Turning power generation flexibility into a profit maximisation strategy

Flexibility is now a core competitive advantage for power producers navigating volatile, renewables-driven markets.

As the share of intermittent renewable energy increases, the ability of power plants and energy storage systems to respond to changes in supply and demand across various timeframes is becoming increasingly important. Flexibility is essential not only for maintaining grid stability but also for protecting and maximising returns in increasingly volatile power markets. Understanding how different dispatchable technologies vary in terms of flexibility and matching the right technology with available market opportunities is key for utilities and Independent Power Producers (IPPs) to monetise their assets optimally.

Characteristics of flexible technologies

The International Energy Agency (IEA) defines flexibility as “the ability of a power system to reliably and cost-effectively manage the variability and uncertainty of supply and demand across all relevant timescales.” For example, battery energy storage systems can store or discharge energy to handle millisecond- and minute-level fluctuations, whereas flexible engine power plants can be dispatched on demand to fill gaps in renewable energy across minute-level, daily, seasonal, and inter-annual variations during peak times.

When it comes to thermal generation flexibility, technologies differ, and engines stand out with several advantages: rapid start-up, instant cycling, high efficiency at variable loads, and low minimum stable load.

Engines can start in just 2 minutes, enabling a fast response to sudden gaps in renewable energy or supply-demand changes. They can start and stop as needed, with no minimum uptime or downtime. Engines also maintain high efficiency across different load levels, helping to minimise fuel costs and emissions. They can operate steadily at just 10% of their rated power, providing greater operational flexibility.

These features make engine technology particularly well-suited for today’s dynamic power markets, where flexibility is increasingly valuable.

Revenue stacking – a core strategy for flexibility monetisation

Flexibility is essential for IPPs and utilities for several reasons: to protect against price spikes, mitigate financial losses from negative market prices, reduce risks, and strengthen portfolios, as well as enhance market opportunities and additional revenue streams.

Most liberalised power markets enable owners of flexible assets, such as engine power plants, to tap into multiple revenue streams. Combining multiple revenue streams, known as revenue stacking, is key to making flexible assets financially viable. Relying solely on energy sales may not offer sufficient returns, so flexible asset owners optimise returns by offering multiple services simultaneously and/or switching between revenue streams as market opportunities shift throughout the day. The business model for each participant is unique and depends on their risk-reward profile and technology choices.

Flexible assets can unlock multiple revenue streams by serving different roles in the power system. They can participate in energy markets by selling electricity when prices spike and staying offline when prices are low, maximising returns. They can also receive capacity payments for being available to supply power during shortages, not just for the energy they produce.

In addition, flexible assets can earn revenue through ancillary services by helping keep the grid stable with functions such as frequency and voltage control. They can hedge risks and gain extra income by trading electricity-based financial instruments through financial contracts. Finally, long-term bilateral contracts, such as PPAs, provide stable income and can be tailored to match flexible generation patterns.

In today’s energy landscape, monetising flexibility is no longer optional but the key to profitability. Inflexible plants face rising costs and missed opportunities, whilst flexible engine technology, with its fast start-up, high ramp rates, and low minimum load, is ideally positioned to thrive in volatile markets. By stacking multiple revenue streams, asset owners can turn technical agility into a resilient and profitable business model. 

Why engine technology stands out

Case studies from markets such as South Australia, Japan, and the Philippines show that engine power plants consistently outperform other thermal technologies in real-time markets. Their ability to start, stop, and rapidly change output without incurring excessive wear or penalties gives them a commercial edge. Especially in markets with five-minute settlement intervals, this agility translates directly into higher returns and shorter payback periods.

Choosing flexibility is the smartest way to protect returns and ensure long-term success for power generation assets. Amongst available technologies, engine power plants offer a compelling blend of flexibility, reliability, and return on investment, making them an ideal choice for monetising flexibility in modern energy markets.

Want the full deep dive into the business case for flexibility?

Explore Wärtsilä’s full report, “Making money with flexibility,” for detailed market insights and real-world case studies.