DOMINOES – DELIVERABLE D5.3 Cost Benefit Analysis of the Business Models This project has received funding from the European Union's Horizon 2020 research and innovation programme under Grant Agreement No. 771066. Deliverable number: D5.3 Due date: 30.09.2020 Nature 1 : R Dissemination Level 1 : PU Work Package: 5 Lead Beneficiary: CNET Contributing Beneficiaries: EDPD, Empower, LUT, VPS Reviewer(s): USE 1 Nature: R = Report, P = Prototype, D = Demonstrator, O = Other Dissemination level: PU = Public PP = Restricted to other programme participants (including the Commission Services) RE = Restricted to a group specified by the consortium (including the Commission Services) CO = Confidential, only for members of the consortium (including the Commission Services) Restraint UE = Classified with the classification level "Restraint UE" according to Commission Decision 2001/844 and amendments Confidential UE = Classified with the mention of the classification level "Confidential UE" according to Commission Decision 2001/844 and amendments Secret UE = Classified with the mention of the classification level "Secret UE" according to Commission Decision 2001/844 and amendments
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DOMINOES – DELIVERABLE
D5.3 Cost Benefit Analysis of the Business Models
This project has received funding from the European Union's Horizon 2020 research and
innovation programme under Grant Agreement No. 771066.
1 Nature: R = Report, P = Prototype, D = Demonstrator, O = Other
Dissemination level: PU = Public PP = Restricted to other programme participants (including the Commission Services) RE = Restricted to a group specified by the consortium (including the Commission Services) CO = Confidential, only for members of the consortium (including the Commission Services) Restraint UE = Classified with the classification level "Restraint UE" according to Commission Decision 2001/844 and amendments Confidential UE = Classified with the mention of the classification level "Confidential UE" according to Commission Decision 2001/844 and amendments Secret UE = Classified with the mention of the classification level "Secret UE" according to Commission Decision 2001/844 and amendments
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In Portugal, the requirements of the renewable energy directive are (partially) addressed
in the Decree-Law 162/2019 which allows collective self-consumption (i.e. same unit of
energy production may have several self-consumers) and forming of energy
communities for the production, consumption, sharing, storage and sale of renewable
energy [8]. In September 2020, the Finnish legislation had not been updated to cover
energy communities.
Furthermore, Article 32 of the electricity directive addresses DSOs’ incentives to use
flexibility services: “1.Member States shall provide the necessary regulatory framework
to allow and provide incentives to distribution system operators to procure flexibility
services, including congestion management in their areas, in order to improve
efficiencies in the operation and development of the distribution system.” In many
countries, economic regulation favouring infrastructure investments has hindered the
use of flexibility by DSOs [10]. The requirement in the directive should alleviate the
situation but because the regulatory models are typically fixed for several years at a time,
the change is not going to be quick. For example, in Finland, the current model [11] will
be applied until the end of 2023.
In addition to the enabling regulatory framework, many of the DOMINOES BMs also rely
on services and products such as load and generation forecasts and home/building
energy management systems. Although this kind of services are already in the market,
integrating them into the management systems of the parties utilizing flexibility may be
challenging due to lack of standardized interfaces between different data systems [12].
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3 CBA of the business models
The DOMINOES concept in a nutshell, as previously described, is proposing of a LEFM
structure supporting aggregation/DR services so that it will be possible to enable local
sharing and optimisation of RES in medium voltage (MV) and low voltage (LV) grids,
create relevant and liquid flexibility for innovative distribution management and empower
prosumers and DR service provision.
The considered UCs are related with the BMs targeted by the CBA, which follows the
guidelines from [1] and according to [13], for each BM addresses:
• An overview, identifying the case, describing its major objectives and any
additional information;
• Describes the technical background, characterising the technology – what and
how – and identifies the main benefits expected, the impacts and the most
relevant performance metrics;
• Defines the problem to be targeted by the CBA, evaluating the boundary
conditions and setting the fundamental parameters for the evaluation;
• And estimates the overall case impact, by quantifying and monetising cost
incurred and appreciable benefits and analysing the sensitivity to the different key
parameters variability.
The BM and their linked UC are presented in Table 2.
Table 2 – DOMINOES BMs and UCs.
Business Models Use cases
1 Aggregation of small-scale flexible loads as a universal virtual power plant
Local community flexibility and energy asset management for wholesale and energy system market value
2 Aggregator flexibility provision to DSO for network management
Local market flexibility and energy distributed resources for optimal grid management 3 Using transactive energy for network
congestion management
4 Sharing the exceeding PV generation in the scope of energy communities
Local community market with flexibility and energy asset management for energy community value.
5 Retailer as user of the local market Local community flexibility and energy asset management for retailer value
6 Energy service provider in enabling / assistive role for local markets and providing ECSP capability for retailers, communities or other service providers
Local energy market data hub manager and technical validator of market transactions
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Methodology
The methodology adopted for the performance of the CBA over the different BMs follows
a common approach and is aligned with the general guidelines suggested for conducting
CBAs of SG projects.
The CBA framework flow followed is presented in [1], and the main steps of the adopted
process are proposed in [13]. The characterisation of each BM comprises the following
entries:
• A general overview of the BM, identifying the BMs and their context within the
project;
• A description of the objectives and all the relevant background information;
• The highlight of the technologies supporting the development and
implementation of each BM;
• The identification of the application scenarios, the expected benefits and impacts
and the major performance metrics to consider;
• The summary of the CBA accountable conditions, highlighting all the research
and assessment required to support every assumption and consideration made
when defining the boundary conditions and setting the parameters to identify,
quantify, value and monetise the costs and benefits involved in the analysis;
• The evaluation, through a sensitivity analysis, of the impact that the key
parameters defined will have on the solution, allowing to assess the key
parameters range of values enabling a positive outcome;
• The presentation of the CBA results and conclusions.
The abovementioned entries are framed in the subsections adopted to present and
explain the analysis performed. The BM identification includes the BM name and the
associated UCs, the physical elements and activities, the body responsible for the BM
implementation and the BM impact on stakeholders. The other entries considered focus
the BM objectives identification, its technical feasibility and environmental sustainability,
the financial analysis and the risk assessment over the implementation of each BM.
