Towards a smarter and more flexible European energy system - A market study of commercial opportunity for demand-side flexibility and wider smart ...

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Towards a smarter and more flexible European energy system - A market study of commercial opportunity for demand-side flexibility and wider smart ...
Towards a smarter and
more flexible European
energy system
A market study of commercial
opportunity for demand-side
flexibility and wider smart energy
system solutions in Europe
Towards a smarter and more flexible European energy system - A market study of commercial opportunity for demand-side flexibility and wider smart ...
1. Contents — continued

    1. Contents                                                                                                         6       Priority countries deep dive                                                                  31
                                                                                                                        6.1     Great Britain baseline                                                                        31
2        Abstract                                                         5
                                                                                                                        6.1.1   Market trends in GB                                                                           31
3        Introduction                                                     9
                                                                                                                        6.1.2   Accessing revenue through electricity markets                                                34
3.1      Current situation                                                9
                                                                                                                        6.1.3   Cost avoidance                                                                               37
3.2      Enabling factors                                                 9
                                                                                                                        6.2     Germany                                                                                      43
3.3      The UK — leaders in innovation and decarbonisation               11
                                                                                                                        6.2.1   Business model evaluation                                                                    43
3.3.1    Key differentiating features of the UK market                    11
                                                                                                                        6.2.2   Opportunities for the energy market in Germany                                               44
3.3.2    Government support for innovation in the UK                     12
                                                                                                                        6.2.3   Home Energy Management Systems in Germany                                                    46
3.3.3    Industry landscape in the UK                                    13
                                                                                                                        6.2.4   Accessing revenue through electricity markets                                                47
4        Emerging business models for smart grids and flexibility        15
                                                                                                                        6.2.5   Cost avoidance for customers                                                                 49
4.1      Key drivers                                                     15
                                                                                                                        6.3     Netherlands                                                                                  55
4.2      The commercial model                                            15
                                                                                                                        6.3.1   Business model evaluation                                                                    55
4.3      Emerging business models                                        16
                                                                                                                        6.3.2   Opportunities for the energy market in Netherlands                                           56
4.3.1    Grid-connected battery storage                                  17
                                                                                                                        6.3.3   Electric vehicle charging and flexibility services in the Netherlands                        58
4.3.2    Aggregators                                                     19
                                                                                                                        6.3.4   Accessing revenue through electricity markets                                                59
4.3.3    Smart EV charging                                               21
                                                                                                                        6.3.5   Cost avoidance for customers                                                                  61
4.3.4    Home Energy Management Systems (HEMS)                           23
                                                                                                                        6.4     Iberian Peninsula                                                                            64
4.3.5    Smart Local Energy Systems (SLES)                               26
                                                                                                                        6.4.1   Business model evaluation                                                                    64
5        Methodology                                                     28
                                                                                                                        6.4.2   Opportunities for the energy market in Spain and Portugal                                    65
5.1      Selection of the priority countries                             28
                                                                                                                        6.4.3   Large scale solar and storage in the Iberian Peninsula                                       66
5.2      Analysing the priority countries                                29
                                                                                                                        6.5     Spain                                                                                        68
                                                                                                                        6.5.1   Accessing revenue through electricity markets                                                68

Core research team                                                                                                      6.5.2   Cost avoidance for customers                                                                  71
Ruth Babbington, Simon Briggs                                                                                           6.6     Portugal                                                                                     75
and Susanna Elks.                                                                                                       6.6.1   Accessing revenue through electricity markets                                                75
                                                                                                                        6.6.2   Cost avoidance for customers                                                                 77
Abigail Mills, Arianna Griffa,                                                                                          6.7     Belgium                                                                                       81
Despina Yiakoumi, Sarah Keay-Bright                                                                                     6.7.1   Business model evaluation                                                                    82
and Stuart McKinnon.
                                                                                                                        6.7.2   Accessing revenue through electricity markets                                                83

Reviewers                                                                                                               6.7.3   Cost avoidance for customers                                                                 86
George Day, Head of Policy                                                                                              6.8     Denmark                                                                                       91
Markets and Regulation                                                                                                  6.8.1   Business model evaluation                                                                    92
Paul Jordan, Business Leader Innovator                                                                                  6.8.2   Accessing revenue through electricity markets                                                94
Support and International
                                                                                                                        6.8.3   Cost avoidance for customers                                                                 99

With thanks to                                                                                                          6.9     Priority country comparison                                                                  102
All the SME’s who took part in our                                                                                      7       Annex 1: Overview methodology                                                                108
research through surveys, workshops                                                                                     8       Annex 2: Policy and Regulation for DSF                                                       110
and interviews, particularly those who
                                                                                                                        8.1.1   Accessing revenue through electricity markets                                                110
provided us with case studies.
                                                                                                                        8.1.2   Regulatory arrangements for aggregators or DSR bidding into electricity markets              111
DIT posts in the priority countries,
smartEn and all of our colleagues at ESC                                                                                8.1.3   Cost avoidance                                                                               112
who shared their expertise with us.
Delta-EE for allowing us to reference
their research into HEMS.

2          Towards a smarter and more flexible European energy system   Energy Systems Catapult   Energy Systems Catapult                                       Towards a smarter and more flexible European energy system     3
Towards a smarter and more flexible European energy system - A market study of commercial opportunity for demand-side flexibility and wider smart ...
2. Abstract — continued

    2. Abstract
                                                                                                                                                             Figure 2 Influences on market landscapes across Europe
                                                                                                                                                             How do the landscapes differ across Europe?
Our study identifies six priority markets for smart systems and flexibility business opportunities                                                      Figure 2: Influences on market landscapes across Europe.
from 31 European countries. These markets were narrowed down through an analysis of all
31 markets. The results of this analysis are a series of market fact files that will be released
on the Energy Systems Catapult (ESC) Innovator Portal.1 The priority markets identified were                                                                  Historical influences          • On infrastructure and investment choices

Belgium, Denmark, Germany, the Netherlands, Portugal and Spain. Deep dive country reports
for these priority markets are found in section six.
                                                                                                                                                                                             • Municipalities
                                                                                                                                                               Political landscape           • Liberal vs highly regulated
Figure 1: Priority markets identified through our research.                                                                                                                                  • Monopoly vs growing levels of competition

                                                                             1. Denmark
                                                                             2. Netherlands                                                                                                 • Environmental concerns
                                                                                                                                                                                             • Merchant mentality
                                                                                 Electric vehicle charging                                                    Consumer attitudes             • Conservative/traditional values and mistrustful of innovation
                                                                             3. G
                                                                                 ermany                                                                                                     • Liberal
                                                                                Home Energy Management
                                                2                                                                                                                                            • Housing stock limitation
                                                                             4. Belgium                                                                       Renewable energy               • Historical infrastructure (e.g. 97% homes gas connected)
                                            4              3                 5.	Iberian Peninsular                                                              possibilities               • Consumer acceptance
                                                                                                                                                                                             • Geography
                                                                                 Large scale solar and storage

                                                                                                                                                                                             • Driving vs being driven by change
                                                                                                                                                                                             • Independence from government or industry
                                                                                                                                                                   Regulation                • Implementation of EU directives
                                                                                                                                                                                             • Changing fast or beset by delays

