This article is sponsored by Fluence.
Fluence is a technology, services and digital applications company for renewables and energy storage created as a joint venture by Siemens and AES.
Marek Wolek, senior vice-president of strategy and partnerships at the firm, worked at the latter on storage projects around the world and has seen firsthand how technology is continuously changing the value creation of infrastructure assets.
That, he says, is where the big opportunity is: to think about how to build and utilise technology solutions to make infrastructure more efficient. Fluence was created to accelerate that technology offering to the market.
What roles do storage and digitisation play in the energy transition?
When people talk about the energy transition, they tend to mean a broad shift from fossil-based systems of energy production to renewable sources like wind and solar, and in the case of consumption, a movement towards electrification. I personally like to expand on that definition a bit, particularly with respect to how digitalisation is actively unleashing the power of markets in an unprecedented way.
As of today, every network – telecommunications, food, transport, logistics, gas – needs storage to work efficiently. Historically, enabling that storage mechanism in electricity networks has been difficult and primarily achieved either by trying to adjust supply at the right time or through very large, very difficult-to-build pumped-storage facilities, constructed half a century ago to facilitate the nuclear build-out.
But now we have battery-based energy storage technology – the first truly digital asset on electric grids, which can respond in milliseconds – that can be installed on a very granular level or built into multi-hundred-megawatt installations and placed wherever they are needed. These capabilities allow us to create a stable, resilient, reliable grid, which is particularly important when you are exposed to high levels of variable, intermittent renewable generation.
Furthermore, digitialisation unlocks the power of energy storage, because the speed and flexibility helps you to solve grid problems more efficiently. Renewable and storage assets require hundreds of decisions every minute, creating market complexity that can only be managed by AI and machine learning.
Structurally, digitalisation allows for a more granular and dynamic market for any type of good or transaction. In the energy and electricity markets, digitalisation is absolutely critical as it now allows for a highly efficient transaction at the most granular level – the residential home – and even enables historically non-market participants, without deeper knowledge of the grid, to trade different electricity services like capacity, energy and ancillary services with each other. This digital-enabled efficiency creates benefits for a variety of stakeholders: grid operators get more resilient grids; consumers get more efficient pricing; and technology and asset providers can improve revenues.
What will the next five years of this transition look like?
Energy transitions are not new to humankind; we have gone through several in our history. We went from wood to coal in the 19th century and from coal to oil in the 20th century. However, this is not just another iteration: never in the past was the future of our planet so clearly at stake and never has a transition happened as quickly as it is today. You can see that across other industries like data science, where technology adoption curves are accelerating very quickly, and the same is happening for energy storage and transmission.
Capital and ingenuity are critical drivers. The amount of innovation that is being fuelled by large energy organisations, corporations and even high school students is just unprecedented, motivated by large economic potential and risk mitigation strategies, but also by the pure desire to make an impact. These are very powerful drivers, which impact not only technology solutions but also business models and market tools, enabled by the digitalisation trend. The current geopolitical situation in Europe is also driving home the importance of energy security and energy independence.
In five years, on a very fundamental level, we are going to have many more participants in the energy market overall. We will also have a more granular and dynamic market, particularly for electricity and power services, and thus a more efficient and cleaner grid than we have today.
Practically, all major electricity markets will have developed an understanding of the power of energy storage, which means we will have more deployments of products like Fluence’s. Everyone will be better educated about storage and new compensation mechanisms will have developed for the services it can provide.
To quantify what is needed, BloombergNEF estimated that it will take a total investment of $2.1 trillion per year in the energy transition from 2022 to 2025 to reach net-zero carbon emissions by mid-century. That is an enormous amount of money.
What is involved in technology packages?
We are accelerating the clean energy transition with an ecosystem of products, services and, very importantly, digital applications. Our mission is to transform the way we power our world and we do that by creating technology packages that help our customers achieve their energy transition objectives. The technology packages consist not only of the hardware and integrated controls software, but also the services, value-added digital applications and business models to respond to market conditions.
Take as an example the mobile phone. The first mobile phone consisted effectively of a large battery and you bought it to make phone calls. It has now become a critical piece of your daily productivity, but not because of its ability to make calls.