The risks' assessment comprises the identification of each risk and an overview of the
dependent impacts. Once the risks impacts are characterised, when applicable, possible
mitigation actions should be presented.
The CBA process comprises four main steps, addressing the definition of the boundary
conditions and of the parameters set. In this step all the requirements are identified, and
the proposed set of parameters is bounded to the limits imposed by these constraints.
When the boundary limits are clearly defined and bounded to the respective parameters,
and after considering all the relevant assumptions, the identification, quantification and
valuation of the key parameters must be performed. To conclude this step, the research
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process required to quantify and value the entire set should be presented and clearly
explained.
Following the methodology, the CBA must be performed and a sensitivity analysis over
the results must be considered, to verify the solution robustness to key parameters.
The sensitivity analysis can highlight a significant impact that a certain constraint, a key
parameter or an assumption have on the solution, constraining, bounding or adding to
much uncertainty to the CBA result.
A recursive approach must then be considered, allowing different iterations of the
previous steps to be performed to enhance the solution.
After the conclusion of the sensitivity analysis, the CBA results can be assessed, and
the range of values for the key parameters that enable a positive outcome can be
identified.
The summarised flowchart of the methodology applied to the DOMINOES CBA is
presented in Figure 1.
Define boundary conditions and set parameters
Identification
Quantification
Valuation
Perform Cost-Benefit Analysis
Perform the sensitivity analysis
CBA results
Identification of the range of parameter values enabling a positive outcome
Figure 1 – CBA framework.
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3.1 Aggregation of small-scale flexible loads as a universal virtual power plant
3.1.1 BM01 project identification
Project Business Models Use cases
1
Aggregation of small-scale flexible loads as a universal virtual power plant
Local community flexibility and energy asset management for wholesale and energy system market value
BM1 defines a business case where small-scale flexible loads are aggregated as a
universal VPP. This BM is described in D5.1 and the associated UC – local community
flexibility and energy asset management for wholesale and energy system market value
in D1.3.
3.1.1.1 Physical elements and activities
Based in D5.1, this BM consists of small loads and prosumers/consumers to whom the
VPP has contractual relations for the acquisition of flexibility. Consumer loads are the
primary source of flexibility. Flexible loads at the customer could be home appliances,
buildings’ heat ventilation and air conditioning, water heating systems, EVs, small
batteries, among others and small production units. Besides the appliances, remote-
metering and remote-control infrastructure to manage flexibility is needed. Besides them,
data management and communications IT infrastructure are needed. ICT systems of
VPP include interfaces to aggregated customers, retailers, communities, wholesale
markets and telecommunication systems to communicate with the resources.
Flexibility manager will need strong human resources (HR) skills for big data
management, energy management, IT, telecommunications and remote control.
Capabilities are needed operations management system to ensure coordination of
flexibility actions and balancing requests, as well as processes to manage field
maintenance. Identification, forecasting and validation of the flexibility are required as
well as market knowledge on providing the aggregated flexibility to different markets.
The main idea of this BM is to aggregate flexibility as a service. The flexibility service
provider (FSP) will provide the aggregated flexibility as a solution to grid operators and
balance responsible parties (BRPs).
3.1.1.2 The body responsible for BM project implementation
The main responsible for the BM is FSP. FSP could be e.g. an aggregator or a
community manager (CM).
In the DOMINOES-project implementation, VPS is the main responsible of this BM.
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3.1.1.3 BM project impact on stakeholders
BM1 has a mainly local scope since the BM requires the participation of the small
distributed resources. Also, the BM customers could be LMs or local energy communities
and local DSO who is solving local network constraints. DSO is involved in the BM also
from the technical validation perspective.
The BM has a connection to the national (or regional) energy market as well (BRP or
TSO as a customer). The retailers’ participation and connection with the wholesale
market are described in BM5 – reported in D5.1.
Table 3 – Stakeholders identification and impact evaluation.
Stakeholder Role Action Impact (Benefit and downsides)
Prosumers,
consumers
“Provider” Providing the
flexibility
Monetary compensation for providing flexibility for the VPP.
Possibility to receive/purchase other energy related services
from the VPP
Possibility of negative influence of shifting the demand to less
favourable timeframe, loss of comfort
Community
aggregator
(energy
community)
“Provider” Flexibility
aggregation and
flexibility trading
Financial benefits for flexibility provision and compensation from
the DSO/TSO/BRP
DSO Customer Flexibility
purchase
Validation
Additional channel to purchase flexibility instead of investing on
network. Possible lower costs than network investment
DSO is informed on the market actions in their network and
aware of the potential consequences
Increases complexity and requires system development to be
able to utilize the whole potential of VPP resources
DSO operation is reliant from the customer behaviour
TSO Customer Flexibility
purchase
Additional channel to purchase flexibility instead of investing on
network or purchasing the flexibility from the traditional TSO
markets for lower cost
Increases competition and market liquidity and thus should lower
the price
Increases complexity because of smaller unit sizes
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BRP Customer Flexibility
provision
Additional channel to purchase flexibility instead of traditional
marketplaces for lower cost
Externaliz
ed tasks
Field
installations,
maintenance
Income from installation and maintenance services of the
equipment
New service development
Regulator Market
registration
More competition on the energy and ancillary services market
Additional regulation work because new market and new market
participants
Retailer No active role in
the business
model
Possibly negative influence since the customer flexibility is
controlled by some external party if not considered in the
balance settlement
Main stakeholders of the BM are described in the Figure 2, which are the FSP,
DSO/TSO, and Community Aggregator – reported in D5.1.
Figure 2 – BM stakeholders and relations – reported in D5.1.
This BM foresees the establishment of a contract between the end-customer and VPP
for providing the aggregation service (C1 and C2 in Table 4 below). C1 aims to enable
end-customers to participate in the flexibility market with VPP and C2 where the VPP
pays a monthly fee for each of its flexible load to end-customer. C3 includes an
agreement between the VPP and the DSO. It is assumed that the DSO will make a
monthly payment to the VPP related to the flexibility services. C4 defines the agreement
between the VPP and the BRP. Contracts are described more in detail in D5.1. Table 4
characterises the types of contracts.