                                                                                                                                                        The UK capabilities in each business model were measured against the policy
                       5                                                                                                                                and regulation landscape in each priority country in order to give an idea of the
                                                                                                                                                        potential for export. Infrastructure and consumer trends were also taken into
                                                                                                                                                        account. The business models that this study considered are shown in Figure 3.
                                                                                                                                                        Each of these are areas where the UK is leading innovation globally. The business
Business modelling was undertaken for Germany, the Netherlands and the Iberian Peninsula,                                                               models are described in more detail in section four. The high-level findings from
as these were the most promising markets for specific business models. The Netherlands in                                                               our business modelling work in the six priority markets are shown in Figure 4.
particular was promising for several business models. In the Iberian countries, many business
                                                                                                                                                          Figure 3: The
                                                                                                                                                                 3 The    five
                                                                                                                                                                       five    smart
                                                                                                                                                                            smart      systems
                                                                                                                                                                                  systems         and flexibility
                                                                                                                                                                                          and flexibility           business
                                                                                                                                                                                                          business models       models
                                                                                                                                                                                                                          considered       considered
                                                                                                                                                                                                                                     in this study    in this study.
models are limited by a lack of access to markets, however regulatory change is being
implemented rapidly and these markets are currently underserved. The study was limited to
selecting six priority countries, a number of others made the shortlist, including but not limited
to Ireland, Italy, Austria, and Switzerland. The reasons for eliminating these countries in spite
of their attractiveness was often a combination of factors, for example low ease of business
score combined with low forecasts for EV uptake and heat pumps (Italy), or fierce competition
                                                                                                                                                               Domestic               SMEs              Public Sector              I&Cs          Network Connected
combined with very high network tariffs (Switzerland). Even across such a small continent as
Europe, the market landscapes are incredibly varied.                                                                                                                                                                                                Grid Connected
                                                                                                                                                                                                                                                    Battery Storage


                                                                                                                                                                                        Smart EV Charging

                                                                                                                                                              Home Energy

                                                                                                                                                                                                 Smart Local Energy Systems


4              Towards a smarter and more flexible European energy system                                Energy Systems Catapult   Energy Systems Catapult                                               Towards a smarter and more flexible European energy system    5
2. Abstract — continued                                                                                                                                                    2. Abstract — continued

 To facilitate export of UK innovation it is necessary to understand the main barriers to                                                                                   Figure 5: Barriers to export learnt from our primary research with SMEs.
 flexibility business models. We found that for the most part it is local electricity market
 regulation that presents the biggest barriers. European-level directives are seeking to address
 this across all member states however, so markets are changing very fast. This means market
 analysis needs to be updated frequently. In addition, national-level problems such as weak
 policy direction on the energy transition introduce uncertainty to business modelling. The                                                                                              Barriers                                    Needs                                          Enablers
 Netherlands, Belgium and Denmark all rely on high levels of interconnection which reduces
                                                                                                                                                                                           Risk                              Business plan support                          Missions & innovation
 the need for flexibility currently, but in the former two particularly this is likely to change as                                                                               Suitable commercial                          Overseas contacts                                programmes
 heat and transport are electrified and traditional energy sources are phased out.                                                                                                      support                  Clarity on standards and certifications required               Knowledge of
                                                                                                                                                                                 Lack of staff in-country                                                                   language and culture
                                                                                                                                                                                                               Knowledge of how international markets will change
Figure   4: Main
       4 Main    barriers
              barriers      to business
                       to business      modelling
                                   modelling         across
                                             across all       allcountries
                                                        priority  priority countries                                                                                                  Regulations                                                                                      USP
                                                                                                                                                                                                                                Market research
                                                                                                                                                                                      Relationships                                                                           Parent companies
                                                                                                                                                                                                                     Incubator and accelerator programmes
                                                                                                                                                                                                                                                                                 or partners
       Slow uptake of EU directives – e.g.
             Clean Energy Package

        Fixed price or static ToU* pricing                                    High levels of interconnection                                                                 Figure 6 Key findings from the study overall
              on supplier contracts                                                                                                                                         Figure 6: Key findings from the study overall.

           Low access to markets and                                          Weak energy transition policy                                                                     Market research to
                                                                                                                                                                             happen alongside or be                    Research needs to be                       Cross-country                            Covid-19 pandemic
                need for a BRP*                                                     at national level                                                                                                                 expanded and updated                        collaboration is                        effects likely to be felt
                                                                                                                                                                                closely followed by
                                                                                                                                                                             in-country engagement                          frequently                              necessary                            for some time to come

       High network tariffs and network                                     Complex arrangements between
               tariff structure                                                 multiple TSO’s/DSO’s

                                                                                                                                                                                                                        Due to rapidly changing             1. We can learn from others through active engagement,
                                                                                                                                                                                                                         regulation landscape                  for example these countries have expertise in:
       Net metering reducing consumer                                                                                                                                               Applying to overseas                                                         Italy: Smart meter rollout
        incentive to optimise demand                                                                                                                                             incubators and accelerators
                                                                                                                                                                                                                                                                 Estonia: Full digitalisation of civil service
                                                                     *Time of Use (ToU), Balancing Responsible Party (BRP)                                                                                              Due to rapidly changing                  Sweden: Smart grids SME/export support
                                                                                                                                                                                                                        market dynamics (e.g. EV
                                                                                                                                                                                                                                                                 France: Involvement in collaborative trials and demos,
                                                                                                                                                                                                                             market share)
                                                                                                                                                                                                                                                                 showcasing French expertise
 The need for a systematic analysis of European markets has been identified through our                                                                                                                                                                          Denmark: Co-ownership and cooperative business models
                                                                                                                                                                                                                         Needs to cover more
 extensive primary research with innovative UK SME’s. In surveys, one-on-one interviews and                                                                                           Reaching out to                countries/regions and technical
                                                                                                                                                                                 government posts overseas            specialities – guided by SME
 through our SME workshops we have identified the following barriers to export of innovative                                                                                                                                     feedback                   2.      Through participation in or membership
 products. In one-on-one conversations it was particularly interesting to hear that most SME’s                                                                                                                                                                      of European associations and projects:

 who have successfully exported did so because they either had a genuine interest in and                                                                                                                               Needs to be accessible to
                                                                                                                                                                                                                         SMEs and investors
                                                                                                                                                                                                                                                                    Projects TERRE, MARI, PICASSO
                                                                                                                                                                                                                                                                    Horizon 2020
 knowledge of their target market (including culturally), or because they had found a local                                                                                  Raising profile of UK expertise
                                                                                                                                                                                                                                                                    Pan-European associations

 partner, for instance through participating in an overseas accelerator program. This indicates                                                                              and innovation with overseas
                                                                                                                                                                                                                            ESC’s assets are
                                                                                                                                                                                                                                                                    Working groups, observatories, thought leadership groups,
                                                                                                                                                                                        industry                                                                    partnerships with academia, government-industry events
 that relationships are at the forefront of their needs as well as strong market research.                                                                                                                            being developed to host and
                                                                                                                                                                                                                         disseminate research                       …to name a few!

 It is also apparent through our conversations with SME’s that often they do not have
 the resource necessary to carry out extensive market research alongside product
                                                                                                                                                                            A summary of the pros and cons of each business model for each priority country
 development. This hinders the step from successful product development to successful
                                                                                                                                                                            is found at the start of each country sub-section in section six.
 overseas commercialisation and can add significant delays to the product design lifecycle.
 The mission of the International and Innovator Support teams at the ESC is to assist to                                                                                    This report begins by describing the reasons why the UK is a world leader in smart systems
 SME’s in making that step.                                                                                                                                                 and flexibility. It then presents the business models used in our study. A short explanation
 The high-level recommendations for all stakeholders are shown in Figure 6. The main                                                                                        of our methodology follows, before the individual priority country analyses, beginning
 message is that collaboration and communication are necessary at all levels. This also                                                                                     with a description of the UK baseline. The annexes hold a more detailed description of the
 supports our research that relationships are just as vital as early, solid market intelligence.                                                                            methodologies we used for our analyses, including an overview of the pertinent policy and
 The ESC proposes that it could build on its strong rapport with SME’s and overseas network                                                                                 regulation that we took into account in annex two.
 in becoming a hub for interaction between SME’s, government and overseas partners.

