Www.greennet-europe.org SmartGrids - 8th Mirror Group Meeting Vienna, 23 October 2007 Hans Auer...

www.greennet-europe.orgSmartGrids - 8th Mirror Group Meeting

Vienna, 23 October 2007

Hans AuerEnergy Economics Group

Vienna University of TechnologyGusshausstrasse 25-29/373-2

A - 1040 Vienna, AustriaEmail: [email protected]

European Technology Platform SmartGrids8th Mirror Group MeetingVienna, 23 October 2007

The Project GreenNet-Incentives:Status Quo and Lessons for

Platform DeploymentStrategy



Agenda

1. Overview of GreenNet-Europe Projects

2. Modelling Approach of Software GreenNet-Europe

3. Selected Results based on GreenNet-Europe

4. Lessons for Platform Deployment Strategy

4.1 Boundary between Generation Unit, Grid Infrastructure, System Operation

4.2 Grid Regulation Policies impeding DG/RES Integration and SmartGrid Solutions

4.3 UK Grid Regulation Model: Innovative Forward-Looking Approach

4.4 Investment Needs for SmartGrid Solutions

5. Recommendations



1. Overview of GreenNet-Europe Projects

GreenNet (FP5): Development of simulation model for RES-E deployment (free of charge); empirical data for EU15 (RES-E potentials and cost, grid connection and

reinforcement cost, system operation and storage cost); RES-E policies

GreenNet-EU27 (EIE): Empirical extension to EU27 region; bottom-up DG/RES-E case study analyses; modelling different unbundling policies besides different RES-E policies

GreenNet-Incentives (EIE): Empirical extension to EU30+ region; comprehensive consideration of grid- and system operator’s point-of-view; addressing also grid regulation and (balancing-)market policies

in the context of large-scale intermittent DG/RES-E integration

(besides different RES-E policies and unbundling policies)

Ongoing GreenNet-Europe applications/extensions: SUPWIND (FP6; 2006-2009) Improgres (EIE; 2007-2009)

Proposed GreenNet-Europe applications/extensions: SUSPLAN (FP7); Realisegrid (FP7); SmartGrid-Investor (Austrian ‘Energie der Zukunft’ Programme)



• Different strategies for implementation of grid-related and system-related cost of RES-E integration into the supply curve (existing power plants and additional RES-E potentials);• Cost allocation of these cost (RES-E support instruments vs. grid tariffs vs. balancing/ wholesale markets) affects overall generation cost of RES-E developer (and, therefore, investment decision) as well as willingness of grid- and system operators to absorb large- scale intermittent DG/RES-E generation;

2. Modelling Approach of Software GreenNet-Europe



Selected Screenshots of the Simulation Software Tool GreenNet-Europe



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Biogas Solid biomassBiowaste Geothermal electricityHydro small-scale Hydro large-scalePhotovoltaics Solar thermal electricityTide & wave Wind onshoreWind offshore

RES-E installations in the EU27 up to 2020 according to the BAU scenario

3. Selected Results based on GreenNet-Europe



Specific grid-related and system-related cost of wind integration in the EU27 up to 2020

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Reference scenario

Super-shallow chargingscenarioDeep charging scenario

Wind deployment for different cost allocation scenarios inthe EU27 up to 2020

Results (cont‘d)



Germany: Changes of the RES-E generation portfolio in 2020 for different cost allocation policies

Grid connection cost of offshore-wind allocated to wind developer (´Shallow´)

Grid connection cost of offshore-wind socialised in the grid tariff (´Super-Shallow´)



4. Lessons for Platform Deployment Strategy

• There exist different disaggregated cost elements in the context of large-scale DG/RES-E integration with different cost remuneration instruments: -> DG/RES-E power plant (RES-E support instruments; wholesale markets) -> Grid connection and grid reinforcement (grid tariffs) -> System balancing (balancing markets incl. load response, storage options) -> System adequacy (wholesale markets; storage options)

• At present, cost allocation policies of DG/RES-E integration are very heterogeneous in different EU Member States and basic unbundling and market principles are still often violated in this context … -> E.g., grid infrastructure elements still allocated to RES-E support instruments -> E.g. system balancing and adequacy still not remunerated in corresp. balancing/wholesale markets

• Policies for and Role of Grid Operators and System Operators in the context of large-scale intermittent DG/RES-E integration is not entirely understood at the moment (but is a precondition for the implementation of SmartGrid solutions)

4.1 Boundary between Generation Unit, Grid Infrastructure, System Operation



4.2 Grid Regulation Policies impeding large-scale DG/RES Integration and SmartGrid Solutions

Grid- and system operators are dealing with the following unsolved problems, if theyshall provide the platform for large-scale DG/RES-E integration and SmartGrids:

1. National regulators implement new grid regulation models (mainly price-cap regulation), benchmark existing grid infrastructure and grid operation cost and expect “cost efficiency” (i.e. reduction of

existing cost basis and, subsequently, grid tariffs for end-users) -> These expectations neither trigger investments into existing grids nor into innovations in

general -> But increasing shares of DG/RES-E integration expect investments into the grid infrastructure

and investments into intelligent new technologies for grid operation as well as implementation of completely new concepts of interactions between several (new) market players (“Smart Grids”)

2. Cost recovery is essential for grid- and system operators since investments into the capital intensive infrastructures and innovative solutions are effectively sunk and, therefore, vulnerable to regulatory changes.