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Table 4 – Contracts BM1.
C1 C2 C3 C4
Stakeholders
DSO ✓
BRP/TSO ✓
VPP ✓ ✓ ✓ ✓
Small customer ✓ ✓
Type Dynamic ✓ ✓ ✓
Static ✓
Payment Type
Daily ✓
Monthly ✓ ✓ ✓
Annual ✓
Pricing
Action Base ✓
Static ✓
Incentives
Dynamic ✓ ✓
3.1.2 BM01 objectives
The Energy Transition requires maximisation of renewable power use by means of
demand-side flexibility – however so far this hasn’t been done or proved viable in the
case of the aggregation of multiple small-scale flexible loads.
The objective of this BM is based on the creation of a central coordination agent (i.e., the
FSP) who will manage the flexibility resource pool from multiple prosumers, producers,
consumers, active demand and supply in a collective manner (as a universal VPP), to
reach a minimum threshold of aggregated flexibility to be sold to DSOs/BRPs/TSOs.
The amount of generation installed in distribution networks is increasing in Europe. In
2018, solar power covered only about 0,2% of the Finnish electricity generation [14].
However, it is the most important small-scale generation technology. At the end of 2018,
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the aggregated capacity of grid-connected small-scale power generation (units below 1
MW) was about 201 MW and solar PV accounted for 60% (120 MW) of this [15].
Furthermore, compared to 2017, PV capacity had increased by 82%.
In Portugal, solar power accounted for 2% of the electricity generation in 2018 [16]. The
aggregated capacity of micro (<3.68 kW) and mini (3.68–250 kW) PV systems has
increased from 10 MW in 2008 to near 174 MW in 2016 [17].
Thus, the consumers’ interest in and amount of small-scale generation is increasing
rapidly in case of countries (and globally), creating opportunities also for energy
communities. However, services for such communities are not yet commonly offered as
the regulatory framework in many countries does not acknowledge them.
3.4.3.1.2 Future demand
Most countries are striving to decarbonize their energy systems which will require
investments in renewable power generation. For example, in Portugal, the installed solar
capacity is forecasted to raise significantly in the following years. The forecast for 2021
is 1684 MW, forecast for 2025 2923 MW and forecast for 2030 4973 MW [16].
In addition to the general trend towards power systems based on renewables, the role
of local assets and local trading is likely to increase. The Clean Energy for All Europeans
package and especially the Directive (EU) 2019/944 [7] on common rules for the internal
market for electricity and Directive (EU) 2018/2001 [2] on the promotion of the use of
energy from renewable sources introduced the terms ‘citizen energy community’ and
‘renewable energy community’ and set requirements for their rights and regulatory
framework related to them. Once implemented into national legislations, they can be
expected to boost the development of energy communities and thus create a need for
services for the communities.
Enabling the sharing and trading within communities will help unleash the PV potential
in new types of buildings. For example, it has been estimated that the technical potential
of PV in Finnish apartment buildings could be between about 0.95 and 1.3 GW [18]. The
difference in estimates is explained by differences in assumptions and statistics used.
Nevertheless, the potential in apartment buildings alone is considerably higher than the
current installed capacity. Due to the increase in DG and developing legislation, the
interest in services facilitating energy community creation and operation can be expected
to increase.
3.4.3.2 Option analysis
The options for energy sharing within communities differ according to national
frameworks. In the worst case, prosumers are not able to share their excess generation
nor get any type of reimbursement for it. Thus, without sharing or trading the PV or other
generation unit would be dimensioned according to individual customers (e.g. detached
house, condominium’s shared use such as corridor lighting).
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In Portugal, the former self-consumption rules (Decree-Law No 153/2014 [19]) allowed
renewable prosumers with capacity not exceeding 1 MW to make a contract with the
supplier of last resort for their excess generation injected to the grid. The remuneration
was set at 90% of the OMIE monthly average price for Portugal. In October 2019, new
legislation regarding self-consumption was published. According to the Decree-Law
162/2019 [8], the surplus energy may be traded in organized markets and through
bilateral contracts. The price paid for the surplus can be freely negotiated. Furthermore,
the Decree-Law allows also collective self-consumption, i.e. same production unit may
have several self-consumers.
In Finland, there are currently no feed-in-tariffs or other legislated schemes for small
scale generation. However, some retailers buy the excess generation of their customers
at the spot price (Nord Pool Spot price for Finland, minus a possible service fee). The
requirements concerning energy communities defined in the Clean Energy for All
Europeans packages are yet to be transposed. Draft legislation – [20] – to enable
communities and energy sharing within a property was circulated for comments in spring
2020.
Thus, the main alternatives for sharing/trading generation within the community are
producing only for own needs or selling the excess to external markets e.g. via the
retailer.
3.4.3.3 Environment and climate change considerations
The BM is not expected to have physical impacts on soil, water and air, nor biological
impacts in flora, fauna and ecosystems. As the generation and control equipment are
installed within existing buildings (e.g., rooftop PV), the negative environmental impacts
are mainly limited to the manufacturing of the equipment. The service is mainly ICT
based and is not expected to have major impacts on climate change.
However, the opportunity to share generation and receive compensation for excess
generation may increase the willingness to install larger generation units (i.e. not only
according to own loads) and thus increase the amount of renewable generation capacity
as small-scale generation often relies on solar power. Furthermore, better abilities to
balance demand and supply locally may contribute to smaller reserve power needs. As
reserve plants often use fossil fuels, balancing the demand and supply locally may help
cut emissions of the power system.
3.4.3.4 Location and technical design
BM4 is not directly linked to any of the pilot sites of the project. The analysis is based on
a generic case example mainly from a Portuguese viewpoint as Portugal already has
adopted legislation concerning communities. However, once the energy community
legislation is clarified, similar BMs could be adopted in other countries also.