 6            Towards a smarter and more flexible European energy system                                                     Energy Systems Catapult   Energy Systems Catapult                                                    Towards a smarter and more flexible European energy system                                          7
3. Introduction — continued

    3. Introduction
3.1 Current situation                                                                                                                                                                     The numerous provisions of the Electricity Directive and Electricity Regulation, which will
                                                                                                                                                                                          better enable DSF and that must largely be implemented by the end of 2020, are orientated
Smart systems and flexibility are a vital tool in the suite needed to reach net zero. As the                                                                                              around the following five key principles, well summarised by Delta-EE: 6
proportion of intermittent renewable generation increases, storage and grid balancing will
need to become more widespread and effective in order to avoid constraints and blackouts.                                                                                                 1. Open all electricity markets for all decentralised energy resources
Interconnection between regions alone will not be sufficient for most countries to achieve                                                                                                   —	Most undue barriers for market entry for decentralised energy resources have
grid stability and security of supply.                                                                                                                                                          been removed with the objective to create a level playing field with generation.
                                                                                                                                                                                             —	The overall philosophy is for the new product design to be sufficiently small and
Traditionally the electricity systems of Europe have been strongly centralised. Power flowed                                                                                                    trading as close to real time as possible.
down from large generators to passive consumers. This is all changing, as energy systems                                                                                                     —	The European resource adequacy assessment is introduced.
decarbonise in response to the threat of climate change and pressures on resources.
Vast improvements in communications means that complex multi-directional flows of power                                                                                                   2. Effective price signals at wholesale and retail level
in a decentralised system can be monitored and balanced.                                                                                                                                     —	Price caps have been removed to increase efficiency in the markets with
                                                                                                                                                                                                 derogations only being for specific reasons and time-limited.
The increased involvement of active consumers and prosumers (those who both consume and                                                                                                      —	Consumers should be able to choose dynamic prices and should have
produce electricity) in demand and supply can be seen as democratisation of the energy system.                                                                                                   access to smart metering.
                                                                                                                                                                                             —	Network charges shall be cost-reflective and support overall system efficiency.
3.2 Enabling factors                                                                                                                                                                      3. Provide fair market access for active customers and aggregator
An involved public is an enabling factor in the development of more sophisticated flexibility                                                                                                —	Independent aggregators don’t require prior consent from suppliers
models. Subsidies have enabled many European households to install solar PV arrays on their                                                                                                     to engage with the final customer.
rooftops, and in many countries renumeration schemes or net metering have enabled them to                                                                                                    —	Customers cannot be subject to discriminatory technical or administrative
feed electricity into the grid and receive payments. Community energy schemes are gaining                                                                                                       requirements and charges from their suppliers, to engage with an aggregator.
prominence and moving beyond pioneering towns such as Freiburg and Bristol.
                                                                                                                                                                                          4. Relevant data access for all service providers
Furthermore, progressive regulatory change at EU level is filtering down to member states.                                                                                                   —	Based on customer consent, any third party shall have non-discriminatory
For EU countries, the evolution of their policy and regulatory frameworks and electricity                                                                                                        access to the final customers’ data.
market rules will be strongly influenced by the recently adopted Clean Energy Package for All                                                                                                —	Customers will receive their consumption data free of charge once
Europeans.2 While the package introduces numerous new EU laws, the most relevant to the                                                                                                          every billing period.
promotion of demand-side flexibility (DSF) are the Electricity Directive 3 and the Electricity                                                                                               —	A common European data format and framework will be developed, to facilitate
Regulation.4 These two pieces of law aim at driving further integration of the EU electricity                                                                                                    interoperability and data access between different Member States.
markets towards a single energy market 5 and reformed electricity market design adapted to
the new realities of the market, better able to integrate a greater share of variable renewables.                                                                                         5. Use all decentralised energy resources by system operators
The topics covered by the legislation include market competition, network tariffs, capacity                                                                                                  —	The Directive requires standardised and streamlined product definitions
mechanisms, balancing services and empowering consumers, among others.                                                                                                                          for the procurement of flexibility by DSOs and TSOs.
                                                                                                                                                                                             —	The objective is to avoid market fragmentation and too specific products
                                                                                                                                                                                                tailored to certain types of generation.

                                                                                                                                                                                          This report bases its assumptions on those of the European Commission and
                                                                                                                                                                                          implementation of EU law.

  EU Directive 2019/944 on common rules for the internal market for electricity and amending Directive 2012/27/

  EU – must be transposed into national laws by 31 December 2020.
  EU Regulation 2019/943 on the internal market for electricity – takes direct effect in Member States.

  The EU Network Codes are also of major importance relating to market integration and some of the codes have relevant to enabling

  DSF and revealing flexibility value e.g. Demand Connection Code; Electricity Balancing Guideline (related are initiatives to integrate
  ancillary services markets: PICASSO, MARI and TERRE For more info on Network Codes:                                                            6

8             Towards a smarter and more flexible European energy system                                                                   Energy Systems Catapult   Energy Systems Catapult                                              Towards a smarter and more flexible European energy system      9
3. Introduction — continued                                                                                                               3. Introduction — continued

3.3 The UK – Leaders in innovation and decarbonisation                                                                                         3.3.2 Government support for innovation in the UK
3.3.1 Key differentiating features of the UK market                                                                                        The UK scores ninth in the Global Energy Innovation Index,7 with its final score pulled
Innovation tends to occur to fulfil local need. Therefore, innovation by UK companies will                                                 down by a lower component score for scaling up. It ranks seventh in the world for “option
inevitably be done in the context of the UK energy system and the challenges posed by it.                                                  generation” and third for “social legitimation”, which reflects the ambition of its policy and
This context is defined by aspects of market arrangement, regulatory environment, climate                                                  diversity of energy R&D.
policy, public and private investment, early adopter market, academic research and even
                                                                                                                                           The UK government has instated a legally binding target to reach ‘Net Zero’ carbon emissions
geography. We assessed how the UK system stacks up against the other countries in Europe
                                                                                                                                           by 2050. This will require electricity generation to be decarbonised long before this and is
and found that its suitability to smart system and demand side flexibility is above average
                                                                                                                                           likely to drastically increase the electricity demand on the grid through the, at least partial,
when compared to the other European countries. The UK also scores highly on its need for
                                                                                                                                           electrification of transport and heat provision. The ESC’s ‘Innovating to Net Zero’ report 8 sets
flexibility services.
                                                                                                                                           out many of the potential system implications of achieving this target.
The UK has the relatively unique feature of being largely islanded from the rest of continental
                                                                                                                                           Alongside this, the UK Government’s Industrial Strategy has ambitious aspirations to make the
Europe’s electricity system. Although there are interconnectors to other markets, these have
                                                                                                                                           UK the world’s most innovative economy and to increase competitiveness internationally. Part
significantly lower capacity than those between other markets in Europe. This creates a need
                                                                                                                                           of the overall Industrial Strategy is focused on clean growth. This Clean Growth Strategy 9 and
to balance supply and demand internally, which is a growing challenge with an increasing
                                                                                                                                           the associated Clean Growth Grand Challenge have been put in place to ensure increased
share of intermittent renewables.
                                                                                                                                           preparedness for the UK’s energy system transition, through the development, manufacture
UK market overview (note regulation for GB market only).
                                                                                                                                           and use of low carbon technologies, systems and services. Smart systems and demand side
                                                                                                                                           flexibility form a pivotal role in this transition to a low carbon system.
                             Large number of households with high energy
                             consumption, a relatively large EV fleet and high        5/5                                                  The strategy includes significant commitments on public investment in smart energy
        Market size
                             consumer interaction with smart gadgets.                                                                      innovation. One example of this is the £100 million available to industry and research from
                                                                                                                                           the Prospering From the Energy Revolution (PFER) challenge. This aims to “create more
                             Relative to other countries there is a high EV rollout
                                                                                                                                           efficient energy systems and benefit the UK economy from global uptake”. The fund will
     Policy landscape        ambition, consumer support for energy transition and     5/5                                                  support organisations in designing and demonstrating smart local energy systems (SLES)
                             an above-average intermittent renewables target.
                                                                                                                                           with the hope that they can take advantage of the huge international market opportunity,
                                                                                                                                           estimated at $2 trillion 10 annual investment in global energy infrastructure. The ESC’s Energy
        Regulation           There is high market participation and moderate                                                               Revolution Integration Services (ERIS) programme is playing a strong supporting role in the
                             upcoming changes. Some ancillary markets are                                                                  PFER programme.

