VIRTUAL POWER PLANTS (VPP) AGGREGATING DISTRIBUTED ENERGY RESOURCES (DER): A TOOL FOR INTEGRATING LARGE SHARES OF VRE RESOURCES IN A FLEXIBLE POWER SYSTEM JUNIO 2020 Joel López Sáez de TRABAJO FIN DE MASTER Argandoña PARA LA OBTENCIÓN DEL TÍTULO DE MASTER EN DIRECTOR DEL TRABAJO FIN DE MASTER: INGENIERÍA DE LA ENERGÍA Carlos Vázquez Martínez Roger Pasola Dolader Escuela Técnica Superior de Ingenieros Industriales (INTENTIONALLY LEFT BLANK) 2 Joel López Sáez de Argandoña Universidad Politécnica de Madrid We find ourselves in a bewildering world. (…) Up to now, most scientists have been too occupied with the development of new theories that describe what the universe is to ask the question why. Stephen Hawking 3 Escuela Técnica Superior de Ingenieros Industriales Acknowledgments Firstly, I would like to express my sincere gratitude to my colleague, friend and thesis advisor Roger Pasola, for his availability, guidance, constructive feedback, knowledge and kindness. His continuous help and encouragement throughout the elaboration of this thesis motivated me and helped me to grow as a professional. I would also like to thank my thesis advisor Carlos Vazquez for his assistance and amiability throughout the elaboration of this thesis. Besides my thesis advisors, I would like to thank all the teaching staff at the UPM involved in the MSc in Energy Engineering for the teachings during the master’s degree. I am also grateful for the assistance received from all my colleagues in i-deals, who trusted me from the start and have helped me keep growing professionally. Last but not least, I would like to thank my family and friends for their support and encouragement throughout my studies. 4 Joel López Sáez de Argandoña Universidad Politécnica de Madrid Abstract The energy sector is witnessing an unprecedented transformation. The liberalization of the energy markets set the scene for a competitive scenario in which different alternatives for meeting our energy needs with reduced carbon footprint are being explored. For the undergoing energy transition to materialize and keep the planet within the 2ºC scenario that was agreed in the Paris Agreement, a full set of innovative technologies, market designs and regulatory changes are needed. The increasing cost-competitiveness of variable renewable energy sources, mainly wind and solar, dominate the new capacity additions in the power systems of the developed countries. These technologies, which today represent the cheapest source of new energy additions in many regions in the world on a $/MWh basis and which costs are expected to keep following a downward trends in the coming decades, are inherently variable and uncertain. These undesirable characteristics hinder the task of keeping the balance between generation and load and therefore threat to endanger grid’s reliability. In order for us to be able to successfully transition to an inertia-less grid in which large shares of variable renewable energy are seamlessly integrated several challenges are to be addressed. In order for the system to be able to effectively follow load with a variable and uncertain source of energy, a flexible power system is needed. In traditional centralized power system flexibility was present only in the supply side; changes in demanded load where immediately followed by a change in the output of coal- or gas-powered plants. In the future power system the flexibility is founded at all stages across the power sector, as the increasingly relevant penetration of distributed energy resources forces the power system to transition to a decentralized system and the electrification and digitalization trends reshape the existing paradigm. Energy storage systems, flexible generation assets, large interconnection capacity between balancing regions offer potential flexibility sources to meet these needs. However, the low-Capex-intensive and disruptive demand-side flexibility is the trend that is currently experiencing the most dramatic growth. The broadening pool of behind-the-meter available energy resources can benefit from market participation when aggregated into Virtual Power Plants. At the same time, the coordinated dispatch of heterogeneous pools of generation, storage and load resources into wholesale or ancillary services markets stands out as a feasible solution for the latent threat that distributed energy resources represent to the power grid. However, optimal orchestration of diverse portfolios of energy assets face challenges from both a technical and regulatory point of view. Developed countries are making efforts towards the creation of aggregation-friendly regulatory frameworks and promising start-ups and technology giants are working on developing the appropriate tools for making Virtual Power Plants