1. Dynamic tariffs examples. Can you profit from it?

 

In my Vlog nr. 14 of May 14 I talked about the importance of reducing costs as compared to increasing revenue. I showed that if you have a profit margin in your enterprise of 5%, then reducing costs by 1000 units per month is the same as increasing revenue by 20’000 per month, simply because 5% = 1/20. So, not saving on costs can be like drying the floor with water running from an open tap. That is why the idea that I show now is as exciting as any other way to reduce costs. It is about paying less for the electrical energy that you consume.

You know that Energy is a commodity like any other, in the sense that it will cost less on the marketplace if there is more than asked for. Even more than vegetables, electrical energy must be consumed on the moment it is produced. Vegetables can be stored for a couple of days. Electrical energy storage is today too expensive to be used much. In today's market, practically all electrical energy is consumed exactly on the moment it is produced. That is why the producer must adapt its production every moment exactly to the demand. That is already difficult without variable energy sources like solar and wind energy. Now, with Renewable Energy, this is becoming more difficult.

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You see that in the image image of J.W. Zwang of Stratergy on the left side. There you see that on the spot markets on May 9, the price in the Netherlands was far in the negative for many hours and swept then to a positive extreme value.

We are in 2021. Therefore, there are (1) new business models and (2) new technologies, which allow a better and automatic communication between single energy consumers and the producers. Both facts contributed in the last few decades to find ways where even retail users with over 100 MWh/year, like for example your medium size enterprise can have access to the marketplace, where the prices are really following the demand and supply. That is very different from the price structure that is known by medium and large enterprises altogether and which follow a block type tariff structure, based for example only on one low night tariff and one higher day tariff. The “real” market prices go up and down, from one extreme to the other as you see on the left. In the summer it might be even worse then in May!

Please consider that these prices are on the wholesale market of the energy itself. On top of those you have to pay the transport and other costs. So it will be difficult to enjoy negative prices and be paid to consume energy. Anyway the idea of my advice is to access to this market and in one way or another consume more energy during (extremely) low prices and avoid the high prices.

 

Even you have an enterprise with a fixed production and consumption scheme, there are many ways to adapt in some way to the times of the market. I told many times about this.

 

If you ask yourself why you should engage into this new adventure, I will answer that you have to reduce costs. See above, where I explained that saving can be 20x more interesting than producing your goods or services.

 

In short, you have to find ways to grab & store cheap energy or just “convert” it within your enterprise into commodities that can be stored and which you need yourself or can sell.

 

An example of the former is cold, which you need in the hot hours but will be cheap in the night to produce.

 

An example of the latter is some intermediate product, which can be produced in automatic during the night.

 

You will have to see how much you can win and how much it will cost before taking a decision. Here I can help you, for example with the simulations that I will show in my second article below and with my experience in engineering.

 

It is up to you to find the company that will give you access to these services, because this newsletter is going everywhere in the world and I don’t know, which market players are in your country. Here in Europe I know a few. It is nearly sure that if there is no legislative barrier against this market access for you, there will be a market player between you and dynamic energy tariffs, because everybody will win with this solution and electricity producers are really stressed about getting their energy on the market during certain times and to silver it on other times.

Again, I can help you even online, as I am initiating my service as Distant Energy Manager.

2. Dynamic tariffs - simulation

 
Simulation - pexels-tima-miroshnichenko.

Last time I promised a simulation of Dynamic Tariffs.

 

I provide you here with the results of a spreadsheet that you can adapt to your situation. The spreadsheet itself is part of a course about Demand Side Management (DSM), storage and dynamic energy tariffs. As told, I have a Birdseye Energy School, which is organised as a central Practical and Compact course on Energy Management and modular learning units around it. In this way I can enable technical employees to upgrade themselves in 20 hours to intermediate Energy Manager and leave the specialistic knowledge, skills and (in this case) useful tools in thematic courses.

Therefore, the students save money and time. They start soon saving energy and money for the enterprise, the environment for humankind. When they run into some specific problem, they can come back and pick one of the smaller courses, which specialise on a particular method of saving. I try to keep the modular courses in 3 hours and $36.

