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Why is Forecasting Important?
Challenges in Our Energy Network
The electricity grid must always remain in balance, meaning there should always be as much supply as there is demand. In other words, the amount of electricity on the network should always remain constant. If it doesn’t, systems can fail or even catch fire, which is something we want to avoid.
To keep the grid in balance, various predictions and forecasts are made and traded. The closer these forecasts are to the actual reality, the higher the revenue or the lower the cost. Due to the rapid growth of solar and wind energy production, the generation and consumption of electricity are drifting further apart, and the electricity grid is becoming increasingly congested. There’s a lot of demand at one moment and a surplus of supply at another.
As a result, congestion occurs more frequently. The grid risks getting clogged, and inverters, for example, can automatically shut down. TenneT or regional grid operators then have to intervene to rebalance the network by reducing the imbalance. This has created a valuable market that can be quickly capitalized on. As long as supply and demand don’t align better, this market will continue to grow.
Current Challenges in Our Grid
There are several reasons contributing to the increasing congestion and cost on our grid. These reasons include:
- The rapid rise in electricity production from solar and wind sources, which is not constant and experiences significant peaks and troughs. There is little to no solar generation at night and during the winter, and even in the Netherlands, the wind isn’t always blowing. Meeting these peaks requires substantial capacity on the grid.
- Wind turbines and large solar parks are often situated in rural areas, increasing the distance between production and consumption of electricity. Consequently, electricity needs to be transported over longer distances.
- The closure of centrally located coal-fired power plants (e.g., in Amsterdam and Rotterdam) and gas-fired power plants.
- The emergence of electric transportation (still relatively small but growing rapidly), which demands increasing capacity for each charging session in shorter timeframes.
- New housing construction, new data centers, the transition to gas-free homes, and more.
Network companies are working diligently to expand capacity, but this requires substantial investments. Expansion efforts are still not keeping pace with demand, making it increasingly challenging to establish new electricity connections, as highlighted by Netbeheer Nederland.
What is a Power Purchase Agreement (PPA)?
Obtaining certainty about long-term returns on investment is made possible through detailed forecasts. A Power Purchase Agreement (PPA) is a long-term contract between an electricity producer and an electricity buyer. This agreement defines the terms under which electricity is sold, typically including the quantity of electricity sold and at what price. PPAs provide both the producer and the buyer with financial security for the duration of the contract.
For producers, usually companies generating renewable energy like wind or solar power, a PPA aids in securing financing for their projects. It guarantees them a return on their investment because they already know at what price they will sell their electricity for a specified period.
However, a drawback for producers with a PPA is that they may not benefit from optimizations in the energy market since they have agreed to sell their energy at a fixed price. They do not profit from potential increases in electricity prices above the SDE base amount or from the opportunities of financial management that can double revenue in some months, even though they are already protected against a drop in energy prices through the SDE scheme.
This is where Encast comes into play. Encast can make predictions about how much electricity a producer can expect to generate in the future and calculate this based on prices in the forward markets, helping make better financial decisions.
Companies often lack insight into these costs and can be surprised by higher costs than expected. Encast assists these companies in predicting their production more accurately, which can help reduce their imbalance costs.
By using Encast’s forecasting, producers can gain insight into expected returns over the next 4 to 5 years.
What are Imbalance Costs and How Can You Profit from Them?
Imbalance costs are the expenses incurred when there is a difference between the amount of electricity a producer planned to generate and the amount they actually produced. This can occur, for example, when the weather differs from the forecasted conditions for a solar or wind energy producer.
Companies typically lack visibility into their imbalance and often have no awareness of their imbalance costs. Until a year ago, companies were frequently charged a fixed surcharge for their imbalance. However, with the strong fluctuations in rates and mismatches between generation and consumption, this practice is no longer sustainable.
These invisible imbalance costs are currently rising rapidly. In electricity contracts, such as Power Purchase Agreements (PPAs), imbalance is often briefly described, and the risk is usually placed entirely on the producer or the buyer. These contracts often feature the misleading description “at cost.” However, the effectiveness of forecasting applied by the intermediary (energy supplier) makes a significant difference in these costs. As a result, these costs are not uniform, and generally, there is no transparency provided.
Encast’s solution is that companies need to be more involved in forecasting their production and self-consumption to initially reduce their imbalance costs. A smaller imbalance automatically results in lower electricity costs and helps maintain a more balanced electricity grid. Therefore, it is essential for all of us to keep imbalance low and respond when it occurs. This can only be achieved if all stakeholders in the chain (network, energy suppliers, consumers, and producers) have the same insights and collaborate.
Interestingly, energy suppliers create forecasts for their portfolios but do not involve their customers. Because customers are not involved and lack insight, they are also unable to help minimize their imbalance.
In reality, the forecast of their own production and consumption should be visible for every connection (large-scale and consumers).
Encast addresses this issue: Encast removes forecasting and control from the energy supplier and offers this control as a separate service to large-scale customers with their own generation. These energy producers can use the forecast to adjust their operations and purchase electricity from their energy supplier based on their forecast. The energy supplier remains crucial in providing access to the energy markets.
To create both a production and consumption forecast, Encast retrieves metering data from the metering company. These two forecasts together provide the electricity profile per EAN (electricity connection at a location). Encast aims to encourage large-scale customers to align their own production and consumption as closely as possible, both daily and seasonally (flexibilization). The use of self-generated electricity is the greenest power available.
If you have multiple locations, you can combine the forecasts of different EANs to create a portfolio forecast. This allows for centralized purchasing for multiple locations. With Encast, you have visibility for each location and across all your locations. An additional benefit is that part of the forecasting error margin offsets each other, resulting in what we call portfolio advantage.
How Encast Can Forecast Solar, Wind, and Consumption
Forecasting based on ML/AI forms the foundation of Encast. It adapts itself as your behavior changes. Every day, your actual consumption and generation data are retrieved from your metering company, and by comparing this data with the forecast, the models learn and automatically adjust. These self-steering models are further used for the financial management of your solar plant and consumption (preventing congestion, earning from imbalances, charging (auto) batteries).
Encast’s forecasts are generated using Artificial Intelligence & Machine Learning models. We provide forecasts for both the day ahead and intraday (per meter/site/portfolio). The models are fed with the most recent weather forecast data and your continuous historical production and consumption data to generate predictions for the next 2 days. Encast’s forecast is on a quarter-hourly basis and is refreshed four times a day based on the latest insights. This allows you to proactively manage and, separately from your supplier, gain insight into your own imbalances.
Encast’s forecasting works on a per-meter basis (main meter, BPM). In 2022, Encast’s imbalance costs were €8 per MWh lower than what the PBL (Netherlands Environmental Assessment Agency) calculated for the SDE settlement. This means you saved an additional €8 on top of your SDE subsidy.