Making the most of thermal power plants
These days, everybody is talking about the energy transition and rightly so: Investors are jumping on board, as the renewable market share rises each year, and the grade of innovation is at an all-time high. On the other hand, conventional thermal power sources get bad press due to the unsustainable nature of the resources they consume. But with a share of more than 70% of total capacity generating almost 5000 GW, they still remain the backbone of the energy market. The golden days of conventionals are over, but due to the flexibility they offer, they will remain a key element in the energy markets for the foreseeable future.
Source: IEA
Due to environmental concerns and the promotion of renewables, the combined share of coal, gas, and nuclear power plants will shrink to an estimated 55% by 2040, according to the IEA. But with global energy consumption still on the rise, can wind and solar take over the increasing demand all by themselves?
Renewable generation depends on environmental conditions like wind and the sun, which means energy can't be produced on cue. The only way to handle the ensuing grid fluctuations is to balance them with other flexibilities. Both battery storage and pumped storage can release stored energy when needed, but thermal power plants have the largest flexibility potential, and retrofitting measures make it possible to increase their flexibility. Higher system-wide flexibility helps the grid integration of solar and wind, so let's take a closer look at flexibility in the context of thermal power plants.
How do thermal power plants work?
Most thermal power plants produce electricity with steam. Based on two heat reservoirs with sufficient temperature differences, thermal energy is first converted into usable kinetic energy and then into electrical energy by a generator. Thermal plants include conventional fossil power plants but also modern CHP (combined heat and power) plants that run on various fuels, including waste, biogas, and biomass. Many CHP plants optimize their operations to meet thermal demand, while the electricity generated is seen as a byproduct.
Thermal power plants for flexibility
The International Energy Agency defines the concept of flexibility of a power system as "the extent to which a power system can modify electricity production or consumption in response to variability, expected or otherwise." Positive flexibility means the capacity to increase energy generation or reduce usage, while negative flexibility refers to decreasing energy generation or increasing usage. Either way, a system's grade of flexibility depends on how quickly it can adapt generation or usage in response to external forces. These external signals include peaks and valleys in demand or changing prices on balancing or spot markets. Market participants can enhance their performance by adjusting supply or demand in order to take advantage of favourable prices.
Until the industry has achieved widespread use of battery storage, there is no way around thermal power plants for flexibility. In renewable sources, flexibility is a precious commodity, while thermal power plants generate it at a low cost. A great way to incentivize thermal plant operators to improve the flexibility of their assets is a connection to the intraday energy market. By providing flexibility, thermal power plants can take on a meaningful new role in the energy transition.
When operating a thermal power plant, you don’t want to waste resources beyond what's necessary. Same as with nuclear energy: You want to have as few plants as possible to minimize the number of repositories needed for construction. Using the full flexibility potential of conventional power plants can increase the efficiency of their energy production; in fact, studies have shown that increased flexibility in thermal power plants results in lower emissions. The primary reason for these reductions is that the usage of renewables can be increased while less fuel is burned for heat and electricity production. But the lower fuel usage also signifies an increase in overall energy efficiency, as CHP units are able to substitute less efficient energy production. So, the best way to save resources and limit the environmental impact is to increase and utilize the system’s flexibility potential.
Profiting from flexibility
All energy generation, storage, and consumption units have a certain level of flexibility, and power plant operators can monetize it. But how is flexibility marketed, and how can we maximize returns?
Balancing markets are the most well-known energy markets out there. They were established with the explicit purpose of maintaining grid stability through flexibility. With lead times in seconds or minutes, this poses a challenge to some thermal power plants due to their comparatively slow reaction time. With their high complexity and entry barriers, these markets don't make participation easy, and prices are generally defined by only a handful of big players.
Day-ahead and intraday auctions allow short-term power trading for all delivery periods on the following day or twice on the same day for dispatchable power of thermal and hydro plants. Due to their long lead times, they cannot respond to unexpected fluctuations in supply or demand, making their delivery of fexibility less effective.
Continuous intraday markets grew alongside renewable generation, as traditional auctions weren't designed for the short-term products needed in an energy system where generation is determined by environmental conditions. Offering the ability to buy and sell until the last minute, the intraday market allows you to trade short-term products and balance your energy portfolio. Compared to other markets, the rules are less rigid and the barriers to entry are much lower. It's the most democratic market. The biggest producers don’t have absolute leverage here, as prices are determined by overall market dynamics. Despite the popularity of the balancing markets, intraday trading is the best opportunity to make the most of your flexibility.
Are you interested in leveraging your flexibility?
