Opportunities and Challenges of DERs in the Energy Market

In modern power systems, Distributed Energy Resources (DERs) refer to energy generated at various locations such as businesses, factories, residences, etc., using diverse energy sources, including solar, wind, energy storage, backup generators, UPS systems, demand response, electric vehicles, and more.

 

A Virtual Power Plant (VPP) is a system that integrates and coordinates these distributed resources. It aggregates dispersed energy resources to form a controllable and predictable power supply source, functioning similarly to a power plant. This helps in more efficiently managing energy usage, becoming a reliable power source, and flexibly responding to grid demands. Among these, demand response ancillary services are a significant business opportunity for energy consumers in the energy transition.

Traditional power supply mainly comes from large and centralized power plants. However, as energy demand continues to rise and renewable energy integrates into the grid, centralized power systems with predominantly large units face challenges during peak demand. In a year consisting of 8,760 hours, the peak demand for energy in Taiwan occurs for approximately 200 hours, accounting for only 2% of the total hours in a year. Building new power plants to meet this peak demand for 200 hours would result in idle assets during the remaining period. Therefore, utilizing demand response ancillary services and other distributed energy resources is a more cost-effective and environmentally friendly approach. The benefits of developing distributed energy resources are as follows:

Driven by the energy transition, Taiwan's energy market is witnessing the flourishing development of small-scale resources aggregated by virtual power plants. Our power generation structure is shifting from traditional large units to distributed energy, the power supply source is transitioning from centralized to decentralized, and power transmission is evolving from unidirectional to bidirectional. As a result, the role of energy consumers has the opportunity to transform into energy prosumers. The operational conditions required for virtual power plants are different from traditional power plants, requiring support from policy, technology, business models, and more to provide the maximum value to the grid.

 

The rise of distributed energy and the opening of the energy market present significant business opportunities for industrial and commercial energy users. Whether through aggregators in virtual power plants or direct participation in the energy market, businesses can offer power ancillary services to earn additional income while helping the grid reduce reliance on traditional power supply and achieve the goal of lowering energy costs. Through practical actions, businesses can support the energy transition and fulfill their corporate social responsibility for environmental sustainability.

 

The Energy Trading Platform kicked off in November 2021, offering highly flexible participation options for various trading commodities, attracting numerous participants. Enel X is also one of the qualified traders on the platform, aggregating flexible energy resources owned by commercial and industrial energy users. As of November 2023, Enel X's aggregated capacity accounts for approximately one-tenth of the platform's total participation capacity.

 

While distributed energy and virtual power plant solutions are relatively mature, they still require support from relevant policies and market regulations to enable more small-scale resources to participate in the market. Which will achieve the benefits of aggregation and contribute more to Taiwanese society.

• Challenge 1: Using regulations for conventional power plants to standardize virtual power plants impacts market participation willingness - taking the transformer accuracy as an example

Enel X began participating in the day-ahead ancillary service market for non-traditional units before the Energy Trading Platform was established, and through years of experience, we have noticed that the high threshold for market entry significantly affects the willingness of small and medium-sized resources to participate. This is particularly evident in the accuracy specifications of transformers (voltage and current transformers). As of August 26, 2021, if the accuracy of the transformer is less than class 0.3, measurement data can be calculated with the multiplication of measurement error. However, according to the Energy Trading Platform Management Regulations and Operating Procedures officially implemented by Taiwan Power Company on October 1, 2023, the calculation with measurement error method will no longer be used from 2025, and the accuracy of the transformer should be corrected to the specified standard.

 

To effectively calculate the performance of demand response services, aggregators install meters that measure energy consumption every minute according to the rules set by the energy market. The data’s accuracy must pass Taiwan Power Company’s audit before the resource joins the market. However, in order to participate in the energy trading market, the new rule now requires demand response resources to replace transformers with power plant-level accuracy. For businesses, this involves not only extra expenses but also the suspension of existing operations during equipment replacement, often taking several months to complete.

 

The significant cost involved reduces the willingness of these emerging resources to participate in the market and forces the grid to lose these ancillary service resources, creating a lose-lose situation for business owners, power companies, and Taiwanese society. Relevant authorities should consider how to release the capacity of private ancillary service resources through fair and effective measurement standards to contribute to the stability of the Taiwan grid.

 

• Challenge 2: The operational functions of the energy market still need continuous optimization

Currently, Taiwan has not launched trading for the energy market, so the Spinning Reserve programs in the Energy Trading Platform does not have the right to quote energy prices. The energy price depends on the final bid price in Taiwan Power Company’s internal energy market, meaning units that can simultaneously provide ancillary services and bid for energy will affect the bid results of ancillary services based on energy prices. However, the method of determining energy prices is not publicly available market information. In addition, information from different divisions under Taiwan Power Company is not integrated. When registering resources to participate in the market, aggregators or energy users need to separately contact and explain to different departments to obtain the required information, extending the timeline for resources to provide services.

 

• Challenge 3: High risks of the Taiwanese energy market, and the function of independent regulatory agencies need to be strengthened

Currently, Taiwan has an integrated energy industry operating the Energy Trading Platform, raising concerns about having a player acting as both a player and a referee, representing the interests of electricity companies rather than the public. As the energy industry moves towards liberalization and the energy market matures, an independent regulatory agency is essential, gathering professionals with a focus on users, representing public interests, adopting diverse opinions, setting standards and principles for grid operations, and regularly reviewing and planning to ensure reliable power supply while allowing new resources to participate fairly, reducing grid operating costs and enhancing social welfare.

 

Looking at the visions and goals mentioned on the official websites of regulatory agencies in Australia, the United States, the European Union, and the United Kingdom, the core idea is to prioritize public interests, succinctly and powerfully articulate involving stakeholders in discussions, promoting efficient investment, and developing competitive and innovative markets to protect the interests of energy consumers. In contrast, Taiwan’s development goals in the “Guideline on Energy Development” and the general principles of the “Electricity Act” only mention directions such as “ improving the welfare of the society,” “complying with the user-pay principle,” “protecting user rights and interests,” and  "promoting the supply diversification of the electricity industry” without sufficient details on how to achieve specific goals.

 

A promising development is the establishment of the “Office for Promoting the Reliability and Resilience of Electricity” by the Ministry of Economic Affairs in April of this year. It is expected to transform into part of the electricity regulatory body in the future, strengthening the functions of the independent regulatory agency. We are happy to see this move and look forward to the realization of the independent regulatory agency establishment.

The achievements of Taiwan’s energy market have gained international attention, but more regulatory and policy support is needed to promote the development of distributed resources and virtual power plants. We believe that the following five key elements can be distinguished:

1. Policy support - the government should expedite the promotion of relevant laws and policies, accelerate the liberalization of the energy industry, and improve the competitiveness of the energy market.
2. Innovative technology - eliminate unnecessary entry barriers, reduce market entry costs, and allow emerging resources to demonstrate their value.
3. Establish more diverse trading commodities, providing multiple participation opportunities and diverse services to support the grid.
4. Quickly establish an independent regulatory agency: ensure a diverse, fair, and transparent market operation and reliable power supply.
5. Enhance efficiency and innovation: with reasonable regulation and stable power supply, focus on users, improve market efficiency and encourage innovation.

 

Virtual power plants have proven to be economically beneficial in advanced energy markets. However, their successful development requires the input of various stakeholders. Through reforms in these five directions, Taiwan can accelerate the development of distributed energy, allowing relevant entities to invest more resources without concerns, join the market, contribute to sustainability, and promote Taiwan’s net-zero transition and stable power supply.