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3.4.4 BM04 financial analysis
3.4.4.1 Introduction
This BM considers the viewpoint of a CM, i.e., a service provider facilitating the local
sharing of generation. The community members are assumed to have a separate
contract with retailers that supply the consumption not covered by community generation.
The generic example community used in the analysis consists of the following members
with differing load profiles:
• 2 medium C&I customers;
• 2 supermarkets;
• 20 small offices;
• 200 homes.
1000 kWp PV generation is acquired for the community (i.e. no pre-existing PV) assisted
by the CM. 87% of the solar PV generation is used within the community and the rest is
sold to the grid.
Due to confidentiality, detailed values of some cost and revenue components are not
included in the report. The analysis is done for a 15-year project/service duration.
3.4.4.2 Investment cost, replacement costs and residual value
Initial investment includes the PV investment consisting of the solar panels, inverters and
related construction work. The total initial investment is assumed to be 780.000,00 €.
The necessary ICT platform is contracted via an external service provider and included
in the operating costs.
The BM presents a new type of service and is not considered to replace any existing
infrastructure. Thus, replacement costs and residual value are not considered.
3.4.4.3 Operating costs and revenues
The operating costs considered include the license fee for the ICT platform, personnel
costs for the operation of the ICT platform, operation and management of the PV, grid
costs and the payments for the external forecast provider. The total annual operating
cost consisting of the above-mentioned components is assumed to be about 136.500,00
€ and the total costs during the project lifetime are about 2.047.000,00 €.
Revenues include the fixed service fees from the community members, revenues for
selling community energy to the members, and revenues for selling the community
surplus to the grid. The total annual operating revenue consisting of the above-
mentioned components is assumed to be about 251.200,00 € and thus, the total
revenues during the project lifetime are about 3.768.000,00 €. This leads to net
operational revenues of 1.721.000,00 € during the project lifetime.
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3.4.4.4 Sources of financing
The needed investments are financed through bank loans (73%) and an investor (27%).
The financial revenues match the initial investment cost 780.000,00 €.
3.4.4.5 Financial profitability and sustainability
Table 8 summarises the total cost and revenues, which were introduced in the previous
sections and the expected NPV. The considered time frame for the project is 15 years
and 0,289% has been used as the discount rate.
Table 8 – Total cost & revenues and ENPV.
Costs & Revenues Values
Total Initial Investment 780.000,00 €
Total Operational Revenues 3.767.678,56 €
Total Operational Costs 2.046.618,71 €
Total Financial Revenues 780.000,00 €
Total Financial Costs 1.037.534,56 €
Expected NPV (sum of the updated cash flows)
1.442.596,58 €
The positive NPV indicates that this BM, in which a CM facilitates energy sharing within
a community, is profitable when serving the defined generic case community, and with
the cost and revenue assumptions made. Due to the novelty of the service offered to the
communities, and the novelty of the services the CM needs to serve the community,
there are many uncertainties which will be discussed in the sensitivity analysis.
3.4.4.6 Evaluation of GHG externalities
The service proposed in this BM is mainly IT-based and the impact on the GHG
emissions depends on: i) whether consumers decide to install more renewable
generation due to the availability of the service and; ii) what kind of generation it possibly
replaces. Nevertheless, the BM is likely to contribute to GHG reduction as the BM also
encourages matching of local demand and supply, thus reducing losses in transmission
and distribution.
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3.4.5 BM04 risk assessment
3.4.5.1 Sensitivity analysis
This sensitivity analysis focuses on five aspects. Firstly, as this is a novel service, it is
difficult to assess customers’ willingness to pay for it. Thus, the first variable whose
variation is considered is the level of the fixed service free charged from the community
members. Secondly, the BM relies on the availability of the ICT platform services and
price of such service. Thirdly, the personnel costs are varied as 1) the amount of work
depends on the quality and characteristics of the ICT platform, 2) personnel costs are
not necessarily directly linked to the number of communities served, and thus, decrease
in the number of served communities may increase the personnel costs per community.
Fourthly, the PV investment should be planned based on the members and
characteristics of a certain community. If members would for some reason be lost after
the investment, it will reduce the amount of generation that can be consumed within the
community. Finally, the discount rate used in the initial analysis is rather low, reflecting
today’s situation. Because the initial investment in this BM is considerable, influence of
variations in discount rate is considered.
Figure 7 – Influence that changes in the level of service fee from the community members
have, considering the NPV evolution.
€1 442 596,58
€1 293 076,76
€1 143 556,93
€0,00
€200 000,00
€400 000,00
€600 000,00
€800 000,00
€1 000 000,00
€1 200 000,00
€1 400 000,00
€1 600 000,00
Base rate 50 % lower No fee
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Figure 8 – Influence that changes in the ICT platform licence fee have, considering the NPV
evolution.
Figure 9 – Influence that changes in the personnel costs have, considering the NPV evolution.
€1 442 596,58 €1 339 984,94
€1 237 373,30
€0,00
€200 000,00
€400 000,00
€600 000,00
€800 000,00
€1 000 000,00
€1 200 000,00
€1 400 000,00
€1 600 000,00
Base rate forplatform
100% higher 200% higher
€1 442 596,58
€1 105 444,04
€768 291,49
€0,00
€200 000,00
€400 000,00
€600 000,00
€800 000,00
€1 000 000,00
€1 200 000,00
€1 400 000,00
€1 600 000,00
Base rate 50 % increase inpersonnel costs
100 % increase inpersonnel costs
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Figure 10 – Influence that loss of certain customers has, considering the NPV evolution.
Figure 11 – Influence of the changes in the discount rate used in analysis, considering the NPV
evolution.
For the kind of community used in the analysis, the variations in the analyses still lead to
positive NPV. However, especially increased personnel costs and changes in the
community members after the initial investment have a large influence on the NPV. The
latter emphasizes the importance of the correct dimensioning of the PV system as the
benefits for both the CM and the community are largest when most of the generation can
be consumed within the community. In the estimated base case, 87% of the PV
generation is consumed within the community. With the similar PV system but only one
industrial customer, the self-consumption rate would decrease to 63%, whereas losing
one industrial customer and 50 households would lead to a self-consumption rate of 58%
and to a 50% lower NPV than in the base case.
