be more ramps, steeper and higher. That is the main driver of demand response in a country like Germany.
The orange curve on this slide is what is left for the conventional power plants to generate once the wind and solar power is used or is deducted from the demand side. Again, I pointed out 12 gigawatts in 15 minutes are expected. This is a projection. This is the point when we have 50% renewable energy in the system. This might happen between 2020 and 2030.
Dan: Tom let me ask, in terms of how things have been handled in the absence of demand response, is there a large amount of peaker power? Is that what's filling the gap? I'm trying to get a handle on this if demand response is yet to come, then how is this all being handled.
Tom: Up until now we do have an overcapacity. The system was overbuilt, up to the moment when it was liberalized and un-bundled. It was a centralized system with very comfortable margins and we ended up with a lot of generation power. And, a very well built-out grid. The mechanism to handle these fluctuation are the reserve markets or control reserve markets. They have been served by peaker plants, or when you own generation units you can actually control them up or down, depending on what's needed in the market. That is run and controlled and managed by the TSO's. It's their job to balance out the system every second.
This is the path, the road map that Germany is following. Again, if you hear the term, “Energiewende” or energy turnaround, it is first of all saving energy, investing heavily into energy efficiency. We do expect the total consumption going down. Secondly, we do phase out nuclear power completely. The last nuclear power plant will be phased out 2022. The third item here that's important is the share renewables will go up to 60%, 70%, 80% percent in the future. This is a long time period here but, when you look at 2030 it will be 50% already. This is the characteristic or the energy turnaround in three points. This means that we will have a complete redesign of the system and the markets that will run on the system.
This slide is now explaining the mechanism that's been used so far to handle the imbalances or fluctuations in the system. We always have trouble exactly translating these terms because they might use the same words but they are defined differently. Let’s call it the “ancillary services markets.” In Germany we call them “control reserve markets.” There are three segments. One is primary reserve, which is continuously being used, going up and down, regulating power plants almost instantaneously. But, of course they need to be supported after a couple minutes by what is called secondary reserve. Then, after a while, we go to minute reserve. The faster you react the more money you can make.
We started with demand response in the minute reserve segment, and then upgraded the systems to be able to serve the secondary reserve. Which means, when we're called for dispatch we need to show the first reaction after 30 seconds and we need to be fully there after five minutes. If you're active in the secondary reserve you actually have to watch the dispatch signal continuously, which is, of course, easy to do for a power plant if it's flexible but, it is hard to do for us. We have to look for specific industrial participants who can actually be on-call all the time or highly available most of the time. There is not a lot of warning time, not a lot of advance warning time.
Dan: I'd like to talk about some of the challenges in trying to enlist customers to see if they're similar or different from some of what's reported over here. Let's take a look at this particular case study, that I know you want to talk about, from something that occurred earlier this year.
Tom: We picked this event that happened the last day of the first quarter, it was March 31st. It's kind of interesting because it shows how vulnerable the system has become and dependent on the weather. What's going on here is the whole planning period. The markets plan ahead of course. All the players work together in this in a system that is called the “balancing group management system.” Everybody looks at the weather, and that day the weather forecast was bright and sunny. Everybody expected the sun coming out and having a lot of solar generation.
What actually happened was, we woke up and there was cloud cover. It was not normal clouds. It turned out that overnight the wind brought up Sahara sand. If you look at the world map, that is actually pretty far away. But, a couple days per year in certain situations the wind can bring up sand all the way from Africa to Germany, which we actually see on the cars. It's quite interesting. What also happens is, if you have the sand in the air, you have a cloud cover suddenly. On the right chart we see the difference of the expected solar generation and actual generated solar power in one of the four TSO's in Germany. You see there is 3,000 megawatt difference. That is a lot. This is unplanned, and this is now a case for reserve power.
But that was not everything. At the same time, several large power plants had unscheduled outages. The system was pretty much stretched. What we got as a result was both secondary reserve and tertiary reserve were called during the day for a relatively long amount of time. When we participate in these programs, we expect a couple of minutes of call time for SRL or maybe 15 minutes in the tertiary reserve. But, on that day, everybody was called for a long time.
We think it's an interesting case, at least for us here in these programs, because we have proven that we can actually handle both types of dispatches at the same time with our platform. Events like these will become more and more prevalent in the system. It's not always the sand from the Sahara, but it's the ramping that is getting steeper and when situations are fluctuating highly volatile.
Dan: Those conditions that you're talking about, that's cast against the fact that the percentage of renewables is scheduled to go up.
Tom: Exactly. Until now it was really ignored by the political system. The objective was to bring the renewables into the system as quickly as possible. This is why we had this reallocation or subsidy system. The amount of volume cannot be ignored anymore, not at this amount anymore. Things will have to change and be adapted.
In these curves actually you can see how closely we can follow the dispatch curves that are asked from us. This looks as good as any fast power plant or generation unit you can have. It's pretty impressive to the TSO's. We proved that this is a reliable system and that on the demand side we can actually successfully contribute to the system.
Dan: That's fascinating. Let's, as we move towards closer here Tom, step back a little bit. You talked about demand response and its growth or non-growth so far in the European market. What has it been like to be Entelios and trying to be a DR company and introduce DR, not just to the regulators, but to customers as well?
Tom: We started in 2010 in Munich and Berlin, in the meantime we are also represented in Austria and Switzerland. From the beginning we targeted industrial and commercial DR providers. Unfortunately actually, we think, there's a large public discussion about households and smart meters and so on. But, for a couple reasons and regulations this is the most difficult segment to bring into the energy market. Of course you have a lot of data privacy issues that need to be solved. And, in a typical German household you don't have a lot of potential to move about. There's no air conditioning really, not a lot of swimming pools, and appliances are very energy efficient. Only in countries in Europe where you heat with electricity, and that is not Germany, or where you have a lot of heat pumps, demand response in households would make sense.
