Highlighting a discussion with Bob Psaradellis, Founder and Former CEO of Renewable Power Capital, on the need for flexible assets and their role in power markets.
Bob was Founder and CEO of Renewable Power Capital Limited (RPC), a renewable energy investment platform and power producer backed by €1.5bn of capital commitments from CPP Investments’ sustainable energy investment strategy. Starting from a blank sheet of paper, Bob created enormous equity value for shareholders in a little over two years while growing the business to approx. sixty market-leading professionals from diverse backgrounds, establishing world-class teams across ten corporate functions. Under Bob’s leadership, RPC established a leading presence in the Nordics with 845MW of onshore wind in operation or construction, built an attractive 4.5GW solar PV development pipeline in Spain to fuel future growth, entered the market in Poland with a high potential 1GW onshore wind pipeline, and launched a 1GW acquisition partnership and a 500MW development partnership in the UK for battery storage.
Carl Penfold: When we last met, we spoke about the need for flexible assets and their role in powering the energy transition. Can you provide some insight into whats driving this need?
Bob Psaradellis: The high-level background is power markets having experienced a shift away from thermal generation towards renewables. Regulation, market conditions, and carbon taxes have combined to accelerate the phase-out of coal and nuclear. In addition, large-scale gas generation will start reaching the end of its economic useful life in the coming decade. Finally, power markets have become increasingly interconnected between neighbouring countries.
Carl Penfold: What challenges has this created?
Bob Psaradellis: Retiring power plants put pressure on security of supply and energy independence, themes which have increased in importance in recent years. Also, the intermittent nature of renewable power generation must be complemented with flexible capacity which can generate power quickly in order to prevent demand outstripping supply. Lastly, system inertia has fallen materially in the last decade due to this reduction in thermal generation, making the system much more sensitive to supply/demand imbalances.
Carl Penfold: What are emerging trends are you seeing as a result of this?
Bob Psaradellis: Governments and transmission system operators are incentivising low-carbon, flexible capacity to deal with the intermittency. Larger differences between forecast production and actual generation due to increased renewables penetration have led to higher price volatility and arbitrage opportunities in the wholesale markets. And falling system inertia has caused increased demand for ancillary services.
Carl Penfold: Interesting that you mention the impact on ancillary services, what do these increased requirements look like?
Bob Psaradellis: Power systems require a variety of ancillary services to maintain grid stability – the most relevant for flexible assets is frequency response. Grid operators use frequency response services to maintain the grid frequency within a certain range of 50Hz – changes in frequency are a measure of the balance between generation and demand. They will procure enough of the most rapid response service to meet the largest infeed losses, adjusted by other considerations such as system inertia, which affects the sensitivity of frequency to changes in the balance of generation and demand. Demand for ancillary services tend to be highest in summer, when electricity demand is low, solar production is high, and the system is most sensitive to changes in the generation/demand balance.
Carl Penfold: What about the wholesale markets?
Bob Psaradellis: Wholesale electricity markets operate across a series of overlapping time horizons, such as day-ahead, intra-day, balancing mechanism, and imbalance settlement periods. Flexible assets can arbitrage these different time horizons, potentially re-hedging and creating value through “churn” (or non-physical trading).
Carl Penfold: What are the commercial considerations & impacts of flexible assets?
Bob Psaradellis: Flexible assets can not only arbitrage within wholesale markets, but also between ancillary services and wholesale markets. Ancillary services are procured over relatively short periods of time, so projects can generate revenues from both sources over a single day, while servicing only one market at a time, as typically a project cannot deliver both simultaneously.
Carl Penfold: Finally, and in conclusion, what would you say that these market dynamics mean for the future of flexible assets?
Bob Psaradellis: These market dynamics provide an excellent environment for flexible assets, both now and especially into the future. Today, in many applications the most flexible technology available is short-duration lithium-ion battery storage. However, a successful approach should be solutions-led, including other forms of storage (such as pumped hydro), clean, dispatchable generation technologies, and look to the rapidly coming development of innovative technologies such as longer duration storage. In any event, integration of flexible assets into power markets will help manage system stability & imbalance and reduce price volatility to help solve the “energy trilemma” of security of supply, decarbonization, and cost minimization.
