Strict regulations create fierce competition
The biggest question regarding power plant operation is what to do with the power market regulation and with the available extra capacity? Current regulations provide plenty of reasons for a headache for operators, as the prices set by the system in the event of surplus production hinder profitable operation. Electricity exchange prices adapt to the country’s energy demand, therefore, when the base load covers national demand, there is no need for additional electricity. This is why power plants can only sell the electricity they produce at a loss, for which we have seen examples over the last summer in Hungary. Thus, producing more is not always better in the energy sector. The huge differences in electricity exchange prices between periods adds an additional difficulty to making energy production and profitability foreseeable. Even within a day, different price levels might result in a drop from high profitability to severe losses. Regulators tend to favor energy producers whose availability follows the required optimization and whose production is extremely flexible. These increasingly tightening regulations have led to fierce competition on the market.
Power plants can choose from different pathways: either shutting down production entirely in the event of adverse market conditions or look for an alternative solution to make production more flexible.
Producers also have the opportunity to join a virtual power plant portfolio, leveraging on the synergies provided by a larger portfolio. The virtual power plant enables the digital interconnection and integrated management of smaller power plants, thus ensuring that their operation is adjusted to real-time demand. The electricity produced this way is then sold for various market segments: on electricity exchanges, OTC market, the market for system-level services and directly to end-users.
Shutting production down is exceedingly difficult for most power plants, given that restarting is much more costly than maintaining regular production. To achieve more flexibility and optimization in production, the industry has already come up with various solutions: either a direct consumer – often an own industrial park – uses the excess energy, or an energy storage unit is set up that stores the energy produced if market conditions are unfavorable to sell in the system. In the following, we introduce some alternatives that power plants can choose from and identify the challenges they entail.
Advantages and challenges of using Li-Ion energy storage units in power production
Many industries are struggling with the same problem: there are still no economical alternatives to store electricity to this date. Just think of high-tech self-driving cars or household solar panels. In both cases, mass-production and usability is limited by the fact that we cannot store energy cost-effectively that we will only need later.
The establishment of a Li-Ion energy storage plant is a potential solution to this problem: during periods when it is not possible to sell the electricity produced at a profit, the electricity can be stored and sold later, when prices are more favorable. Using such a storage unit allows for the avoidance of shutting down production completely. However, this solution is not available to all energy producers, as these storage units require a particularly large investment. It is a tremendous financial challenge for small power plants only to be able to participate in the regulation, as they need to cover the cost of 4000 – 5000 USD/KW by themselves. The installation per sé is a slow, time-consuming and costly process, which is further complicated by the fact that not all systems allow feeding directly from the storage into the system. Moreover, installation of an energy storage unit requires a construction permit and an additional electricity storage permit must also be obtained from state offices.
Decreasing efficiency must also be taken into account when considering the lifespan of an energy storage unit, which is between 5 to 15 years or 5000 to 10000 discharges. The initial 85-90% energy recovery ratio decreases gradually with the number of discharges.
What additional benefits do Enerhash Data Centers offer to energy storage units?
As a flexible and direct consumer, Enerhash DATABOX offers a viable alternative to the problem of power plants.The excess capacity of the power plant is immediately consumed and paid for by the data center at a fixed or electricity exchange indexed price. From a financial perspective, the profitability of the production remains unaffected, but the risk is significantly lowered, as the profitability does not depend on the current market price of electricity. Our mission was to create a solution that ensures a foreseeable and favorable price for power plants even under adverse market conditions and thus enable power plants to operate independently from regulations.
Unlike other direct consumers, the Enerhash DATABOX does not require 100% availability. The data center can be turned on and off freely without hardly compromising the lifespan of the computers. This way we can provide flexibility and a predictable base load consumption as well for energy producers, therefore the available electricity can be utilized on the power balancing market during hourly tenders, when the producer shuts down the data centers. It can be operated cost-effectively in both continuous and intermittent operation for 5 to 10 years. Given that the electricity is consumed immediately, efficiency losses can be completely avoided. Our business model has been designed to take the burden of self-financing off of the shoulders of power plants. Enerhash data centers are, therefore, funded by our clients or the Enerhash Group. The cost of approximately 1000 EUR / KW and the risks of installation are fully borne by our company. This way the power plant can enjoy the optimization benefits the data center provides without having to make the investment. The installation process is also significantly faster and simpler: within 6 weeks after agreement, the data center is available for any power plant that has 25 m2 of free space on site. In addition, we have elaborated the legal, financial and operational framework for cooperation: the main advantage of Enerhash DATABOX over energy storage units is that it is no subjects to permits and licensing.
How will the cancellation of the availability fee change the landscape of energy production?
To ensure steady supply of electricity , regulators contract power plants that receive a black start fee for being at disposal. Over the past decade, this fee has provided a stable source of revenue for several smaller power plants. With the planned cancellation of the black start fee, these plants may lose their source of primary income and will need to find an alternative source to sustain their operations. Regulations are also changing, conditions are tightening. In the future, producers who feed into the network when it is not recommended will have to face severe sanctions. Furthermore, low margins also contribute to the fierce competition. The Enerhash DATABOX has been developed precisely for the purpose of providing a steady source of revenue for power plants that partially decouples them from regulations.