                                                                                                                                           Alongside the Industrial Strategy sits the Smart Systems and Flexibility Plan.11 The objective
        Market               Comparatively speaking there is a high                                                                        of this is to push the UK energy system capability forward to meet the challenges of future
                             contract switching rate, and a low market                4/5
     competitiveness         share of the largest generator.
                                                                                                                                           energy system transition. Focusing on smart technology, this plan outlines 29 actions
                                                                                                                                           that government, regulator and industry should take to remove barriers (such as market
                                                                                                                                           arrangement and regulation), to enable smart homes and businesses (through improving
                             The UK has a high proportion of generation from
     Flexibility profile     intermittent renewables and one of the greatest          5/5                                                  interoperability and ensuring cyber security), and to improve access to markets for new
                             minimum to maximum peak demand ratios.                                                                        technology and business models. The UK was a relatively early mover 12 in recognising the
                                                                                                                                           need for these actions in order to create an attractive market for innovation and enable
                                                                                                                                           system transition in an affordable way. As such the UK is now well placed to begin exporting
                                                                                                                                           some of the resulting innovations, although it will need to keep up momentum or will risk
                                                                                                                                           stagnating and become a follower rather than a leader in smart system solutions.

                                                                                                                                                Energy Systems Catapult, Innovating to Net Zero, March 2020
                                                                                                                                                BEIS, Clean Growth Strategy, Oct 2017
                                                                                                                                                BEIS, Upgrading our energy system: smart systems and flexibility plan, July 2017
                                                                                                                                                smartEn, The smartEn Map – European Balancing Markets Edition, 2018

10           Towards a smarter and more flexible European energy system                     Energy Systems Catapult   Energy Systems Catapult                                                  Towards a smarter and more flexible European energy system   11
3. Introduction — continued                                                                                                                                                             3. Introduction — continued

The UK Government has also commissioned an Energy Innovation Needs Assessment (EINA).13                                                                                                  In October 2019, the ESC drew from the SCD and published a map of the UK Digital Energy
This identifies energy innovation priorities for the UK and opportunities to gain significant                                                                                            Landscape.14 This identified 212 companies operating in this fast-growing sector. It included
global market share. The work covers a broad range of energy system topics, but of those                                                                                                 businesses spanning digital platforms, services and physical assets, with the aim of identifying
relevant to this work, smart systems equipment (including Vehicle-to-Grid [V2G] and smart                                                                                                opportunities and gaps for innovators to capitalise on. This was carried out across residential,
charging infrastructure), battery storage systems and smart network equipment are seen                                                                                                   commercial, industrial and grid markets. It provides a basis to bring innovative companies
as big potential export opportunities. The priority innovation areas identified in the work                                                                                              together to identify gaps in the market and synergies in their offerings, to deliver the
are digital optimisation, design and AI (to optimise the electricity system), and innovation in                                                                                          integrated solutions that will benefit customers.
storage systems and supply chains. Services, such as aggregation, but also consultancy, are
also identified as key opportunities. The focus of the work is the position in 2050, but it gives                                                                                        The ESC plans to complete more landscape scoping for other technical sectors,
insight into direction of travel and priorities for investment.                                                                                                                          which will increase their visibility.

In broader terms, looking beyond technology innovation in the energy sector, the results                                                                                                 Figure 8: The ESC's Digital Landscape infographic (showing sectors only).
of the EINA report reflect the fact that the UK’s advantages lie in high value services, e.g.
legal, financial, IT & telecoms and engineering services. The most important innovations are
not just with assets and equipment, but also system design and operation, business model
development, communications infrastructure, and the service platforms that enable them to
work efficiently and offer a route to market.

In conclusion, the innovation is there and the support for it is strong, but success for the UK                                                                                                                    Residential and public           Commercial and Industrail          DNOs/DSO, TSOs, ESO
depends on effective commercialisation and scaling up.

3.3.3 Industry landscape in the UK                                                                                                                                                              Services                               Consumer Services

In order to map out the UK capabilities and activity happening today, the ESC maintains an
energy system Supply Chain Database (SCD). This provides analytical support to our activities
                                                                                                                                                                                                                      Decision Support
and is also a way to directly notify SME’s of funding calls, incubator and accelerator programs,
events and opportunities, in the UK and overseas.
Figure 7 A breakdown of firms on the Supply Chain Database maintained by the ESC (in May 2020)                                                                                                                                                               Transaction
Figure 7: A breakdown of firms on the Supply Chain Database maintained by the ESC (in May 2020).                                                                                               Platforms
                                                                                                                                                                                                                                                   Asset Control Management
     Supply chain                         Percentage of companies in each technical
     database                             sector on the supply chain database
                                                                                                                                                                                                                                                                      Local Energy System Data
     Benefits:                                      Industrial process and energy efficiency
                                                                    Customer side of meter
     • Identification of UK
                                                                            Energy storage
       innovation capabilities                                                                                                                                                                   Assets                                                              Asset Operations and Data
                                                                      Low emission vehicles
     • Understand innovation                                         Distributed generation
       barriers and gaps
                                                                   Energy service providers
     • Identification of high potential                            Digital energy platforms
                                                                                                                                                                                                                                                            On-site generation           Centralised generation
       and new growth markets                              Other energy system components                                                                                                                         Domestic batteries, EVs, smart       (CHPs, back-up generators),      (coal, hydro), distributed
     • Identify priority policy areas                                Building fabric energy                                                                                                                         appliances and solar PVs         chillers, heat pumps and energy   generation (wind, solar) and
                                                                                    Biomas                                                                                                                                                                      storage assets           large scale generation
     • Link innovators to new
                                                                District heating and cooling
                                          Distribution and transmission network components
     • Develop consortia and                                                Mini/Microgrid
       collaboration partners                               Low-carbon finance and funding
                                                 Fuels and gases, carbon and use or storage

                                                                                               0%   2%   4%   6%   8%   10%   12%   14%   16%

     BEIS, Energy Innovation Needs Assessments, Nov 2019

12               Towards a smarter and more flexible European energy system                                                               Energy Systems Catapult   Energy Systems Catapult                                                 Towards a smarter and more flexible European energy system                13
4. Emerging business models for
                                                                                                                                                            4. Emerging business models for smart grids and flexibility — continued

 smart grids and flexibility
                                                                                                                                                             4.2 The commercial model
                                                                                                                                                            The commercial drivers for smart grids and flexibility are usually either maximising value
4.1 Key drivers                                                                                                                                             or avoiding cost. Maximising value means waiting to deliver a service (such as increasing
Current market conditions are perfect for the development of smart grids and flexibility.                                                                   generation or reducing consumption) when it is needed most, delivering to wholesale or
Traditional energy supply business models have high levels of customer dissatisfaction and a                                                                network markets when they value it most. These markets can be open and in response
perceived lack of value for money. Retailers are struggling to turn a profit and investment is                                                              to market price signals, or encouraged through regulatory instruments to manage
moving into other areas.                                                                                                                                    specific system constraints (e.g. a sudden drop in generation or peak congestion).