Now, the module about DSM and dynamic energy tariffs is the first I decided to add to the course portfolio and it will soon be available.

So on the left I present you with the structure of the simulation. You see three thumbnails for a one I made for a factory with a few hundreds of kW demand and dynamic tariffs for a week in May on the Dutch market. To avoid a slow internet response, the 3 full size pictures are in a ZIP file that you can download if you watch it on your device.

 

The tool will help you to see how much money you will save on your electricity bill if you have access to dynamic energy tariffs. It will simply combine your weekly consumption curve with your current fixed tariff structure and with dynamic energy tariffs, which you can download from the website of a spot market like the EPEX. The tool will compare the resulting end costs for the week for fixed and dynamic tariffs. So you can see what your enterprise can gain with access to this market.

In this tool, you can add an energy storage and simulate the purchase of energy during extremely low tariffs to charge this storage and using it during (extremely) high tariffs during the day or week.

I will present that in the next issue, because there is no place here.

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Thumbnail of fixed & dynamic tariffs

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Thumbnail of consumption graph

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Thumbnail of resulting costs

1.    Tariffs

In the picture you see on the left side two tariff structures for 24 hours. Each one has 7 curves for the weekdays. The first graph gives the usually known fixed tariff structure, with day and night tariff. They can be easily programmed  with the two small input tables on the top, where you define the different kind of tariff components, like transport, other fixed costs and then the variable tariff component for day and night. In the example they are 3 and 4 cent (fixed), 5 and 10 cent (night, day).

The same kind of graph is in the second picture for the dynamic energy tariffs. There too are the fixed and variable parts. The variable parts can be input with the third table on the right side. Here you can directly copy the MWh prices that you see on the spot market website. I took them from the Dutch market prices at the EPEX spot market for one day

For your own country you might have another website.

The MWh prices will be transformed into the price per kilowatt hour in the second graph. 

 

In the table at the top you see also a tariff for the demand charge, paid per kW and per month. The supplier will take the maximum value of the absorbed power during the month and multiply it with this tariff to define the so called demand charge. As this simulation is only for a week, you will have to take the week with the highest monthly peak in this table or fix this value.

2.    Consumption

 

In the second picture you see the consumption.

The second graph is not important in this moment, as it shows the consumption from the grid, corrected by the charging/discharging of the energy store. As you know, an energy store will help you to profit from low tariffs. this lower table & graph anticipate what we will see in the next issue, so stay tuned.

For now it is enough to look how the consumption can be modelled for each hour of the week. The table gives at the bottom the max power demand in kW per day and week, which is important for the demand charge. Also the total week consumption in kWh is calculated in the right bottom corner.

3.    Costs 

The Costs are the result of the Tariffs and Consumption, which are multiplied hour per hour. In the table and graph you see the hourly costs. The sum per week for the energy is at the bottom left with thereunder the demand charge. Remember that this demand charge is taken only for the week, as said above, under “Tariffs”.

As you can see, there is a consistent saving during this week, if you had the dynamic tariffs, in this case without any form of Demand Side Management (DSM) but simply by switching to dynamic energy tariffs. Maybe a question of luck with the market, which obviously behaves differently each week. However, each week's tariff patterns are more or less similar and we see here a saving of 16%. It is probable that it will be more or less the same for other weeks. 

 

With this tool, you can start to optimise your costs in one of two ways:

  1. Try to find a pattern during the weeks and determine in which hours during the week it is probable to have low tariffs. Every week will be different on the spot market as said before, but the probability that certain hours have every week a low tariff is very high. The same is true for (extremely) high tariffs. They could be caused by standard business hours, for example start up times each morning, especially Monday. Also households have much influence on the dynamic tariffs, when people come home in the afternoon. Finally, hot summer afternoons will induce many businesses to consume much energy for cooling at certain hours. If you have the flexibility to consume more in the cheap hours and less during the expensive hours, then you will save even more than in the example shown.

