Ievgen Didichenko on bankable business models of ESS operation in the ancillary services market

“Rebuilding Ukraine’s Power Sector with Green Technologies: opportunities for German-Ukrainian Cooperation” was the theme of a side-event within the Berlin Energy Transition Dialogue 2024. Energy experts, investors, representatives of international and Ukrainian institutions, and the public jointly discussed opportunities for transforming Ukraine’s energy sector towards carbon neutrality. The event took place in Berlin and was organized by Razom We Stand, E3G, Berlin Economics, Low Carbon Ukraine Project.

“Within the framework of our vision, we see Ukraine as an energy-independent, carbon-neutral, energy-democratic country with a decentralized, reliable system of energy production and consumption and a competitive level of electricity cost,” said Ievgen Didichenko, a co-owner and CBDO of KNESS Group, in his speech.

The key points from Ievgen Didichenko’s speech:

• What does Ukraine’s energy system need now? Flexibility and reliability. As the share of solar and wind in the electricity balance of Ukraine’s energy system increases, and because of other factors, there is a growing shortage of power reserves for primary and secondary frequency regulation. Energy storage systems can fully meet today’s market demand, as they have great advantages over traditional generation.
• What are the peculiarities of the ESS operation in the electricity market in Ukraine? The business model of the ESS operation is to provide frequency containment reserve (FCR) and symmetrical automatic frequency restoration reserve (aFRR) services in the ancillary services market in the IPS of Ukraine, as well as to supply balancing services in the balancing market. The ancillary services market is about the “capacity” market, where ancillary service providers (ASPs) maintain a high level of equipment readiness to respond to disturbances in the system. The balancing market is about the “energy” market, which is activated in accordance with the dispatcher’s command of the Transmission System Operator. Therefore, in the ancillary services market, the transmission system operator pays the ASP for the availability, that is the capacity to provide FCR and aFRR  services every hour. At the same time, the electricity itself, which was supplied or withdrawn by activating the  FCR and aFRR capacity, is sold or bought as an imbalance in the balancing market (in the case of FCR), or sold as balancing energy (aFRR).
• Due to the insufficiency of tertiary replacement reserves, the lack of limited time for activating FCR, and liability for failure to provide FCR and aFRR services, there is a need to increase the installed ESS capacity. This increases the CAPEX of such projects.     
• For an investor who plans to be one of the pioneers by investing in ESS projects in Ukraine to operate in the ancillary services market, a relevant, bankable business model is essential. It should be “obvious” that debt capital will be returned.
• KNESS team has been analyzing the electricity market for a long time, developing mathematical models and algorithms for ESS operation for providing FCR and aFRR services. Based on this, we have developed and manufactured our own technological ESS solution based on lithium-ferum-phosphate technology, targeted for the ancillary services market. Its competitive advantage lies in the fact that our solution requires significantly lower capital investment per 1 MW of service (FCR and aFRR). This is ensured by the technical design and smart operation algorithms.
• We, as investors in our own ESS projects for the ancillary services market, have developed a relevant business model for the ancillary services market. Within this model, we see ourselves as EPC contractors and offer a comprehensive Asset management service to our investors. It is about creating a passive business for our business partners. The main competitive advantage of the business model based on our solution is the low project CAPEX.
• We are an example of a company with an innovative approach both in business and in global energy thinking. And this thinking is focused on creating conditions for the stable operation of Ukraine’s energy system, as well as the development of renewable energy sources and green balancing capacities.