Flexibility is the new black

How flexibility enhances value in CHP portfolios in Germany

The growing use of renewable energy sources pushes towards lower and more volatile electricity prices. The Electricity Market 2.0 was adopted in Germany in 2016 to spur the transition towards a more flexible and modern energy system. In parallel, the new Combined Heat and Power (CHP) Act (Kraft-WärmeKopplungsanlagen, KWKG) introduces an auction system for CHP bonuses for small to medium size plants. This serves as a driver to enhance innovation and flexibility in CHP production. The current setup, with stronger price signals from the market and a pay-asbid CHP auction, offers great possibilities for German utilities.

This paper analyses three bidding strategies in the CHP auction and how innovative and flexible technology adds value for utilities operating in this new market landscape. The analysis is based on in depth power market optimization using forecasts and actual market data. Consumer heat price is the most critical parameter for many utilities. Our results indicate that the use of flexible and innovative energy generation technology increases profitability

Contents

1. Introduction
2. Framework conditions for the auctions
3. Development of bidding strategy
4. Break-even analysis
5. Outlook for the future