€1 442 596,58
€1 091 820,36 €1 077 136,97
€707 582,30
€0,00
€200 000,00
€400 000,00
€600 000,00
€800 000,00
€1 000 000,00
€1 200 000,00
€1 400 000,00
€1 600 000,00
Casecommunity
Casecommunity -50 residential
Casecommunity - 1
industrialcustomer
Casecommunity -50 residential
and 1 industrial
€1 442 596,58
€1 225 336,58
€1 066 975,90
€0,00
€200 000,00
€400 000,00
€600 000,00
€800 000,00
€1 000 000,00
€1 200 000,00
€1 400 000,00
€1 600 000,00
Base rate Discount rate 4% Discount rate 8%
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3.4.5.2 Qualitative risk analysis
The main risks related to the BM relate to regulation and legislation, customer retention,
and the suitability of communities for such service. Risks in each category are listed
below.
Regulatory risks:
• Regulatory framework surrounding energy communities is still under
development in most countries. Now, regulation may not yet enable energy
sharing at all.
• Some countries have regulated compensation for excess generation. If it is high,
it may decrease interest in energy sharing within the community.
Customer retention:
• Competition from other service providers (including also e.g. retailers who
already have an established relationship with end-users) is likely to occur once
the regulatory framework is clarified.
• Changes in ownership or occupancy of buildings (will new owner/occupant want
to be part of the system) are a risk for the continuance of the service.
Adequacy of generation to share/Need for the services:
• Is there enough excess generation to justify the costs of the service?
• DSO’s network investments may reduce the need for services from communities.
3.4.5.3 Risk prevention and mitigation
Potential risk prevention measures for each risk category are described below.
Regulatory risks:
• Careful follow-up of the regulatory development and communication with
regulators and legislators on the benefits of community services and potential
barriers for providing them
Customer retention:
• Long enough contracts with customers (but probably not solution if
ownership/occupancy in the participating buildings changes)
• End-user engagement activities including regular reports on service impacts and
benefits for the community
Adequacy of generation to share:
• Analyses of potential generation and self-consumption before signing contracts
• Assistance in suitable generation investments for the community
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3.4.6 BM04 conclusions
This section has analysed the feasibility of a BM in which an energy management
specialist company acts as a CM enabling sharing of excess generation within the
community and assist in the generation investment. Such role is new in the energy sector
and its realization depends on an enabling regulatory and legislative framework which is
still under development in many countries but should emerge soon due to the
transposition of the requirements of the recast electricity and renewable energy
directives.
With the cost and revenue assumptions used in the analysis, the BM seems feasible.
However, the BM relies on outsourced ICT and forecast services and thus their
availability and costs impact the profitability of the BM. Furthermore, changes in the
community members after the initial investment can have large impact on the profitability
of the BM. Thus, it is important to engage the customers before any generation
investments are made and also if ownership or occupancy of the participating
buildings/companies changes.
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3.5 Retailer as user of the local market
3.5.1 BM05 project identification
Project Business Models Use cases
5 Retailer as user of the local market
Local community flexibility and energy asset management for retailer value
BM5 defines a business case in which a retailer has access to the LEFM and uses locally
purchased energy or flexibility to solve imbalances in its portfolio or to optimise its
wholesale market participation. This BM is described in D5.1, and the associated UC –
local community flexibility and energy asset management for retailer value is presented
in D1.3.
3.5.1.1 Physical elements and activities
This BM takes advantage of the local ecosystem, i.e., a microgrid environment, a local
community within a distribution grid environment or a VPP environment, promoted by the
accessible marketplace. Regardless of the exploitable environment, apart from the
foreseen physical, human capital, organisational and digital resources required to set up
the LEFM, and from the provided services for forecasting, aggregation and market
interface, already identified in the characterisations of the previous BMs, this BM does
not require additional add-ons.
The required market interfaces, that will allow the retailer to interact with the LEFM
platform, to monitor the LM prices and bid for the required energy/flexibility aggregated,
is perhaps the key enabler. The ICT platform and the market interfaces represent the
initial investment the retailer must support to ensure the market access and the desirable
upstream/downstream interactions to leverage their operational management focused
on portfolio optimisation.
3.5.1.2 The body responsible for BM project implementation
The main stakeholders involved are the retailer and the service provider, i.e., the LM
operator.
Since the BM is mainly focused on the retailer’s perspective and how to extract value
and benefit from engaging at the LEFM level, CNET, representing the utility’s and
particularly the retailer’s interest in LEFM on behalf of the EDP Group, will be responsible
for the implementation of this BM.
3.5.1.3 BM project impact on stakeholders
Scope
BM5 has a wider scope than some of the other BM considered. The local scope is mainly
related with the impact that the retailer’s local procurement of energy and flexibility may
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have on the LEFM dynamics, since depending on the LM conditions, i.e., daily amounts
of available energy and flexibility, but also on the wholesale prices and the imbalances
cost, the retailer’s bids may influence the price at the LM.
The BM impact at regional and national level is mainly linked to the direct influence the
activated transactions may have in the system’s operation, due to the possible changes
in the power flows that must be validated by the SOs, and in the upstream markets’
interactions, since the magnitude of the aggregated energy/flexibility locally mobilised
may influence day-ahead and intraday wholesale market activity.
Stakeholders identification and benefit evaluation
Figure 12 shows the stakeholders involved in this BMs, and the 3-level BM framework is
presented in
Table 9.
WS and LM(Day-ahead,
Intraday, Balancing)
RETAILER
Energy community
CONSUMERCONSUMERCONSUMERCONSUMER
PROSUMERPROSUMERPROSUMERPROSUMER
PRODUCERPRODUCERPRODUCERPRODUCER
RETAILERRETAILER Flexibility
Marketparticipation
Figure 12 – Stakeholders and relations in BM5 – reported in D5.1.
Table 9 – Complete framework, BM5 – reported in D5.1.