Digitalisation of energy interactions allows insight into when, where and why energy is                                                                     Cost avoidance is usually driven by managing demand for energy, for the benefit of the end
used. When publicly available, better data will enable innovators to develop innovative new                                                                 customer or for the network. For customers it is usually about managing energy down at
business models that are more tailored to customer needs, whether that customer is upstream                                                                 the point at which energy is expensive, possibly due to high wholesale prices but more often
(networks, generators) or downstream (homeowners, businesses).                                                                                              due to high network charges. For the networks, the need to decarbonise and ultimately
                                                                                                                                                            electrify demand could potentially require significant extra investment. In the UK by 2050 an
Figure 9: Key enablers in the transition to a smarter energy system.                                                                                        estimated £40bn 15 could be saved by making the system smarter and more flexible rather
                                                                                                                                                            than upgrading. Therefore, many distribution network/system operators (DNOs/DSOs) are
     What will drive the change to new business models                                                                                                      exploring the potential of managing network demand rather than reinforcing the grid.

                                                                                                                                                            System operators ultimately act as a market makers. They use market-based mechanisms
     Energy Products                                       Technologies enabling connectivity
                                                                                                                                                            such as auctions or tenders to procure services that can be delivered by flexible energy
                                                                                                                                                            resources when the network needs them.
                        2.6–4m Electric or PHEV                               Smart meter roll out at
                        cars on the road by 2030.                             30% penetration today.
                                                                                                                                                            Some of the relevant markets in GB and Europe for flexibility include:
                        (ESC net zero report)                                 45–52 million smart meters
                                                                              (85–100% penetration)                                                         —      Wholesale market (day-ahead and intraday)
                                                                              by 2023. (Baringa & NAO)                                                      —      Ancillary Services
                                                                                                                                                            —      Capacity Market
                                                                                                                                                            —      Balancing mechanism (frequency related ancillary services)
                        0.8–2m heat pumps                                     Real time energy data and
                        by 2030. (ESC and CCC)                                3rd party data services a
                                                                              possibility through Consumer
                                                                                                                                                            The markets are described in annex two. The ESC has also published reports
                                                                              Access Device. (CAD)                                                          that explore the value sources and nature of signals in the GB market which can
                                                                                                                                                            be downloaded from our website.16

                                                                                                                                                            The business models for smarter grids and flexibility try to deliver benefits to as
                        ~100K residential batteries                           50% of homes will have a                                                      many markets as possible. This is commonly referred to as “revenue stacking” though
                        by 2023. (Delta-EE)                                   connected home product                                                        regulatory requirements and market rules often create barriers to entry. EU legislative
                                                                              by 2023. (Statista)
                                                                                                                                                            reforms, however, should help unlock some revenue streams over the next few years.

                                                                                                                                                             4.3 Emerging business models
                                                                                                                                                            Flexibility can be delivered anywhere within the electricity system. The solutions will differ
                                                                                                                                                            depending on the energy resources and stakeholders involved but ultimately the same
                                                                                                                                                            value is delivered; real-time balancing of supply and demand. This must be achieved as cost
                                                                                                                                                            effectively as possible without impacting the end-user experience and whilst delivering on
                                                                                                                                                            public policy objectives. The following sections explore the five emerging business models
                                                                                                                                                            considered in our European research.


14           Towards a smarter and more flexible European energy system                                      Energy Systems Catapult   Energy Systems Catapult                                               Towards a smarter and more flexible European energy system   15
4. Emerging business models for smart grids and flexibility — continued                                                                                  4. Emerging business models for smart grids and flexibility — continued

4.3.1 Grid-connected battery storage                                                                                                                     The business model relies on “revenue stacking”, utilising the battery capacity for multiple
Figure 10 Grid-connected battery storage value flows                                           Revenue                                                   services such as the capacity market, balancing mechanism, ancillary services and trading on
Figure 10: Grid-connected battery storage value flows.                                         Cost
                                                                                                                                                         the wholesale market. The asset owner will discharge the battery at different points within
                                                                                                                                                         a day depending on their existing contractual arrangements or when it is most lucrative to
     Energy supplier (BRP)
                                          Generator                  TSO                   DSO                                                           trade. Competitive advantage comes from the quality of trading and forecasting algorithms.
           or trader

                                                                                                                                                         Grid-connected battery storage is usually situated in the distribution network although
                                                                                                                                                         it provides services to the TSO/ESO. The supply chain is split between the finance and
                                                                                                                                                         development of the project, and the operation and maintenance of the battery. Included in
                                                                                                                                                         operation is the delivery of flexibility to the customer (generator, TSO or DSO). Increasingly
                      Asset development                        Asset management
                                                                                                                                                         storage is also being used to trade on wholesale markets or in bi-lateral agreements when
                                                                                                                                                         co-located with renewable generation. In the UK there is a strong mix of battery owners
                                                                                                                                                         and operators (e.g. Zenobe, Pivot Power, Anesco) as well as software providers for asset
                                                                                                                                                         optimisation and trading (e.g. Habitat Energy, Upside). There is also significant investment
                                                                                                                                                         from international players like EDF and RedT.
                                                                                                                                                      Figure 51 Revenue stacking estimates from
 Capital investor                            Battery storage                      Management                                                          Timera  Energy
                                                                                                                                                         Figure       across
                                                                                                                                                                 12: An      the different
                                                                                                                                                                         example           markets
                                                                                                                                                                                    of revenue  stacking.
                                                 facility                           System
                                                                                                                                                                                                                                 Embedded benefits
                                                                                                                                                                                                                                 Ancillary services

                                                                                                                                                        Margin requirement (£/kW/yr)
                                                                                                                                                                                       80                                        Wholesale and balancing
A storage asset can be connected to the transmission network, distribution network or co-
                                                                                                                                                                                                                                 Capacity market
located with renewable generation. Grid-connected battery storage is one of the fastest                                                                                                60

growing business models for delivering flexibility, with lithium-ion being the fastest-growing                                                                                         40
model in the UK. A battery is categorised based on its rated power (i.e. how much power
it can deliver) and discharge time (i.e. how long can it deliver that power for). In the UK the
rated power most commonly ranges from 10 to 50 MW, influenced by National Infrastructure                                                                                                0
                                                                                                                                                                                                Battery        Engine
planning regulations for projects above 50 MW.
                                                                                                                                                         Figure 13: Companies active in utility scale battery storage.
There are also other forms of storage being explored including pumped hydro, flywheels and                                                                                             Capacity market
compressed air, as well as innovations in gravitational energy storage.                                                                                                                Wholesale and balancing market
                                                                                                                                                                                       Ancillary services                  Flexibility aggregator Open Energi and storage operator
                                                                                                                                                                                       Embedded benefits                   Zenobe Energy have struck a deal to trade output from
Figure 11: Zenobe site.
                                                                                                                                                                                                                           a 9.8 MW/12 MWh Tesla battery at Hill Farm.

                                                                                                                                                                                                                           Pivot Power today unveiled plans to build a world-first 2 GW
                                                                                                                                                                                                                           network of grid-scale batteries and EV charging stations across
                                                                                                                                                                                                                           the UK. Pivot Power plans to develop 45 sites around the country,
                                                                                                                                                                                                                           installing grid-scale 50 MW batteries at electricity sub-stations
                                                                                                                                                                                                                           connected directly to the extra-high-voltage transmission system.

                                                                                                                                                                                                                           redT energy plc is pleased to announce that we have signed an
                                                                                                                                                                                                                           exclusivity agreement with Energy System Management GmbH
                                                                                                                                                                                                                           (ESM), a German energy development company part of WWF
                                                                                                                                                                                                                           solar, to deliver two 40 MWh grid-scale energy storage projects
                                                                                                                                                                                                                           in Germany as a first phase deployment, with plans to roll out a
                                                                                                                                                                                                                           further 690 MWh of projects in the future.