If there exist regulatory uncertainties and/or exclusively “ex-post oriented gridregulation models (e.g. price caps)”, SmartGrid solutions hardly can/will beimplemented in the future.



„Efficient“ Cost (OPEX,

CAPEX) for Grid Infrastructure &Grid Operation

Existing Grid Regulation Models („Incentive“ Regu-

lation to „Cut“ Cost)

Cost Drivers due to Large-Scale Grid

Integration of Decentralised

DG/RES Technologies and Realisation of

„Smart Grid“ Concepts

Existing Grid Regulation Models:

Problem of „Asset Stranding“ in Case of DG/RES Integration

Examples of Cost Drivers:

• Completely new design criteria and operational concepts necessary due to bidirectional load flows in case of DG/RES generation

• Reinforcements and extensions for existing lines, cables, transformers, and switching devices

• Higher technical standards for V/f-Regulation, accounting and billing devices and procedures

• Installation of new IT & communication technology necessary to manage „active“/“intelligent“ grids

• Higher transaction cost to operate „active“/“intelligent“ grids due to new market actors

• Etc.

Not considered in the gridregulation models at the moment



4.3 UK Grid Regulation Model: Innovative Forward-Looking Approach

• Boundaries on both ends (towards DG/RES generators and customers) of the grid are the same: Deep -> (Super-)Shallow

• Distribution grid operators are allowed to recover their DG/RES generation connection cost directly in the grid tariffs by a combination of pass through (80%) and incentive per kW connected (EUR 2.16 (£1.5) per kW)

• Innovation Funding Incentive (IFI): IFI projects can embrace any aspect of distribution system asset management including connection of DG/RES generation. A distribution grid operator is allowed to spend up to 0.5% of its revenue on eligible IFI projects and can recover a significant proportion of associated costs from its customers (90% in 2005/2006).

• Registered Power Zones (RPZ): In contrast to the IFI, RPZs are focused specifically on the connection of generation to distribution systems. RPZs are intended to encourage distribution grid operators to develop and demonstrate new, more cost effective ways of connecting and operating generation that will deliver specific benefits to new distributed generators and broader benefits to consumers generally.



4.4 Investment Needs for SmartGrid Solutions

Gesamtinvestitionen (realJahr2000) in Übertragungs- und

Verteilnetze in ausgewählten Ländern seit 1960

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Investition Reinvestition

Investitioszyklus - Smart

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Investition

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SmartGrids…...but innovation is not for free !

NO SmartGrids

Historical investment cycle of T&D grids in selected countries since 1960



Necessary Investments into the Grids depending on the Future Deployment of Decentralised DG/RES Generation

Necessary grid investments [€/MWhDG/RES]

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Deployment of decentralised DG/RES technologies

Starting point depends on investment cycle of existing „passive“ grid infrastructure

Total investments into the grids

Necessary investments to realise SmartGrids absorbing large-scale DG/RES generation

Necessary re-investments into the existing „passive“ grid infrastructure

[MWhDG/RES] bzw. [%]Passive Grids Smart Grids Super - Smart Grids



Common understanding of the role and definition of the boundaries (incl. thedifferent ´market places´, support instruments, etc. to remunerate andsocialise the different cost elements):• Generated, stored and consumed kWh (SmartGrids talk about ńetwork users´)• Grid infrastructure incl. IT & communication infrastructure (Ássets´)• Online system balancing and system operation (incl. demand response, storage)

Development of new, innovative technologies (incl. IT & communication ) andconcepts needed for the implementation of SmartGrid solutions

´Strategic Research Agenda for Europe‘s Electricity Networks of the Futurećould even more emphasis the ćross-cutting / horizontal issues´:• Économic level playing field´ to develop new, innovative technologies and SmartGrid

concepts (maybe also some kind of temporary support instruments or innovation grants)• Addressing the interdependency of different policies (DG/RES-E support, unbundling,

grid regulation, market organisation in general, others) -> Harmonisation and implementation of forward-looking, ex-ante elements into legislation (innovation expects long-term regulatory confidence)

5. Recommendations



Appendix: Ex-post oriented Price-Cap and Revenue-Cap Regulation Models: Disincentives for Grid Operators to Integrate DG/RES-E Technologies

)1(*1 XRPIPP tt

!Profit reduceCost n Integratio Increasing 0c

variablec x,fixedp maxofit Pr ,

cpxcx

Basic ´Incentive Regulation´ Formula:

Economic Decision Criteria from the Grid Operator‘s Point-of-View:

If DG/RES-E integration cost of grid operators are not eligible in the grid regulation model (i.e. no remuneration of these cost in the grid tariffs possible), there are no incentives to connect and inte-grate DG/RES-E technologies:

Way Forward: Implementation of an additional ex-ante element into the ´incentive regulation´ formulas enabling cost remuneration of cost caused by DG/RES-E integration and SmartGrid solutions.

Price-Cap:

variablec x,p, maxofit Pr , ,

cpxcxp

Revenue-Cap:

)1(*kW*C )1(* , / ji, DG/RESji, DG/RES 1 jiRESDGCtt LRRPIXRPIPP

well known ex-post element ex-ante element enabling DG/RES and SmartGrids

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