First Level: Strategic Level
Provider - who? Flexibility available from consumers, prosumers, producers, DER and other actors playing in the local market. The flexibility will be made available through the local market operator
the strategy model - why? Retailers can access the local market flexibility for optimising their market participation in the wholesale market (day ahead and intraday) taking into consideration the fluctuation of energy prices throughout a day and the minimisation of imbalances.
the resources model - with who and what internally?
Consumers, prosumers, producers, and other actors playing in the local market as flexibility providers;
DSO to validate the transactions (technical validation taking into consideration the grid constraints);
Local market operator to negotiate the requested flexibility with the retailer
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Use of the local market flexibility to be valued in the wholesale market or to optimise the retailers’ portfolio
Potential competitors: Aggregators or other retailers
the revenue model - how they pay?
1. Revenues from optimising the participation in the wholesale market.
2. Revenues from reducing imbalances in the retailer’s portfolio.
Third Level: value chain level
the delivery model - how we deliver?
The flexibility provided by the local market shall be used by the retailer when it may have more value to economically optimise the sourcing of energy in the day ahead scenario. In the intraday, the flexibility can be used to reduce imbalances.
The retailer shall use forecasts and a platform to analyse the different scenarios and to interface with the different markets
the procurement model – how is being delivered to us?
Platform development or acquisition to platform providers; procurement of the flexibility through the local market.
the financial model – how we pay for it?
Retailer should pay for the allocated flexibility. Subscription fee to participate in the local market; Development and operation of the retailers’ platform to operate and interface with the different markets. HR costs.
This BM foresees the establishment of a contract between the retailer and the manager
of the LEFM. The available energy and flexibility to be traded on a day-ahead or intraday
basis is the commodity the retailer is interested in, to optimise the energy sourcing at the
wholesale market and minimise the incurred intraday imbalances. There are no contracts
between the retailer and the individual local providers, i.e., the flexible consumers and
prosumers. The LEFM manager will be responsible for managing the available energy
and flexibility, and from the retailer’s point of view, he acts as an aggregator with whom
he is contractually related through his LEFM engagement. The functioning of the LM is
not relevant to this BM, as the retailer is only interested in a certain amount of aggregated
energy/flexibility that will be directly negotiated with the LEFM manager.
Table 10 characterises the type of contract established between the service provider and
the retailer. It’s a dynamic contract, since the value of the traded commodity varies
throughout the day according to LM conditions. Moreover, the value that the retailer is
willing to pay will depend on the wholesale prices and the imbalances cost.
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Table 10 – Summary of the contracts for BM5 – reported in D5.1.
C1
Stakeholders Retailer ✓
Service provider ✓
Type Dynamic ✓
Static
Payment Type Monthly ✓
Annual
Pricing
Action Base
Static ✓
Incentives
Dynamic
3.5.2 BM05 objectives
This BM aims to validate the use of the LEFM by the retailer, whose goal is to optimise
the participation in the wholesale market and minimise the daily incurred deviations.
The objective of this BM is to assess how retailers can take advantage of the energy and
flexibility aggregated and made available at the LEFM on two complementary scenarios:
1. The day-ahead energy sourcing optimisation, reducing retailers’ costs from day-
ahead wholesale participation by accessing LEFM and purchasing cheapest
energy and flexibility, optimising the portfolio;
2. In an intraday timeframe, minimise the deviations, reducing the costs incurred to
mitigate imbalances by activating cheapest energy and flexibility aggregated at
Percentage of generation made available to the market per year per flexible consumer and prosumer
60%
EBITDA per customer per year 4 € per customer (-40%)
1–(Earning / EBITDA) ratio 67%
Interest rate plus spread 0,289%
The CBA results presented are the outcomes from the assessment over the benefits for
the retailer when two main perspectives are compared, the costs from suppling a
community where a LEFM is implemented, against the costs from suppling the same
community when there is no LM, and all the energy required by the retailer’s portfolio
must be bought at the spot market.
The key parameters characterised value all the costs and revenues consider for this BM
and were used to perform the simulations to evaluate its profitability and sustainability
across 15 years, the considered time frame for the project’s CBA.
Using the exact parameters presented in Table 11, the CBA simulations reveal the
following results – Table 12.
Table 12 – Total cost & revenues and ENPV.
Costs & Revenues Values
Total Operational Revenues 29.419,20 €
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Total Operational Costs 11.520,00 €
Total Financial Costs 964,80 €
Expected NPV (sum of the updated cash flows)
16.549,21 €
Based on the CBA results, the profitability and sustainability of this BM, particularly
addressing the energy provider’s perspective, is highlighted, considering the 16.549,21
€ expected NPV achievable from enrolling in a LEFM reaching 200 consumers, with a
20% penetration of flexible consumers and prosumers.
An additional reference must be introduced to enable a correct interpretation of the
presented results. From the energy provider perspective, the costs considered are
proportional to the number of flexible consumers and prosumers engaged, because the
rest of the 200 consumers must be considered as regular clients or possible clients for
the retailer’s services, or ultimately, as competitors for the same resources available at
the LEFM, if we consider P2P between end-users.
The LEFMs present a significant business opportunity for retailers, since the operational
revenues incurred represent an effective gain, since the benefits come directly from
optimising its operation in an almost business as usual context, once the two main
perspectives considered are focused on the day-by-day portfolio optimisation, i.e., the
day-ahead energy sourcing optimisation at the wholesale market through the LEFM, and
the intraday deviations minimisation by reducing the costs incurred to mitigate portfolio
imbalances.
Moreover, the influence that some of the key parameters have in the CBA outcomes is
assessed through a sensitivity analysis associated to the BM risk assessment.
3.5.4.6 Evaluation of GHG externalities
The BM5 doesn’t have a direct impact on the GHG emissions. However, indirectly, if the
prices available at the LM remained competitive against the wholesale market prices, the
demand for services supported by decentralised renewable-based generation and
energy efficiency-based DR will rise, increasing community consumers and prosumers
motivation to invest in DER and RES and thus boost the GHG emissions reduction.
Ultimately, the retailer himself can leverage and value economically the decarbonisation
of its portfolio.
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3.5.5 BM05 risk assessment
3.5.5.1 Sensitivity analysis
Figure 13 – Influence that the penetration of flexible consumers and prosumers and the
percentage of energy generated and flexibility avaialble to the LEFM have, considering the NPV
evolution.
