The past few months have been characterised by extremely high energy prices in Europe. Wholesale market gas prices have increased fivefold compared to 2020 levels. EU ETS allowances have known a steady steep increase from 30€/ton up to nearly 90 €/ton. With CCGTs leading the merit order for most of the time, it is therefore no surprise that also the wholesale electricity price has followed this upward trend.
Amidst this energy crisis, multiple parties have known the impact of this expensive energy. Industrial sites have announced to temporarily halt production (1)(2), energy suppliers have gone bust (3)(4) and an increasing amount of EU citizens experience energy poverty (5). With possible winter weather just around the corner, the near future is looking bleak.
But as the saying goes: never waste a good crisis. It is not all doom and gloom, this energy crisis could in fact give impulses to speed up the energy transition. Energy efficiency measures have known receding payback times and so have investments in renewables. But also existing assets can be optimised and controlled in a smart way so to prevent excessive energy costs or even generate profits. Opportunities exist, after all it is the fossil energy which is expensive.
Arbitrage with multi-energy systems
Here the arbitrage comes in. Similar to a Clean Spark Spread (CSS), which is the margin a gas power plant can make by converting gas into electricity, a Clean e Spread (CeS) can be defined for a multi-energy system. For example, a Clean e-boiler Spread (CebS) can be defined as the margin which can be made by operating the electrode boiler instead of the gas boiler. During moments with a positive CebS, the electrode boiler will be operated, while during moments with a negative CebS the electrode boiler will be put in idle mode and the gas boiler takes over.
Such a CeS can be calculated on a real-time basis, taking into account the fluctuating gas and electricity prices, as well as the system specifics such as efficiencies or technical specificities of the installation.
In the figure above, the CebS is calculated for a fictitious system with a generic gas boiler and electrode boiler based on the TTF gas market, EU ETS market and the Belgian day ahead spot market. In 2021, more than 1000 hours with a positive CebS were recorded. The moments with positive CebS are not spread equally throughout the year. For example, in November and the first half of December moments with positive CebS are scarce while during the last week of December the electrode boiler would be used almost continuously. Electricity scarcity fears were responsible for the idling of the electrode boiler in November and first half of December. The last week of December typically sees a lower electricity consumption, which was even pushed more down due to extremely warm weather. Bonus for operating the electrode boiler.
A multi-energy system creates cost-saving opportunities by switching to the least expensive energy on the right moments. To do so, an arbitrage controller, or a so called dispatch tool, is required, optimising and controlling the specific energy system. Additional revenues can be generated, or in case of an investment decision still to be made, they can bring the needed upside to push the business case above the minimal profitability threshold.