                                                                                                                                                                     Sources: The Energyst, Current+ and Engerati

16           Towards a smarter and more flexible European energy system                                  Energy Systems Catapult   Energy Systems Catapult                                                              Towards a smarter and more flexible European energy system             17
4. Emerging business models for smart grids and flexibility — continued                                                                                                              4. Emerging business models for smart grids and flexibility — continued

4.3.2 Aggregators                                                                                                                                                                    The aggregator service pulls together many energy service threads, which creates variations
Figure 14 Aggregator value flows                                                                                        Revenue                                                      of the business model. Aggregators can deliver value downstream to the consumer and
Figure 14: Aggregator value flows.                                                                                      Cost
                                                                                                                                                                                     upstream for network/system operators through the flexibility markets. For consumers, the
                                                                                                                                                                                     aggregator can manage on-site consumption to limit exposure to wholesale price fluctuations
                                                                                                                                                                                     or “red band” charges from the network. If there is any remaining capacity from on-site assets
                 On-site                                                                                                Cost
                                                                                                                                                                                     like battery storage, it can be utilised upstream in other electricity markets.

                                                                                                                                                                                     For the business model the aggregator requires a thorough understanding of customers’
                                                                                              trading/suppliers                                                                      load profiles and supply contract terms. Competitive advantage is established through
                                                                                                                                                                                     software and data science that can intelligently manage and optimise a site to deliver the
                                                      I&C customers     Aggregator
                                                                                                                                                                                     right benefit when it is most valuable.

                                                                                                                                                                                     Many aggregators work in partnership with an energy supplier or Balancing Responsible Party
                                                                                                                                DSO                                                  (BRP), for example EDF’s partnerships with Anesco and Upside Energy. Some aggregators act
                                                                                                                                                                                     independently from suppliers, offering services direct to companies looking to reduce costs
          Energy assets                               Connectivity/
                                                       hardware                                                                                                                      or play a more active role in managing energy. It is not always possible to access the markets
                                                                                                                                                                                     without a BRP in all countries, although this is changing in line with EU regulation.

                                                                                                                                                                                     Figure 16: Upside Energy case study.

The aggregator business model involves being able to monitor, control and optimise
flexible energy loads and assets on behalf of a customer or a portfolio of customers.
To achieve maximum value the aggregators usually focus on high energy users and
arge sites where there is greater potential for managing demand down or building
flexible generation assets on site.                                                                                                                                                       Upside Energy are a software as a service (SaaS)      In 2018 they signed a major deal with EDF Energy
                                                                                                                                                                                          provider that allows their customers to monitor,      to use their platform in combination with EDF’s
 Figure 15:
Figure  15 Example
            Examplerevenue streams
                      revenue       available
                                streams       to aggregators
                                          available          in GB
                                                     to aggregators in GB.                                                                                                                analyse, optimise and control their energy            PowerShift flexibility platform, to give customers
                                                                                                                                                                                          assets. The platform analyses both assets onsite      access to markets in which to sell their excess
                                                                           Energy systems                                                                                                 and markets upstream and will make intelligent        energy. They have also signed a direct deal with
                                                                                                                                                                                          decisions for customers allowing them to manage       Vertiv to help optimise their portfolio of energy
                                                                             Recently the minimum BM threshold is lowered                                                                 costs and access new revenue streams.                 assets which need to provide uninterrupted power
                                                                             from 100MW to 1MW.
                                            Mechanism (BM)                                                                                                                                                                                      supply to critical data infrastructure.
                                                                             Virtual Lead Parties (VLPs).                                                                                 Upside were founded in 2013 as part of a Nesta
                                                                                                                                                                                          Dynamic Demand Challenge, a competition               The business is now focused on delivering and
                                                                             e.g. Short Term Operational Reserve (STOR):                                                                  looking for new products and services that            growing partnerships for larger scale energy
                                            Reserve                          Accessible service to new providers, with a 3MW entry
                                                                                                                                                                                          used data to reduce carbon emissions. Further         assets. However, the software is capable of
                                                                             capacity and extended response time of 20 minute.
                                                                                                                                                                                          projects with Innovate UK and Climate KIC             providing demand response from over 100,000
     Opportunities for aggregators

                                                                                                                                                                                          helped develop the platform further, until 2016       units in parallel. It may be used for wider
                                                                             Dynamic Firm Frequency Response (min 1MW) is
                                                                             suitable for aggregators: continually responding                                                             when Series A funding brought investors like          applications in future like smart car charging
                                                                             to system frequency pre-fault.                                                                               Legal & General and SYSTEMIQ on board.                or home energy management.
                                            Frequency response
                                                                                                                                                                                          They originally started out as an aggregator
                                                                             Enhanced Frequency Response (less than
                                                                                                                                                                                          interfacing with customers directly but
                                                                             1 second response).
                                                                             201MW of battery storage procured during the tender.                                                         increasingly have been selling SaaS to asset
                                                                                                                                                                                          owners or energy suppliers.
                                            System security
                                            e.g. capacity mechanism          Demand Side Response share: 7.6%.

                                            Any new balancing
                                                                             Stability, Voltage and Constraint Management services.

18                                   Towards a smarter and more flexible European energy system                                       Energy Systems Catapult   Energy Systems Catapult                                       Towards a smarter and more flexible European energy system             19
4. Emerging business models for smart grids and flexibility — continued                                                                                     4. Emerging business models for smart grids and flexibility — continued

4.3.3 Smart EV charging                                                                                                                                     There is a range of target markets for these solutions, including commercial fleets, work-
                                                                                                                                                            place charging, public charging and domestic charging. Value is delivered to customers by
Figure 17:Smart
Figure 17  SmartEVEV charging
                   charging    value
                            value flowsflows.                                                      Revenue                                                  decreasing the cost of charging EV’s by charging when electricity tariffs from energy suppliers
                                                                                                                                                            are cheapest or by accruing additional revenue through the provision of flexibility services.
                                                                                                 Cost                                                       EV charging can be managed to provide flexibility services to the grid, including:
                                             Roaming and                                                                                                    —	Ancillary services to the energy system through DSF and V2G
        Public charging
                                            clearing centre                                                                                                 —	Electricity arbitrage services to capitalise on wholesale price fluctuations or
                                                                                                 Energy trading                                                “red band” charges from the network
                                                                                                                                                            —	Load balancing services to reduce need for expensive reinforcement to electricity
      Workplace charging
                                                                                                                                                               network and manage peak load from EV charging locally.
                                                                               Energy supplier

