Can dissipating energy be profitable ?

The economics of being able to dissipate energy quickly

Dissipating energy without using it as a source of flexibility is generally perceived negatively. Nevertheless, the nature of electricity makes it sometimes hard to find a use for all electricity generated, especially when the sun is shining and the wind is blowing. But is there a potential business case that would justify it? And could we do something better than just dissipating?

Quest for flexibility

Renewables across the globe and in particular in Europe are set to increase rapidly. Unfortunately, flexibility, such as storage and demand-side management, will not follow as quickly. The EU Commission has even proposed to introduce flexibility support schemes, even though it is not clear what this would entail exactly. A massive expansion of wind and solar is expected in the coming years, from a current 255 GW and 209 GW of wind and solar respectively to 510 GW and 592 GW by 2030, according to the REPowerEU plan. This capacity is to be compared to the average load in the EU, 2809 TWh, or 321 GW on average.

The abundance of intermittent renewables together with the lack of flexibility results in a much higher demand for flexible power. This is noticeable in the price spread in day-ahead and intraday markets as well as higher prices in the balancing markets.

What could dissipate energy quickly?

With a quick check on Amazon, it is possible to find a toaster for 23 USD, with a wattage of 850 W. This can be translated into a cost of 27,059 USD per MW or around 25,000 EUR per MW.

An air heater is also extremely cheap: around 20 EUR for 2 kW, or 10,000 EUR for 1 MW.

Or even a water heater can be found at very low prices, only 100 USD for 6 kW.

The similarity between these three apparels is that they transform electricity into heat through electrical resistors, an extremely basic technology. Of course, we would not be able to simply connect hundreds of them on the low-voltage network. Nevertheless, with a proper electrical connection, the price to install a large energy dissipator must be cheap, most probably less than 50,000 EUR per MW installed, far from any battery for example in terms of cost per MW installed.

With that number in mind, would such a flexible load be making money today? Let’s dig in.

Different markets

In the current setup of the European power markets, there could be different ways to make an income with our energy dissipator. The first way is through energy markets such as the day-ahead and the intraday markets. The remuneration is based on energy only. In order to justify an investment into an energy dissipator, prices would have to be sufficiently negative. Nevertheless, even though negative prices are occurring, they are still not so frequent. The Netherlands is experiencing some episodes of large negative prices (remarkably on 19 April 2023), but still, such episodes are not occurring on a regular basis. The combined values of all negative prices on the day-ahead market in the Netherlands reached -928 EUR, -1037 EUR, and -2945 EUR for 2020, 2021, and 2022 respectively. Such relatively low values do not justify installing a specific dissipator for capturing these negative prices.

Another way is to tap into balancing markets. Balancing markets are divided into mainly three products: Frequency Containment Reserves (FCR), automatic Frequency Restoration Reserves (aFRR), and manual Frequency Restoration Reserves (mFRR). FCR are in general a symmetric product and thus, this reserve must be activated in both downward and upward directions. Therefore, a dissipator is not adapted. For the two others, aFRR and mFRR, some countries are separating these products in an upward and a downward direction, allowing our dissipator to be eligible for the downward aFRR and mFRR. Let’s focus on the aFRR in this post.

aFRR downward

The provision of aFRR downward is done through two stages: first an auction for the capacity and then, an activation based on energy bids. The capacity is remunerated independently of the activation. Let’s say that my investment was 50,000 EUR for 1 MW of flexible load. If we want to recover completely such an investment in 3 years, with an availability of 8000 hours per year, we would need to have an average of 2.08 EUR per MW per hour.

• Belgium: auction prices are available on the website of Elia. For the year 2023 until 19 April 2023, the average price of awarded downward aFRR has been 15.11 EUR per MW per hour.

• Albania: the balancing market has been launched in April 2021 and the only product is aFRR. The results are published on the OST website. Recently, prices above 15 EUR per MW per hour have been observed for the downward aFRR.

• Germany: all data are available on the dedicated website Regelleistung. Prices in 2023 seem to be lower than Belgium and Albania but still higher in general than the calculated cost of 2.08 EUR per MW per hour.

So, it seems that the sale of flexible capacity for downward activation would be enough to justify the investment. But could we also make a profit from the activation?

In order to make a profit from activation, the price of activation must be negative. In Belgium, it is sometimes the case as we can see in the graph below for 19 April (it is the marginal balancing energy price for downward aFRR).

In Germany, activation prices are even more negative, as depicted in the second graph for four different days in 2023 (the prices presented are the average price).

Of course, the operator of the dissipator would have some other costs associated with the operation as well as with the activation of the reserves. The bidding strategy for the activation price should at least include the marginal cost of using the dissipator (grid fees, etc.). Furthermore, the dissipator must be compliant with the requirements to provide aFRR, which should be technically possible as thermal loads are flexible.

Let’s be smarter

We found that simply wasting energy by producing heat can be profitable but there might be a better way. As the flexibility in electricity consumption is the source of value, the heat generated is actually a by-product or a nice-to-have. A smarter way would be to use this wasted heat in district heating for example. They are numerous projects and ideas to use excess heat for district heating. Here, the idea would be to add the dissipator to the heating system, as a preheater for example. Of course, it adds complexity but at least, the energy is not simply lost into the air.

To conclude

The massive deployment of renewables is going to demand a lot of flexibility. Many solutions would be deployed, including storage, demand-side management but also curtailment, and hydrogen production. Nevertheless, there is already a very simple solution to consume power quickly and cheaply: producing heat. Even though producing low-temperature heat with electricity can be considered energetically inefficient, such basic technology could offer much-needed flexibility while still producing a bit of value if the heat is used. Actually, some players are already working on it to avoid renewables curtailment for example.