  2. If you have limited flexibility to influence your consumption times, you can take an energy store. You can fill that up during (extremely) low tariffs and use it to cover part of your consumption during expensive hours. You can also avoid the monthly peak by using the battery when the total consumption in the enterprise goes beyond a certain value. For some countries, this peak demand is recorded and will be valid for 12 months, so in this case you can save much with the storage. However, also with only the transfer of consumption from expensive to cheap hours, many savings can be realised.

 

With the simulation tool, the total savings can be calculated and compared with the investment for the storage. As said in my blogs, this storage can be not only electric, but also (less expensive) in another form. For example by producing cold in the cheap hours and releasing this during expensive hours, or by producing a semi-product during the night, if it can be done with fully automatic machines.

A collateral benefit is that in case of a black out, or even when production must be raised (e.g. cold production in a hot afternoon), you can rely on a big amount of energy or another commodity.

3. Covid19, buildings and Energy Efficiency

 
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I told in the newest vlog of this week about the compromise to find between Energy Efficiency and Covid-19 safety. When health is concerned, people rightly choose to reduce risks but sometimes in an irrational way.

For example, I read in an article that an important organisation recommended increasing the air change rate up to 6 air changes per hour and even more. An article on carbonlighthouse.com  showed how this will result in a 70% of energy bill increase for a 11’500 sqm office building in Los Angeles. The same article states that the same level of safety can be achieved with an energy bill increase of only 13%, if this safety is achieved in other (less energy intensive) ways. 

 

I told also in the blog, that the European Centre for Disease prevention and Control (ECDC) indicated methods for safety, which are more energy efficient. It admits in “Heating, ventilation and air-conditioning systems in the context of COVID-19” that transmission commonly occurs in closed spaces and that HVAC systems may help decrease transmission, but that’s only one way. There are 3 additional ways to stay save:

 

1. Limit the sources of the virus (“quality” of the population in the building).

2. Limiting access to the building  (“quantity” of the population in the building).

3. Combine HVAC and naturally ventilation.

4. Masks, hand washing and distance.

 

These measures will make your building safer in a rational way, without relying on only increased mechanical ventilation and without spending too much energy.

 

I told in the vlog also about Demand Controlled Ventilation (DCV) and the parameter of CO2 concentration in the air as input for this method, which will save much energy in your building. In a blog on this parameter, Maurice de Hond shows how in some countries the CO2 concentration will soon have to displayed in public buildings so that people see how safe the air is inside. It is in Dutch and you will have to translate it but there are articles in the blog also in English about similar arguments. 

4. Energy Efficiency or the continuation of coal.

 
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In my vlog Nr 13 of May 5, I told about the German Environmental Federal Office (UBA), which wants to anticipate the “Kohlenausstieg” or leaving coal, from the planned 2038 to the year 2030, a significant time leap of 8 years. It is discussed in the position paper of the German Environment Agency that you can download in English.

 

There are several other countries that depend on coal for electricity production and some of them are very large. Therefore, I find it important to discuss the role of Energy Efficiency, the Invisible Fuel, as the Economist called it in a special report of 2015. See the picture on the left.

I call it deliberately the Invisible Fuel, as it expresses Energy Efficiency as a real alternative for coal.

Vikas Gupta, Sr. Research Analyst - Oil & Gas, Utilities at Kearney gave already about a year ago his view on leaving coal for S.E. Asia and how it will be difficult for the big Asian coal consumers to follow the European ways (if the Europeans will actually succeed, we hope it).

Also for the Quickly Developing Countries, the Invisible Fuel will therefore be a real solution, which will satisfy both the environmental movement and the entrepreneurs.

 

In the vlog I showed how the Energy Efficiency gain can accumulate in the years like a capital with compound interest in the bank. If you take the 3% of gain in Energy Efficiency, which the International Energy Agency reported globally for 2014, you can see how that gain accumulates during the years from now to 2030 (the new wished deadline for the German Agency). So, we take (100-3)=97% as the new consumption for each successive year from now, we put this in the power of 9 and we get the new global consumption that we can reach in 2030 if we had no economic growth. Just to keep the calculation simple.

 

Then we get 0,97^9=0,76 or 24% of savings. That corresponds to a lot of avoided power production and an easier decision about closing power plants.

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