We are focusing on industrial and commercial providers. It was actually pretty easy to get into these companies because they are looking for new and innovative ways to either save energy or save costs on energy. On the other hand, we had to define our business model. As I said, we had a market entry in the balancing market / control reserve markets, but we are also having an indirect channel: we are serving existing energy suppliers with our platform. That's a “software-as-a-service” model, we call it “demand-response-as-a-service.” We could also offer this for DSO's, distribution system operators. But, for regulatory reasons they are not incentivized yet to actually use software instead of a service.
Dan: Talk about some of the challenges here that you've had in starting up and even today. I wonder if you often chat with your EnerNOC colleagues in the states and try to figure out who has the more complicated or tougher regulatory environment. You or them? I think you've given us a little bit of a flavor but tell us what the challenges were from a policy standpoint trying to get this all started.
Tom: When we got started we had to notice that all regulation and procedures and processes were written for generation, a centralized generation driven system. Only slowly that is being changed. That's one main thing.
The other point is that in a completely un-bundled market, when we dispatch, when we do have a demand response event, we have all kinds of effects on the other players in the system, especially the retailers who are supplying the energy to the end customer. All the settlement processes and the agreements that we have to have in place to actually do this are quite complex. This is the exact opposite of the system where you have a fully integrated utility for example.
The third big point is that we do not have fully functioning capacity markets. Demand response in the US is, I think, for the most part a business in the capacity markets. We do have them planned in France and the UK but, in Germany the discussion only started this year. So we will have another two years to go if we get them at all, whatever shape or form they might come.
Because we had to start in the ancillary service markets, we had to develop a system that was very reliable and has 100% availability. It's as if we ran a power plant. There is real time monitoring, real time dispatch, and we have multiple dispatches per day and very short warning times. There is also exact measuring in auditing.
In order to do this we have to build up a system with redundant computing centers in Berlin and Munich and we connect through virtual private networks to our industrial partners and providers. We do this so that we can connect directly with their PLC, into their automation computing systems that run the processes. That's where we pull the data from and that's where we push our data into, to control the processes when necessary. We also have to build up systems and connections to the TSO. That is actually a proprietary system that we built -- software, hardware platform in real-time.
Dan: You told us a little bit already about the customers that you target and so on. What have you run into?
Tom: We started with a shotgun approach because we didn't know where we would be successful or not. It turns out that all industrial and commercial players are interested. The question was, who has enough potential so that it financially makes sense. We do find the same assets that are average or normal for direct response, which is heat or cooling houses or electrolysis processes, chemical plants, paper manufacturers and so on. The bigger, the better -- because our efforts to connect them are almost the same whether large or small. We now target the large ones. The large ones are also easier to target or to bring into the markets because there are regulatory hurdles. They are pretty independent in where they buy their power; this makes it easier.
The last point on this slide that we're looking at here makes an important point for Germany. There's direct and indirect sales. Direct means we go to large power consumers and indirect means we are using existing retailers and suppliers to target the mass majority of the power consumers.
We are right now about 30 people, growing quickly. We're expanding into Austria and Switzerland. We were asked whether we use a lot of external contractors, and actually we haven't. That's all grown in-house. And, marketing is actually really only through conferences and trade shows because we have a short list of interesting candidates for providers.
What did we change? Interesting question. We did do a couple of adaptations. For example, the idea to create a demand response as a service product for utilities and then suppliers. That came only after a couple months we were in the system, and that is to increase our reach through indirect sales. We had to adapt to all the specifics of the energy industry and we do still have to adapt to other countries. Austria, Switzerland, France, all these countries have slightly different regulations.
The technology has been adapted and changed, which mostly means it was accelerated and automation was increased, because, that's what we need in the market here. No operator has the time during a dispatch to think and plan and then switch. It all has to happen automatically and the operators are just supervising.
Dan: What would you do if you were starting out? What would you do differently? What's your vision for the future here?
Tom: You only start a new business if you have incomplete information, otherwise nobody would start. The point being, the more you know about specific procedures and processes the better. I think we would have planned in the budget for regulatory and governmental affairs right from the beginning and a higher legal budget. But just the fact that I found myself often in Berlin and Brussels, that is certainly not in the budget plan for a startup company. That was an interesting experience.
It is still clear and the underlying driver is still the same with more and more fluctuating power in the German system and the European system in general, there is increase in demand for demand response. The old system cannot handle the fluctuations.
That is still here and that is also my outlook into the future. It is not clear whether that flexibility will be provided through a capacity mechanism, in the energy-only markets, or in the balancing markets and systems. But, demand response has a place in all these segments. Details have to be worked out in all countries, managed by Brussels, but also from the national governments. We have the movement to open up the energy markets for demand response.
Dan: Well I just want to say as we close here Tom, this was personally quite fascinating. It filled in a lot of gaps in my knowledge and understanding as to what's going on over there. We will all stay tuned to a certain extent. It sounds like, especially with that percentage of intermittent renewables on the system over there, that you're encountering things that here in the US we may not have encountered to the same extent. There's certainly some lessons learned there.
Tom, on behalf of ADS and the viewers of this case study interview I want to thank you for being with us today and good luck with your efforts as you move forward.
That concludes this case study interview. For more information on ADS and to learn more about other ADS events go to www.demandresponsesmartgrid.org. Tom, once again thank you being with us.
Tom: Thank you very much Dan.
© 2016 Solar Electric Power Association :: 1220 19th Street NW, Suite 800, Washington, D.C., 20036 :: contact us
Periodic updates on news & events related to demand response and smart grid.