(The author is a Reuters columnist. The opinions expressed are
By Gerard Wynn
LONDON, Sept 18 Industrial energy consumers can
help balance electricity grids and avoid deeper government
intervention in power markets, as part of global efforts to
integrate more wind and solar power, a new German scheme
However, the scheme also shows that involving energy
consumers in balancing electricity demand and supply is a big
step, and with complications.
Grid operators presently pay power plants to ramp up or down
to correct imbalances, for example when demand unexpectedly
peaks, or there is a crash in supply at a major power plant, or
to ease congestion because of a fault in a transmission line.
The annual frequency of extreme incidents in Germany, when
operators scramble to balance grids at short notice, has
multiplied by three orders of magnitude over the past decade,
according to TenneT, a Netherlands-based German grid operator.
That is largely because of forecasting inaccuracies in wind
and solar power generation which can lead to large short-term
deficits or surpluses in supply.
Germany's regulation on interruptible loads last December
gave operators an additional grid balancing tool, allowing them
to pay big energy users to cut demand.
There are lessons for Germany and further afield.
First, involving energy consumers requires strict
pre-conditions which limits the number of participants.
That in turn has reduced competition, and so has sent bids
sky-rocketing to up to 10 times present wholesale power prices.
And second, the scheme works in principle, and could perhaps
avoid deeper power market interventions to keep the lights on,
such as a so-called capacity market.
The main goal of the German regulation, passed last
December, was to give both energy consumers and grid operators
the chance to road test a demand response market.
It complements an existing "ancillary services" market,
where operators tender for fast-response generating capacity,
called control reserve, mostly involving power plants.
In theory, energy consumers can also participate in that
ancillary services market but there have been two complications
First, power prices are too low for energy consumers to
compete with power plants, given the administrative and
technical cost of participating in the market for the first
And second, the market is at present insufficiently flexible
to accommodate industrial processes, which can only survive
without power for a certain minimum period.
Under the new regulation, big energy consumers are paid to
It classifies interruption as either an instantaneous
shutdown within one second without warning, or a fast
interruption within 15 minutes.
The regulation required the country's four grid operators to
tender collectively for up to 1,500 megawatts (MW) per month
each of immediate and fast interruption, or 3,000 MW of
disconnectable capacity in total.
It applies exclusively to big energy users connected to the
high-voltage network (at least 110 kilovolts) which grid
operators can switch off remotely.
In other pre-conditions, users must bid a minimum of 50
megawatts interruptible capacity, and must have all but
continuous energy use, so that grid operators can be sure that
when they switch off the unit there will be a drop in
The regulation gave participants a menu of three options for
interruption: up to one hour per day at least four times a week;
or four hours with a seven-day break in between; or eight hours
with a 14-day break.
Participants earn 2,500 euros per month per MW of reduced
capacity, and can offer 50-200 MW.
And they earn 100-400 euros per megawatt hour (MWh) of
actual reduced energy consumption, with the amount determined at
So far operators have run four monthly auctions from July
Contracted capacity - where grid operators accept bids from
big energy consumers to allow their supply to be interrupted -
has fallen short of the target 3,000 MW, peaking at 782 MW in
the month of September.
See link here: here
All successful bids have been in the range 395 to 400 euros
per MWh, showing that the scheme is not yet sufficiently
Grid operators report that bidders so far are mainly from
the aluminium industry, but they report interest from the paper,
steel and chemicals sectors.
It is unclear whether any of the contracted capacity was
actually interrupted, or simply available.
So far this year, German intra-day power prices have
exceeded 100 euros per MWh several times, for example after
over-optimistic wind and solar power forecasts.
Given that price history, an allowed bidding range of 100 to
400 euros for foregone power consumption seems reasonable.
By setting a maximum price of 400 euros per MWh, however,
authorities have simply invited participants to bid at that
level so long as the market is insufficiently competitive.
The network regulator is monitoring the scheme for possible
amendments after 2015.
One step could be to increase competitiveness by involving
more companies and sectors, for example by cutting the 50 MW
minimum bid and the one-month contracting period.
Another might be to try and use the new experience to widen
the existing ancillary services market to involve interruptible
That would require greater flexibility, including
introducing minimum break times between interruptions, adding to
the complexity of that market.
However, the experience to date shows that a rapid demand
response market can work, and with tweaks could be made more
That should at least give pause for thought about whether
deeper interventions are necessary, such as capacity markets
which would try to ensure security of supply by allocating
generating capacity years in advance.
(Editing by Pravin Char)