You use your phone for many different things, to pay for the subway or optimise your drive, for instance. The key to this is to embrace the phone as part of the broader ecosystem and to have the right digital applications and support services to allow for this integration.
Our philosophy is to think about the broader electricity ecosystem, and in particular the impact energy storage has on it, and to innovate technology packages accordingly. These can also consist of new commercial offerings, along the lines of “lease your phone” plans for subscribers.
Which markets are at the forefront of the transition and what do they require from technology packages?
We see enormous adoption of energy storage and digital application services as part of the energy transition around the world. When it comes to overall steel-in-the-ground, both for renewables and storage, clearly the US, China, EU and UK are mass implementers.
There are several markets that have quite interesting potential and where we are seeing growth. In India, we are forming a joint venture with ReNew Power to serve the local market through a more tailored technology and delivery package. In Southeast Asia, we are currently building one of the world’s largest energy storage fleets in the Philippines. We have also announced first projects in the transmission sector in Europe, for instance with Litgrid in Lithuania for a storage-as-transmission asset.
Ireland has enormous renewable penetration which covered 96 percent of Irish electricity demand during a weekend in early February, and storage now plays a critical role in stabilising the grid. In the UK, which has had continuous innovation around market designs, part of the package is being able to provide monetisation capabilities to help customers extract the full value of that storage. When you go through a lot of changes in how you get paid, and you have a lot of assets on the grid, you want to make sure you adapt.
Australia’s National Electricity Market (NEM) is very granular, one of the most volatile and challenging wholesale electricity markets in the world. Prices frequently swing from -$1,000 to +$15,000/MWh, and bids must be submitted every five minutes. A sophisticated AI-enabled bidding platform is essential for successfully optimising a battery into a complex market like the NEM.
California has big ambitions and Hawaii has a strong decarbonisation philosophy and very expensive fossil fuel delivery costs. And Chile, one of the early adopters and blessed with enormous renewable resources, is innovating new applications like the virtual dam.
All these submarkets have unique technology package requirements. Ireland needs an enormously fast responding system through a hardware and software combination. Both the UK and Australia are becoming such complex markets that they require AI-based trading capabilities to extract the full power of renewables, and in particular storage systems.
California has a lot of long-term PPA-type offtake agreements; bankable and continuous services are critical, and now they are adopting bidding capabilities as well. Each market, each customer has slightly different requirements and our job is to help meet them as best we can, with a relevant combination of standardised products, services and digital applications.
What are the next innovation trends in the sector?
Digital applications are just scratching the surface of what is possible. Things are very quickly improving in terms of how storage can be used as part of the grid, how efficiency and revenue capture can be improved, but also how many users it can reach. New segment applications include storage-as-transmission, data centre solutions and innovations like virtual dams.
There are also new business models, which we call structured offerings. This could be energy storage-as-a-service, or even just the ability to procure and integrate the technology and applications that our customers require more easily.
Increasingly, innovations are being designed very specifically for certain assets. The question is, are investments that are being made today ready to cope with the fundamental dynamics to which they are exposed? Technology is so fast-moving, it is changing every single thing we do on a day-to-day basis.
Why is digital so important?
Digitisation is changing the market as we know it. Understanding the trends and implications is important to make sure we design and create solutions that not only keep up with changing times but also flourish in and enable them.
We see a lot we can bring to the table for our customers to either create more value or operate their assets more efficiently. This is one of our key internal investment areas, to not only provide a solution today but also give our partners the confidence that we will be there with new applications and updates tomorrow as the market evolves.
In addition to quite a bit of internal investment, we are also actively partnering with innovators and acquiring capabilities and products that help us to build our technology packages. For instance, we partnered with European-based Pexapark, which develops software to assist customers in managing and optimising their renewable revenues and risks.
In 2020, we acquired the AI-enabled bidding capability of Advanced Microgrid Solutions. Most recently, we acquired Zurich-based Nispera, a software-as-a-service provider focused on large-scale renewable assets whose AI and machine learning capabilities complement our own.