Figure 14 – Influence that the annual average day-ahead and the intraday prices at the WM
and LEFM have, considering the NPV evolution.
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Figure 15 – Influence that the annual average OPEX & Financial Costs per customer have,
considering the NPV evolution.
In the sequence of the evaluation of the BM profitability and sustainability, the solution
robustness to key parameters is now analysed.
Six key parameters, coupled in three categories, are considered to test the robustness
of the results achieved and presented in the profitability and sustainability analysis.
• Regarding the influence that the penetration of flexible consumers/prosumers
and the percentage of generated energy/flexibility made available to the LEFM
by these consumers/prosumers have, the following scenarios were assessed:
o For the penetration of flexible consumers/prosumers in the LEFM, a
significant decrease in the profitability follows if a decrease from 20% –
base case – to 1% is considered. This variation in the expected NPV is
justifiable, since the energy provider incurs in costs directly proportional
to the number of flexible consumers/prosumers engaged through the
LEFM. Anyway, even a drastic decrease in the penetration of flexible
consumers/prosumers always leads to a positive outcome, if the local
prices’ competitiveness is guaranteed.
o For the percentage of energy generated and flexibility available to be
traded and activated at the LEFM, the turning point is reached when the
percentage considered drops down to 25%. When less than 25% of the
generated energy/flexibility from the flexible consumers/prosumers is
offered to the LM the costs from engaging those flexible
consumers/prosumers surpass the achievable revenues by mobilising
their energy excess/flexibility.
• Concerning the influence that the prices for day-ahead and intraday at the
wholesale and LM have, the following scenarios were assessed:
o For the wholesale price, the considered variation shows that, if the
considered price increase of about 19%, due to the costs with network
access and global use of the system to transport and distribute the
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energy, is reduced to 2%, the turning point is reached and the expected
NPV becomes negative. This happens when the costs from engaging the
flexible consumers/prosumers surpass the margin allowed by the
difference between the wholesale price, plus 2%, and the LM price. Due
to the variation in the network access and system’s global use costs, the
local prices’ competitiveness is not enough to ensure the desirable
profitability. Moreover, we can also conclude that, if the direct spot market
prices were considered, i.e., wholesale price, plus 0%, there will be no
profit, at least considering the flexible consumers/prosumers engaging
costs applied to the conducted analysis.
o For the LM price, the considered variation shows that a price increase of
18% leads to a turning point in the profitability. The expected NPV
becomes negative when, for the same engaging costs, the average LM
prices rise to 51,33 €/MWh – 43,5 €/MWh +18%. Considering the average
wholesale price applied, 57,12 €/MWh – 48 €/MWh +19% –, we may
conclude that, for these prices, only a difference bigger than 5,79 €/MWh
between the wholesale and the LM prices grants a sustainable
investment.
• Regarding the costs considered and their influence, the following scenario was
assessed:
o A significant increase in the OPEX and financial costs per customer is
required to reach the profitability turning point. The considered OPEX
value per customer for the base case is 19,20 € – 32 € -40% –, and the
financial costs per customer is 1,61 € – 4 € x(1-Earning/EBITDA) -40%.
To reach the turning point, a value of 45,44 € for the OPEX per customer
and a value of 3,81 € for the financial costs per customer must be
considered.
3.5.5.2 Qualitative risk analysis
The main risks related to the BM5 are particularly related to business opportunity and
competitiveness, general market context and evolution, legislation and regulation issues.
The risks comprised within these categories are listed below.
• The entering barriers are significant, hindering the retailers’ engagement
process, e.g., if the prequalification or other operational costs are too heavy,
considering the possible revenues;
• In one hand, the competitiveness within the LEFM can affect this BM, since the
energy providers are not the only stakeholders that can benefit from more
affordable prices in the LM. If a given market regularly presents attractive prices,
other market players will also be highly interested in accessing the offers, biding
for and activating the available resources, excluding the retailers from the game,
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since these stakeholders are competing for the same resource but not
necessarily against the same reference price, due to the different nature of their
operational activity;
• In the other hand, the retailers’ interest in the LEFM can also be affected by the
general evolution of the market prices. Not only the LEFM market prices can
increase and stop being enough competitive against the spot market prices, or
instead, the spot market prices can decrease significantly in the years to come,
taking advantage of the scale to push for a cost’s reduction not accessible in the
LEFM smaller scale context;
• The legislation and the regulatory framework surrounding the implementation of
LEFM is still under development in most countries, decreasing the short-term
impact of a BM focused on this context.
3.5.5.3 Risk prevention and mitigation
Considering the abovementioned risks, the potential prevention measures are described
below.
In a rollout scenario, the legislation and regulatory framework evolution must accelerate,
because the required OPEX per MWh of energy/flexibility mobilised at the LEFMs will
tend to decrease with the increase in supply at the LMs.
• To tackle the regulatory risks, the legislation and regulation development must
be carefully monitored, to continuously assess the evolution of the potential
barriers and of the available opportunities.
Regarding the other risks identified, more related to the business nature and with the
general market competitiveness, extensive CBAs should be considered, using relevant
and reliable data, prior to the BM implementation, to properly estimate the possible gains
but also the most prominent impacts.
• To tackle the more business-oriented risks, the market conditions evolution
should also be monitored, considering the LEFM potential in the retailer’s periodic
SWAT analysis and, as stated, consider extensive CBAs over the specific BM to
implement.
3.5.6 BM05 conclusions
The results from the CBA and sensitivity analysis performed over BM5 highlight the
general profitability of the investment in the perspective of the retailer.
However, the sustainability of the investment deeply depends on a comprehensive
assessment over the fundamental revenue sources and most relevant costs to consider.
The sensitivity analysis presented shows that a particular set of key parameters must be
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extensively researched and tested to evaluate the robustness of the solution provided
by the CBA.
