Energy flexibility is as valuable for end users as a risk management strategy as it is for revenue generation, according to a new report from Lloyds Bank that follows up last year’s Flexibility in Great Britain report produced by the Carbon Trust and Imperial College.
The new report, ‘Energy System Flexibility – Opportunities for Investors’ says that there are a variety of revenue lines for flexibility, which includes storage options from very short term (such as batteries) to long term (such as pumped hydro storage). The report says that revenue for these assets is “often highly uncertain”, as it is split between the wholesale energy market, Balancing Mechanism and contracts with network operators or government. Using several of these streams is necessary but difficult as contracts are individually complex, and also vary from one to another and between buyers.
But the report found that alongside revenue, parties that had ‘built in’ flexibility, could reduce upfront costs and mitigate risks associated with network costs and energy price volatility.
The capital cost reductions came from savings such as a lower electricity connection cost, either because the mix reduced the capacity required or because it allows for a flexible connection. Price risks were reduced because the technologies can mitigate risks such as regulatory changes, which could change the company’s power charges. It could allow for switching from a fixed to a time-of use energy tariff, for example, to minimise bills. Elsewhere some industries have highlighted the role of flexibility technologies such as storage in providing assurance against power outages.
The report says that as part of a broad asset investment flexibility services could enable an industrial site to offer demand side response, or allow it to add in storage assets co-located with renewable energy.
It said that the assessment of the value of flexibility should include its ability to mitigate the risk of future cost increases, as well as its ability to generate revenue. In addition better understanding was required of how investments which include flexibility can be structured to secure private finance.
In order to improve the revenue achievable the report recommended:
• Aggregating assets, to increase the attractiveness to finance providers of investing in small scale technologies
• Pricing in the cost of carbon across all forms of flexibility
• Creating long-term signals on the value of flexibility
• Creating stable revenue streams by encouraging private investment through corporate PPAs
• Developing novel financial structures that may blend public and private investment
• Making ‘enabling investment’

The report said, “Continued dialogue between the energy and finance sectors is crucial in understanding different perspectives and financing needs”.

Download the full report here
See more about the Flexibility in Great Britain report here