Next Kraftwerke operates one of Europe’s largest Virtual Power Plants: today they connect roughly 8,000 plants which together generate 8 GW of power. They expanded to Poland in 2017 by offtaking power, trading and selling it on the wholesale market.
How did the idea of a Virtual Power Plant come about and what are a few milestones you reached to date?
I am one of two founders, Hendrik and I are still running the company together as co-CEOs. We took the first step 10 years ago when Germany opened its ancillary services market. Initially we connected gas fired CHP Gensets and then in 2012 started adding renewable energy assets.
At that point the RES market opened up and allowed from a regulatory perspective to also connect renewable energy to VPPs. The feed in premium subsidy scheme was introduced in the same time, which truly changed the market and sent us into a few years of really fast growth.
Virtual Power Plants are a relatively new concept - can you explain in a few words how they work?
Virtual Power Plants connect decentralized assets and bring them online. For what reason? One possibility is to offer ancillary services. This market is just opening up in Poland - there are some Demand Side Management products in the country but not yet 100% in line with EU guidelines. This will change soon though and we are preparing to take on the work.
What we already do here is offtaking power, trading and selling it on the wholesale market. We do not absolutely need a VPP for this but it is very useful to control the assets we are responsible for. We know at every point in time what the production is and we can steer assets to make the best out of them - for instance to make use of high power prices, or run assets down when prices are not attractive.
When do you expect to have an open market design for ancillary services in Poland?
Right now, the market is exclusively open for big power plants but EU guidelines require to have a new design in place by the end of 2021. The idea is to open this market for small power plants also. The model will be similar to the one in Germany, which is great, it means we can use our technology and set everything up quickly, and in a manner, that we already know is working.
Human nature tends to be reluctant to change, have Virtual Power Plants received any criticism so far?
The disadvantage is naturally for incumbents - opening up a market means they will lose some of their market share and the revenues, which come with it. When we look at Germany and what happened in the last 5 years, ancillary services used to be a billion Euro market per year. Right now, we are talking about a 250 million Euro per year market, so it really came down from a high level of earnings to a lower number - and they also have to share this amount with more companies that came in.
Lower revenues are a pity for us as well, but this is what happens when you allow competition. The fact that prices are coming down and efficiency comes into play is ultimately a good thing.
Poland is still a market dominated by big incumbents, which share the market between them. Naturally, they do not want to open the market, and without EU pressure, they would likely not do it any time soon.
Zooming out of Poland, how does your geographical footprint look like?
Germany of course is still our biggest market; apart from this, we are active in the Netherlands, Belgium, France, Switzerland, Austria and Italy as operators of VPP and offtakers of power. We also offer our Software as a service and to clients around the world. That means we enable parties to run their own VPP with our technology. It does not make sense for us to be an operator in all countries ourselves because it can become very complicated, there are numerous licenses and requirements to meet.
Ultimately, we believe in a European power market and the goal is to become a European operator of Virtual Power Plants. In the future, we will not be talking about individual markets as much, rather about strong interconnections between various parts of the continent.
Do you already have a sense of how the COVID-19 outbreak will impact your business/the energy sector in the short term?
Fortunately, the outbreak so far has no impact on our business. As a Virtual Power Plant, many processes run mostly fully automated via algorithms. Our processes therefore continue unchanged.
Regarding the energy sector, the pandemic has a huge impact on the load profile in Germany. On one hand, the amount of energy consumed decreased for example due to less industrial consumption. On the other hand, normal habits of German electricity consumers have changed because of the restrictions and curfews. The characteristic peaks are hardly visible these days in the price profile of a currently normal day on the intraday market. Our traders therefore have to adapt to a new situation in power trading. Still, the consequences in short-term trading, which is Next Kraftwerke’s main area of work, are not as serious as in long-term trading.
What first measures did you set in place to manage the crisis?
In order to protect our employees and ensure uninterrupted operations, we split departments with critical processes into teams already at the beginning of March. Now, almost everyone is working from home. As a critical infrastructure company in Germany, we have established a so-called Business Continuity Management already in 2018. Therefore, we had defined processes for a pandemic that helped us manage the immediate situation. Our BCM crisis management team and the Management Board are meeting on a regular basis now and assess the situation for the company in order to be able to respond to new developments.
