What does Flexibility marketing stand for?
Terms briefly explained
Control energy market and flexibility market
Control energy and flexibility balance out fluctuating production and demand in the electricity grid and keep it stable and secure. However, they are subject to different mechanisms:
- The balancing energy market is a reserve market controlled by the transmission system operators. Participants have to go through a complex process and auction their power and labour prices in order to be included in the reserve. As soon as the grid frequency fluctuates, the grid operators intervene and activate positive or negative reserves
- Flexibilities are traded on the spot market - day-ahead or intraday, depending on the time and duration. Power plant operators or industrial companies with controllable plants join marketplaces such as EPEX Spot or energy traders and buy or sell their flexible capacities.
Meaning of Flexibility Marketing
Flexibility is one of the major topics in the industry in times of the energy transition: more and more companies are trying to find and utilise flexibility in their production processes. The reason: by 2030, 80 per cent of our electricity is expected to come from renewable energy sources such as wind and solar power plants. These produce independently of demand - namely when the wind is blowing and the sun is shining. As a result, sometimes too much electricity is produced, sometimes too little. These fluctuations lead to fluctuating prices in wholesale trading and on the balancing energy market. They offer both opportunities and risks for market participants.
However, energy-intensive companies can use their flexibility and stabilise the electricity grid. They can do this, for example, by controlling their own generation capacities - such as combined heat and power plants or solar plants. In addition, many can control their production processes and adjust their consumption. In this way, they make an active contribution to the energy transition. Companies also generate additional income with their flexibility.
Flexibility Marketing in Energy Trading
As flexibility has great value in today's electricity system, energy suppliers, energy traders and industrial companies can trade flexibility. This is called flexibility marketing.
On the energy market, supply and demand result in a price for electricity for every quarter of an hour. This price is constantly changing, whether due to fluctuating weather conditions or events such as power plant outages.
Flexibility marketing enables energy providers to sell surplus quantities of electricity or buy missing quantities of electricity. In concrete terms, this means that they can offer available production or storage capacities on the wholesale market at short notice. Companies that can reduce their electricity consumption or temporarily store electricity can also offer it on the wholesale market.
Experts integrate suitable plants into the electricity system. To do this, they provide smaller systems or storage facilities with intelligent control and network them in a larger pool - a virtual power plant. This allows small systems to operate like a large market participant.
Day-ahead- and intraday trading
If you want to trade flexibility, you have to react very quickly to a price change. When prices are low, plants increase their electricity consumption at short notice. When prices are high, power plants that can be switched on quickly feed in electricity. The situation is similar with batteries: They store electricity when prices are low and feed it back into the grid when prices are high.
Speed is of the essence when it comes to balancing out fluctuations in the electricity grid. This is why trading in flexibilities is increasing, especially in short-term, continuous intraday trading. The number of transactions (trades) on EPEX Spot is constantly increasing. Hundreds of traders carry out several tens of thousands of transactions with quarter-hourly and hourly products every day. It is almost impossible to participate in this market without technical support.
Trading with algorithms (algotrading)
Experienced energy traders therefore rely on algorithms when marketing flexibility. Algorithms automate trading: they monitor the market and react at lightning speed - 24 hours a day, seven days a week. For example, an algorithm can trigger a trade on the intraday market as soon as certain criteria are met - such as when prices reach a set buy or sell value.
Traders customise their algorithms specifically to the needs of their customers. They programme the algorithms in such a way that they achieve optimum results and minimise risks at the same time. The effort for customers is minimal, as they transmit their volumes via a standard interface (API). The volumes are automatically placed on the market and processed.
Areas of application for flexibility marketing
When marketing flexibility, companies want to recognise price changes and exploit scope through their own flexibility. The list of possible flexible plants is long. Plants of around 20 MW or more or virtual power plants are often used:
- Renewable energy plants such as wind power plants, photovoltaic plants or biogas plants that are integrated into a virtual power plant
- Flexibly controllable large power plants such as gas-fired power plants
- In-house generation plants in industrial companies; these are often photovoltaic systems or combined heat and power plants
- Flexibly controllable industrial systems, such as state-of-the-art ventilation systems or production processes
- Storage systems such as pumped storage power plants and large battery storage facilities
- Power-to-x plants such as electrolysers
Advantages of flexibility marketing
If producers and consumers can flexibly control their electricity feed-in and trade on the spot market, they generate additional revenue. Flexibility can also prevent grid operators from unnecessarily expanding the electricity grid or having to curtail renewable energies if there is too much wind and sun. Flexibility is therefore a key component of the energy transition.
Challenges and future prospects of flexibility marketing
The increasing share of renewable energies and the associated fluctuating feed-in require flexible solutions for grid stabilisation. Demand-side management, battery storage and intelligent networks (smart grids) play a central role in this. Remotely controllable consumers and generators, aggregable loads and virtual power plants are becoming increasingly important.
However, the responsible players in the energy industry must continue to develop the electricity system in order to make it efficient and secure. Topics such as digitalisation, networking and sector coupling play a major role in this. Smart homes, smart cities and electromobility can contribute further flexibility: smart technologies can control municipal, commercial or private consumers depending on the electricity supply and electricity price or use electric vehicles as electricity storage through bidirectional charging. For this, we need a fair and transparent market that integrates large and small players. Overall, flexibility and its commercialisation offer considerable potential - both for grid stability and security of supply as well as for reducing costs in the electricity market.
