The aim of this report is the assessment of the economic performances of the Mas2tering solution and the validation of the Local Flexibility Aggregator (LFA) multi-sided business model. This is done using the results of the simulation-based tests conducted for a reference LVG in the Cardiff area, consisting of 184 users. This data is used to develop and assess three Business Cases (BCs) targeting different phases of the local flexibility market transition from embryonic to mature, characterised by growing levels of penetration of smart assets and renewable energy sources. In the document the “LVG” becomes a unit of measure to assess scaling the mastering solution (e.g. 50 LVG = 9,200 prosumers)
Cost Benefit Analyses (CBA) developed for each BC provide an indication of the profitability resulting from the implementation of the Mas2tering solution in the three phases of the market transition. The analyses are based on several representative smart grid scenarios, developed as part of the project demonstration activities and reflecting the expected evolution of smart grids in European countries. They also use cost information provided by project key partners and information collected from energy stakeholders during the project dissemination event.
The first BC, targeting the embryonic phase (1-5 year timeframe from now), sees a telco or a supplier taking the role of the LFA to offer in-home optimization services to end-users. This is done mainly for client retention/migration coupled to the opportunity to offer a new service (energy management) or also to potentially bundle other services. The low available flexibility forces telcos/suppliers to target only prosumers able to generate enough value to sustain operative costs and repay capital costs for the equipment in a reasonable timeframe (3 years). The deployment approach is therefore modular and driven by the macro trends on penetration of smart assets and RES at residential level. Based on the CBA, the number of involved prosumers in the reference LVG ranges from 5% to 18% according to available flexibility, with total value exchanged in the range 458 – 3,157 € and maximum revenue for the telco/supplier of 1,592 €. This revenue is loss avoidance in our analysis meaning that suppliers or telcos will only act (today) if they see it necessary to protect their market position, or to posture now for future scenarios where the penetration of flexibility assets is higher, or they have bundled service offerings that will create synergies with the Mas2tering solution.
The second BC, targeting the growth phase (5-7 year timeframe from now), sees an independent Wholesale Market Aggregator (WMA) starting a LFA business and offering local energy trading services to increase its flexibility portfolio and reduce risk when participating in global markets. In this phase the WMA might be in competition with telcos/suppliers that have already started LFA businesses. Its approach for deployment is also modular, as the available flexibility does not allow for a wide-scale implementation of the solution. Based on the CBA, the number of involved prosumers in the reference LVG ranges from 12.5% to 18% according to available flexibility, with total value exchanged in the range 2,961 – 4,729 € and maximum revenue for the WMA of 476.5 €. Given this result, to create €1 million of turnover would require leveraging a pool of 385,000 potential participants and setting up contracts with those with enough flexibility to benefit from flexibility management. This is why early movers in this space are typically targeting areas of high flexibility penetration (e.g. such as newly renovated social housing) or are part of incentivized deployments. Access to and contracting with large pools of prosumers with enough flexibility to make LVG flexibility management profitable is a key barrier for WMAs or other independent actors that do not already have contractual relationships in place (such as suppliers and/or telcos).
Finally, the third BC, targeting the mature phase (7-12 year timeframe from now), sees a partnership between the WMA and the supplier (or a telco that has significantly extended its services into the energy sector) to start or expand existing LFA businesses and to create synergies to maximise revenue. The possibility to gain additional revenue from client retention and from participation in global markets allows the supplier/WMA to diversify its offer, increase the number of participants and maximise its global revenue. Based on the CBA, the number of involved prosumers ranges from 14% to 47% according to available flexibility, with maximum revenue for the WMA/supplier of 3,921 €. In this phase, the DSO also participates in local markets to buy flexibility and deal with congestions as an alternative to grid reinforcement. Results for the DSO show that flexibility is a viable alternative to grid upgrade. One way to look at this result is that for every 1 million prosumers on the grid, there is a potential €21 million business model opportunity.
Each BC provides recommendations on how to implement the Mas2tering solution in a profitable way for the player taking the role of the LFA, thus validating the Mas2tering multi-sided business model. By looking at the whole flexibility market transition process, the deliverable also provides a potential market penetration strategy and evolution path for the Mas2tering solution.