The interest that the energy provider may have in a LM, e.g., due to its local portfolio
and/or the imbalances normally associated, should always be accounted, and contrasted
with the typical penetration of flexible consumers/prosumers and the percentage of
generated energy/flexibility made available locally. Other factors to consider are related
with the LEFM context, such as the local prices available, whose competitiveness against
spot prices must continuously be assessed, and the costs incurred to be engaged in and
act.
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3.6 Energy service provider in enabling / assistive role for local markets and providing ECSP capability for retailers, communities or other service providers
3.6.1 BM06 project identification
Project Business Models Use cases
6
Energy service provider in enabling / assistive role for local markets and providing ECSP capability for retailers, communities or other service providers
Local energy market data hub manager and technical validator of market transactions
BM6 defines a business case where energy service provider is in enabling role for LMs
and provides ECSP capability for retailers, communities or other service providers. This
BM is described in detail in D5.1 and the associated UC – local energy market data hub
manager and TV of market transactions in D1.3.
3.6.1.1 Physical elements and activities
Based in D5.1 BM consists of an energy service provider who provides ECSP capability
for retailers, communities or other service providers. End-users have more and more
own generation and storages. Energy service provider could facilitate to managing a
community of end-users and facilitate them to participate in the market and providing
flexibility. Also, local sharing and trading could be possible via energy service provider.
Additionally, ITC infrastructure and expertise in information services for
retailers/aggregators/DSOs/third parties to manage the LM could be provided.
The service provider will need strong ICT capabilities for local sharing of energy
management. Service provider could manage also grid costs and taxes. ICT systems will
need also interfaces to aggregated customers, retailers, communities, wholesale
markets and telecommunication system. Distributed resources at the customer site will
need appliances, remote-metering and remote-control infrastructure.
ECSP has connections to variety of different stakeholders:
• Parties responsible for metering or Datahubs to get end-users’/community
members’ consumption and production data;
• Retailers/aggregators/DSOs/TSOs to offer them flexibility services provided by
energy communities;
• Wholesale market operators to enable communities’ wholesale market
participation;
• Prosumers and consumers who want to engage in local sharing or trading;
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• Appliance/generation/storage/control technology providers to provide necessary
technologies for end-users.
3.6.1.2 The body responsible for BM project implementation
The main responsible for the BM is ECSP.
Empower and VPS will be responsible for the ICT services in the demonstrations in the
DOMINOES project.
3.6.1.3 BM project impact on stakeholders
The scope of BM6 is mainly local, since the consumers and prosumers are providers of
flexibility and energy. Whereas DSO, TSO, BRP, retailers and aggregators are
customers who could purchase the flexibility for grid management or portfolio
optimisation. Thus, BM6 has also connection to national (regional) energy market. In
addition, communities could purchase IT services to community management.
The actions and benefits for different stakeholders are described in the table below.
Table 13 – Stakrholders identification and benefit evaluation.
STAKEHOLDERS ROLE ACTION BENEFIT
DSO, TSO Customer Flexibility purchase Aggregated flexibility that
can be purchased for
grid/system management
BRP Customer Flexibility purchase A tool to manage
flexibility for portfolio
optimisation
RETAILERS,
AGGREGATORS
Customer Flexibility purchase A tool to manage
flexibility for portfolio
optimisation
WHOLESALE AND LOCAL
MARKETS
Opportunity to manage
local assets and
aggregate them for
wholesale market.
PRODUCERS/PROSUMERS Provider Energy provision Revenues from selling
(surplus) energy
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COMMUNITIES Customer Purchase of IT services Opportunity to buy
community management
services
CONSUMERS Provider (of flexibility) Flexibility provision Lower energy costs from
retailer using the
flexibility, revenues from
selling flexibility
Main stakeholders of the BM are described in the Figure 16 – reported in D5.1. Energy
service provider could manage an energy community, facilitate local sharing and trading
of flexibility services and provide ICT platforms / services.
Energy community
CONSUMERCONSUMERCONSUMERCONSUMER
PROSUMERPROSUMERPROSUMERPROSUMER
PRODUCERPRODUCERPRODUCERPRODUCER
Energy service
provider
ICT platform / servicesWS and LM(Day-ahead,
Intraday, Balancing)
Market representation
BRPDSO
Manage of the community
ICT platform / services
Figure 16 – BM stakeholders and relations – reported in D5.1.
BM6 have agreements that are presented in Table 14. C1 is an agreement between the
energy service provider and the end-user for participating in the LM. C2 and C3 include
agreements between the energy service provider and the wholesale market operator for
taking part in the wholesale / ancillary services markets. An agreement between the
energy service provider and the stakeholder is described in C4 where the stakeholder
utilises the ICT infrastructure. Contracts are described more in detail in D5.1.
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Table 14 – Contracts for BM6.
C1 C2 C3 C4
Stakeholders
Energy service provider ✓ ✓ ✓ ✓
End-user/Prosumer ✓
DSO/retailer/aggregator/third party ✓
Wholesale market operator ✓
System operator ✓
BRP ✓ ✓
Type Dynamic ✓ ✓
Static ✓ ✓
Payment Type
Daily ✓
Monthly ✓ ✓ ✓ ✓
Annual ✓ ✓
Pricing
Action Base ✓
Static ✓ ✓ ✓
Incentives
Dynamic ✓
Shared savings/earnings ✓
3.6.2 BM06 objectives
BM6 defines a service provided by an energy service provider that could:
1) Manage a community of consumers/prosumers and represent them as a single
entity towards the wholesale markets;
2) Facilitate local sharing and trading of flexibility services for BRPs, DSOs and
TSOs;
3) Provide the necessary ICT infrastructure and expertise for
retailers/aggregators/DSOs/third parties to manage the LM.
End-users are increasingly turning into prosumers with their own generation, controllable
loads, and storages. However, they may not have the skills or interest to optimise the
use of these assets especially if there is a need for community-level optimisation.
Energy service provider could manage a community of consumers/prosumers and
represent them as a single entity towards the wholesale markets. It could facilitate local
sharing and trading. Flexibility services could be provided for BRPs, DSOs and TSOs.
In addition, an energy service provider could provide the necessary ICT infrastructure
and expertise in information services for retailers/aggregators/DSOs/third parties to
manage the LM.
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