a reality. Several business models are emerging around the concept of the Virtual Power Plant, as a result of different actors trying to capitalize the value of flexibility in diverse markets. The market size for Virtual Power Plants globally is experiencing impressive expansion and the forecasted growth is not less remarkable. For this reason, Virtual Power Plants have drawn the attention of most players in the energy sector, from utilities trying to expand their service offering to Oil & Gas giants trying to diversify their business into electricity and out of price-plummeting oil markets. The purpose of this work is to illustrate the concept of the Virtual Power Plant and to propose a business model to effectively exploit power system flexibility through VPPs. To serve this purpose, first the context in which Virtual Power Plants emerge is explained. A review of relevant literature about distributed energy resources, aggregation and virtual power plants is then summarized. For assessing the creation of a venture to develop a VPP in a specific market, the 5 Escuela Técnica Superior de Ingenieros Industriales market is evaluated, the different business models are analyzed and a business model is designed to the specific target market; then a model for illustrating the market participation process of a VPP is shown. Lastly, an economic and planning estimation is provided. Keywords Virtual Power Plant, Aggregation, Distributed Energy Resources, DERs, Power System Flexibility, Variable Renewable Energy, VRE, Energy Markets, Venture, Energy Transition, Paris Agreement, Clean Energy Package, Demand Response, Demand Side Flexibility, Demand Side Management 6 Joel López Sáez de Argandoña Universidad Politécnica de Madrid Resumen El sector energético está siendo objeto de una transformación sin precedentes. Desde hace más de 20 años, la liberalización del sector permitió la entrada libre de participantes en la generación, donde, en la actualidad, diferentes alternativas que permiten cubrir las necesidades energéticas sin comprometer el medio ambiente se están convirtiendo en protagonistas. Tecnologías innovadoras, nuevos diseños de mercado y cambios regulatorios serán necesarios para que la transición energética que está teniendo lugar sea fructífera y sea posible alcanzar el escenario objetivo de 2ºC de incremento de la temperatura global previsto por el IPCC. La energía solar y eólica, que son cada vez más competitivas en coste, son las principales adiciones de nueva capacidad en los países desarrollados. Estas fuentes de energía, que son en muchos casos la fuente más barata disponible, presumiblemente seguirán viendo sus costes reducidos en las próximas décadas. Sin embargo, se trata de fuentes de energía que presentan desafíos para el sistema debido a la variabilidad e incertidumbre inherentes al recurso subyacente. Mantener el equilibrio entre generación y demanda en un sistema con grandes cantidades de este tipo de recurso se antoja complicado, y la transición de un sistema basado en generadores térmicos síncronos a un sistema dominado por energía renovable variable que interactúa con la red a través de inversores presenta numerosos desafíos. Para que sea posible mantener el equilibrio entre generación y demanda en este contexto, el sistema debe ser flexible. Flexibilidad, en el contexto del sector eléctrico, es la cualidad del sistema de mantener el equilibrio entre generación y demanda en cualquier momento en el tiempo. Tradicionalmente, la flexibilidad en el sistema eléctrico solo existía en el lado de la generación; los cambios en la demanda se acomodaban con cambios en la generación, normalmente con plantas de generación flexibles de gas, carbón o fuelóleo. En el sistema eléctrico del futuro la flexibilidad se encuentra en todas las etapas de la cadena de valor, desde la generación hasta el consumo final. Activos de generación flexibles, sistemas de almacenamiento de energía a diferentes escalas, elevadas capacidades de interconexión entre sistemas vecinos, o la gestión activa de la demanda son algunas de las palancas que permitirán al sistema dotarse de la flexibilidad cada vez más necesaria. De entre todas ellas, la gestión de la demanda es el recurso que ofrece mayor flexibilidad a menor CAPEX; es por eso que soluciones de este tipo están experimentando un crecimiento dramático en los últimos años. Los diferentes recursos energéticos que se encuentran detrás del medidor pueden obtener beneficios al participar de manera agregada en el mercado eléctrico. Al mismo tiempo, la gestión coordinada de portfolios heterogéneos de activos de generación, almacenamiento y demanda se presenta como una necesidad para responder a la amenaza para el equilibrio del sistema que presenta una red con números recursos distribuidos