         Fleet charging
                                                Charge point
                                                                                                  TSO markets
                                                                                                                                                            Managing EV charging can play into multiple energy markets, including energy, capacity,
                                                  operator                                                                                                  balancing, non-frequency ancillary services and congestion management. It is likely that
                                                                                Aggregator                                                                  public and fleet charging represent the biggest opportunity for flexibility services in the short
        Home charging
                                                                                                                                                            term. There will be a higher proportion of fast or rapid chargers (i.e. >20 kW) that will be more
                                                                                                                                                            responsive and have greater capacity to discharge, and greater opportunity to reduce costs
     Car manufacturers and                                                                        DSO markets
                                                                                                                                                            to ensure electrification investments are viable. However, system operators still need evidence
                                                                                                                                                            that a car battery can be a reliable source of power when it’s needed, given its mobile nature.
                                                                                                                                                            Customers also need confidence that there will always be enough charge in their battery to
                                   Charge point       Charge point installer
                                                                                                                                                            not disrupt their intended use of the car.
                                     provider          and maintenance
                                                                                                                                                            The EV supply chain is still fairly immature and fragmented across Europe, although there
                                                                                                                                                            is some consolidation as charge point operators and software companies are acquired by
                                                                                                                                                            energy majors. BP, Shell, EDF, Engie and E.on have all made acquisitions in the last two years.
                                                                                                                                                            The UK has a strong emerging market for charge point manufacturing, operation and service
Electric Vehicle (EV) business models providing flexibility services are still nascent. The primary
                                                                                                                                                            providers. Software solutions from Pod Point, Driivz and Chargepoint (amongst others)
methods for delivering flexibility are through new innovations in charging infrastructure                                                                   already exist for fleet charging. For other charging uses in the public and domestic sectors
that can intelligently manage the car battery for the benefits of the networks. The two main                                                                there are companies like Evergreen and EO.
business models are smart/managed charging, which can provide Demand Side Flexibility
(DSF) by shifting, interrupting, fluctuating or ramping demand up or down, or Vehicle-2-Grid                                                                Figure 18: Examples of smart EV charging business models in the UK.
(V2G) which uses the car battery to export power to the grid.
                                                                                                                                                                                                       UK based energy storage company Moixa, together with
Figure 16: EV charging from Ovo, Kaluza and Pod Point (photo from Energyst).                                                                                                                           automotive giant Honda, have launched a vehicle-to-grid
                                                                                                                                                                                                       (V2G) project that will help to provide constraint management
                                                                                                                                                                                                       for the building, as well as facilitate a switch to electric vehicles.
                                                                                                                                                                                                       They have installed five bidirectional V2G chargers at Islington
                                                                                                                                                                                                       Town Hall, North London, which can charge the council's new
                                                                                                                                                                                                       Nissan e-NV200 electric vans.

                                                                                                                                                                                                       EDF Energy is announcing a partnership with a leading
                                                                                                                                                                                                       green technology company, Nuvve, to install up to 1,500
                                                                                                                                                                                                       Vehicle to Grid (V2G) chargers in the UK. The chargers will
                                                                                                                                                                                                       be offered to EDF Energy’s business customers and will
                                                                                                                                                                                                       be used at its own sites to provide up to 15 megawatts of
                                                                                                                                                                                                       additional energy storage capacity.”

                                                                                                                                                            Sources: Energy Storage News, Edie

20             Towards a smarter and more flexible European energy system                                    Energy Systems Catapult   Energy Systems Catapult                                     Towards a smarter and more flexible European energy system                   21
4. Emerging business models for smart grids and flexibility — continued                                                                                       4. Emerging business models for smart grids and flexibility — continued

Using EVs to deliver flexibility is starting to become more commonplace. Over time we see                                                                      4.3.4 Home Energy Management Systems (HEMS)                                            Revenue
the most value in the market in services, whether that be the charge point operator delivering
it directly or an energy supplier or aggregator delivering it across a range of charge point                                                                  Figure 20: Home Energy Management Systems (HEMS) value flows.
operators. Interoperability is an important factor in opening up EV services and improving                                                                                                                                                                Data
customer experience, and there are already attempts in Europe to look at how roaming or                                                                                                                                                                   Revenue
clearing centres can allow that. Ultimately the main value to customers is in their car and the                                                                                                                                                           Cost
experiences that offers, and there are opportunities for manufacturers to play a larger part in
energy (e.g. VW’s creation of Elli). However, energy/mobility specialists are likely to be needed
to capitalise on markets upstream or help manage network constraints.                                                                                                                                                                                           Energy trading

Figure 19: Kaluza case study.

                                                                                                                                                                                                                                    Energy supplier
                                                                                                                                                                                      Gateway            Homes                                                  TSO markets
                                                                                                                                                                   Energy Assets


     Kaluza, OVO Group’s intelligent platform               Kaluza’s technology is also optimising the world’s
     business, operates as an independent                   largest rollout of V2G devices, in partnership                                                                                                                                                      DSO markets
     ‘Software as a Service’ solution helping energy        with OVO Energy and Nissan. Hundreds of
     suppliers and network operators deliver a              chargers have been supplied and installed, at
     smarter and more flexible energy system.               no cost to the customer, with the aim to validate
                                                            the technical and commercial potential for a
     An AI and machine learning flexibility platform,
                                                            domestic V2G charging solution. The technology
     Kaluza has the ability to connect, control and
                                                            is capable of providing flexibility services to
     optimise millions of smart domestic devices.
                                                            electricity networks and bring added benefits to
     The platform integrates with industry-leading                                                                                                            The role of the Home Energy Management System (HEMS) is to connect, control and optimise
                                                            the device user through a bespoke mobile app.
     hardware, from electric vehicle (EV) chargers,
                                                                                                                                                              flexible energy assets in the home. This could be a range of appliances such as electric
     domestic batteries to smart heaters. Kaluza            Kaluza is focused on supporting energy suppliers
     already has thousands of connected smart               optimise the supply of their domestic customers
                                                                                                                                                              heating, thermal storage, solar power, battery storage or electric vehicle charging.
     devices on its platform, including Dimplex             by helping them effectively trade in short term
     electric heaters, sonnen batteries, Powervault         markets. As the number of devices and partners                                                    Much like an aggregator they deliver benefits both downstream and upstream. Upstream,
     batteries, OVO Group’s proprietary smart               increase, the platform will be able to optimise                                                   HEMS can ramp demand up or down in a home in a way that can follow wholesale market
     EV chargers and Vehicle-to-Grid (V2G).                 across multiple flexibility revenue streams to                                                    prices or be tendered into balancing, capacity and ancillary service markets. Extra solar or
                                                            further support the local network operators.                                                      battery storage capacity can also be exported with similar benefits. Downstream is where the
     At the forefront of the UK’s ‘flexibility through
     smarter charging’ market, Kaluza helps support         The platform is also working with other partners                                                  similarity to the aggregator business model starts to diverge.
     the grid by shifting charging away from peak           including Western Power Distribution to provide
     times, when energy is subsequently cleaner and         local flexibility through sonnen batteries, UK                                                    In the industry and commercial (I&C) market an aggregator is usually interfacing with an
     cheaper. It enables its energy retail partners, such   Power Networks to ‘shift’ charging patterns                                                       energy or asset manager whose job is to maximise value from energy. Most domestic users
     as OVO Energy, to offer their customers dynamic        across 300 EV smart chargers and EDF &                                                            are far less likely to participate in providing flexibility if the value exchange is purely financial.
     tariffs that include smart hardware, helping reduce    Dimplex to deliver smarter electric heating.
                                                                                                                                                              Turning the heating off when we want it, or not having a car charged when we want to use it
     household energy bills and carbon emissions.
                                                                                                                                                              are highly emotive and disruptive services. Where there is an energy asset in the home which
                                                                                                                                                              carries less emotional value (like solar, storage), a HEMS can be used to maximise customer
                                                                                                                                                              value in terms of bill savings. Where there is not, the HEMS is likely to have to partner with (or
                                                                                                                                                              become) an energy service provider that offers additional benefits like improving comfort,
                                                                                                                                                              convenience or control in their home.

