HomeWorld RegionsAfricaPutting a value on flexibility

Putting a value on flexibility

The UK has incentivized flexibility by literally putting a price on it, and this model is opening doors for Finnish company Wartsila, writes Kelvin Ross

The UK has become an attractive market for gas-fired technology thanks to the government’s Capacity Market, introduced to provide an insurance policy against the possibility of future blackouts – for example, during periods of low wind and high demand.

It’s designed to ensure sufficient reliable capacity is available by providing payments to encourage investment in new capacity or for existing capacity to remain open.

“We want to see flexibility get more value in the market,” says Melle Kruisdijk
Credit: Wartsila

One company that has entered the Capacity Market is Finland’s Wartsila. The company is to build two gas-engine plants for Centrica.

At 50 MW each, the plants will be the biggest medium-speed engine facilities in the country and follow Centrica winning agreements for 500 MW of new projects in the Capacity Market auction.

The plants will each run on five 34SG natural gas engines provided by Wartsila, which is also the EPC contractor for both projects.

The projects are intended to bring balancing power to the UK grid, which is accommodating an increasing share of intermittent renewables, particularly windpower.

Wartsila said a key reason for its engines being chosen for the plants was because they will be able to provide “electricity for approximately 100,000 homes in less than two minutes, from start to full load”.

Following the signing of the deal earlier this year, I met in London with Wartsila Corporation President Jaakko Eskola and Melle Kruisdijk, Vice-President Europe of Wartsila Energy Solutions.

Kruisdijk says that Wartsila’s rationale behind the investment “was the capacity payments, but another was that the engines are capable of operating in the balancing market. They are exactly what is needed to balance power from renewables.”

He adds: “This is an important project for us – I see it as a door opener to more new projects in the UK.

“I think it is also an eye-opener for lots of companies active in this market, because there has been a lot of focus on the traditional bigger power plants but it is changing rapidly. This is an example of how you can still invest in conventional power – well, conventional ‘in brackets’, because it’s flexible – in a market with a lot of renewables. So I think it should open the eyes of a lot of companies.”

Kruisdijk says what the UK government has done is to “make this flexibility more valuable with this income stream from the capacity mechanism – it makes flexibility feasible”.

“What we would like to see is that flexibility gets more value in the market. Which is more a result from a change in the balancing arrangements than the capacity market. Those are the sort of changes we would like to see in other countries, and it is happening now.”

Germany is another country utilizing gas engines as flexible power. With a new German CHP Act passing into law recently, it gives legal certainty to plant investors in the country. Large-scale gas engine plants are a relatively new technology for the German market but one that has significant benefits for operators, especially in energy systems handling large quantities of fluctuating renewable energy.

“It’s not that they have said that they want more gas engines,” says Kruisdijk. “They have said that they want more flexibility, and gas engines are perfectly positioned to deliver that flexibility, so we see lots of opportunities in Germany.

“Both Germany and the UK have incentivized flexibility and they have a growth path for renewables, and that drives signals for investment in our technology.”

The company is also winning business in Latin America, Africa and Asia and Eskola says that globally “there are three stories: one is the developing country story; then you have the aging power plant story, where you renew something; and then you have the renewables story.

“And for Wartsila, all those stories are in one way or another leading back to a need for gas engines. Last year the order intake grew almost 50 per cent.”

Kruisdijk notes that some time ago Wartsila “launched a concept called Smart Power Generation and that concept fits in all these three stories, because sometimes you need fuel flexibility, in others you need reliable capacity”.

The country that is the odd one out globally is China.

“Somehow, these stories just don’t fly there at the moment,” observes Eskola. “But I think this is changing with the more they look at renewables and environmental issues.”

The situation in the UK and Germany is, of course, a result of the shift from centralized to decentralized power. Kruisdijk believes “we are at the tipping point now. The investments are not in big 800 MW plants anymore; the investments are in smaller plants up to 150 MW. Much smaller – because there is no reason to go in for bigger power plants because you don’t expect them to run baseload.

“If you talk about the tipping point from centralized to decentralized, we’re there – it’s happening.”