22           Towards a smarter and more flexible European energy system                                        Energy Systems Catapult   Energy Systems Catapult                                     Towards a smarter and more flexible European energy system                  23
4. Emerging business models for smart grids and flexibility — continued                                                                                 4. Emerging business models for smart grids and flexibility — continued

The HEMS must be much more adaptable both in terms of analytics and product                                                                             Figure 20: Examples of HEMS in the UK.
integration. Software and data science are key so that it can adapt to different
circumstances in the home. The HEMS provider, usually in partnership with an                                                                                                                            In 2019 Shell launched the B-snug system, which involves the
energy supplier or aggregators, will need to prove they can reliably deliver flexibility                                                                                                                supply of energy, hybrid heating and home energy management
services upstream without impacting on the customer experience in the home.                                                                                                                             system in partnership with PassivSystems. The B-Snug system uses
                                                                                                                                                                                                        machine learning to automatically switch between an air source
The business model for HEMS in these early stages usually focuses on a mix of hardware                                                                                                                  heat pump and traditional boiler.
and software. Hardware includes more advanced heating controls, charge points
or battery storage, like those produced by Social Energy, PassivSystems and Green
Energy Options. These are connected to a wider HEMS platform that can integrate
other products in the future. There are some HEMS providers focusing on software
only (e.g. Kaluza) that can integrate with any service provider and any product. In
either case, partnerships are necessary to make the business model work and there                                                                                                                       In 2019 Social Energy partnered with Duracell’s home energy
                                                                                                                                                                                                        storage team to produce a new tech platform that meets National
is still some way to go to understand how to share revenue across the supply chain
                                                                                                                                                                                                        Grid’s FFR standards, allowing homes to trade energy at times
without a number of exclusive and unscalable commercial arrangements.                                                                                                                                   of peak demand. Using Duracell’s domestic batteries and the
                                                                                                                                                                                                        AI-powered ‘Social Energy Hub’, the system can predict home
                                                                                                                                                                                                        energy usage patterns and optimising the times at which homes
                                                                                                                                                                                                        draw from the grid, while also enabling the set-up to “uniquely
                                                                                                                                                                                                        optimise between multiple grid trading opportunities.

                                                                                                                                                         4.3.5 Smart Local Energy Systems (SLES)                        Revenue
                                                                                                                                                        Figure 22 Smart Local Energy Systems (SLES) value flows         Cost
                                                                                                                                                        Figure 22: Smart Local Energy Systems (SLES) value flows.

Figure 21: PassivSystems case study.
                                                                                                                                                                                                                            Local Energy Market    National Energy Markets
                                                                                                                                                             Local energy

                                                                                                                                                                                  Aggregator 1

                                                                                                                                                                                                                                                             Energy trading
     PassivSystems was founded in 2008, initially         Although the market is still in its infancy,
     exploring better measurement and monitoring          PassivSystems are a leading voice in energy                                                        Local energy
                                                                                                                                                                                                                              DSO (Grid
                                                                                                                                                                                                 Flexibility Exchange        Management
     of home solar and heating. This led to the           market reform and in particular the use                                                               assets
     creation of their smart thermostat product in        of home energy management and DSR to
                                                                                                                                                                                                                                                              TSO markets
     2010, and they are now the leading solar             deliver flexibility services.
     monitoring and data management company
                                                          They have led pioneering demonstration
     with over 40k homes on their software platform.
                                                          projects such as Freedom in South Wales,
                                                                                                                                                                                 Aggregator 2
     The company has since been at the forefront of       looking at how smart controls can simultaneously
     the UK’s developing home energy management           deliver benefits to both the consumer and the                                                      Local energy
     market. Their open Internet of Things (IoT)          network. They are also involved in a number                                                           users
     platform is able to integrate monitor and optimise   of BEIS demonstrations of the potential for
     a number of in-home energy assets for their          DSR, and the Smart Hub SLES demonstration
                                                                                                                                                                                                                                              Data flows       Revenue flows
     partners that include EDF, E.on and Engie.           of a smart local energy market in West Sussex.

24           Towards a smarter and more flexible European energy system                                  Energy Systems Catapult   Energy Systems Catapult                                         Towards a smarter and more flexible European energy system                 25
4. Emerging business models for smart grids and flexibility — continued                                                                       4. Emerging business models for smart grids and flexibility — continued

Traditionally the energy system and the markets that support it are centrally designed                                                        Both the end users and the networks need a mechanism where the energy being generated
and regulated. However, the decentralisation of the energy system creates local network                                                       can be dispatched to where it’s needed. This could be just virtually matching supply and
constraints, and that is causing a revaluation of community energy projects. Community                                                        demand, or physically controlling assets to deliver benefit to a local network. Piclo Flex and
energy projects have been around for a while but are currently attracting more interest, with                                                 Cornwall LEM are developing examples of how this interface between generators, users and
further innovations on the concept enabled by digitalisation. The variety of models can be                                                    network providers can be managed, which will be critical to the commercial growth of SLES.
loosely grouped into a concept called Smart Local Energy Systems (SLES).
                                                                                                                                              Finally, the SLES could be much more loosely defined as pulling together energy assets into a
There is no simple definition of a SLES but for the most part they:                                                                           virtual community. Peer-2-Peer trading platforms like sonnen in Germany and PowerPeers in
—	Are designed to benefit the local area first, whether through reduced                                                                     Netherlands allow users to trade energy with each other. The community is less about smartly
    costs for bill payers or other benefits to the local community                                                                            managing local network constraints and more about disrupting the traditional energy supply
— Allow low-carbon technology to get onto the local system faster and more cost effectively                                                   model that will encourage more renewable generation to be built and used.
— They operate in a “smart” way using data science and software
                                                                                                                                              Figure 23: SmartKlub case study.

A SLES usually involves multiple organisations working together to deliver these objectives.
It will also involve a number of the business models already outlined and can resemble a
market in its own right. However, there are unique attributes to a SLES that means it could be
considered a business model, with specific platforms and services that enable its development.

There are three business models that are starting to emerge that bring this concept to life:
                                                                                                                                                   SmartKlub is an Energy Services Company                All energy bills related to individual household
1. Micro grids (e.g. Brixton, Nottingham Trent Basin)                                                                                              (ESCo) and a leading partner in Project SCENe          meters from the nominated licensed energy
2. Local Energy Markets or Exchanges (e.g. Piclo Flex, Cornwall LEM)                                                                               (Sustainable Community Energy Networks) in             supplier are invoiced to SmartKlub. They
3. Virtual community (e.g. Sonnen, Powerpeers)                                                                                                     Nottingham Trent Basin housing development.            then bill the occupants minus any surplus
                                                                                                                                                   They are trialling new commercial propositions         from trading the battery in various balancing
                                                                                                                                                   for domestic energy at a community level.              services markets. SmartKlub underwrites
Micro grids enable a group of users to benefit from an energy asset like wind, solar or battery
                                                                                                                                                                                                          the savings to the community, assuring the
storage located in the area. In some cases this is a physical connection, using private wire or                                                    Solar PV panels are currently installed
                                                                                                                                                                                                          scheme will deliver cheaper energy tariffs.
a heat network to distribute the energy to users. In other examples the grid is commercially                                                       on homeowners’ roofs in the Trent Basin
                                                                                                                                                   development, which are owned by SmartKlub.             The project has an Ofgem derogation to trial the
connected. Users benefit through commercial agreements where the energy is virtually
                                                                                                                                                                                                          new billing structure which shares the benefits of
shared rather than physically connecting them to the power source.                                                                                 The solar panels are connected to a 2 MW
                                                                                                                                                                                                          locally generated energy and the flexibility from
                                                                                                                                                   community battery, which is then used to supply
                                                                                                                                                                                                          the community battery with the community.
As a SLES grows in size it can be much more ambitious, pulling together a range of users,                                                          the homeowners in the community and trade
                                                                                                                                                   some battery capacity in balancing services.
energy assets and market mechanisms. The model will potentially contain elements of the
                                                                                                                                                   This commercial model has been based on
previous business models; decentralised energy resources, aggregators, smart EV charging                                                           research that demonstrates improved techno-
and home energy management. What makes this business model unique is how all these                                                                 economic benefits from single, communal
components fit together into a functioning market, that delivers value for customers                                                               battery instead of individual domestic batteries.
downstream through optimising the use of local energy assets and upstream by delivering
value to the local network and wider system. The recent Innovate UK programme Prospering
From the Energy Revolution (PFER) is funding several designs and demonstrations that are
proving how they can be run as a commercial reality.

26        Towards a smarter and more flexible European energy system                           Energy Systems Catapult   Energy Systems Catapult                                        Towards a smarter and more flexible European energy system             27
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