Smart grid developments across the CEE region. Pavel Cyrani, Chief Strategy Officer, ČEZ Amsterdam,

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1 Smart grid developments across the CEE region Pavel Cyrani, Chief Strategy Officer, ČEZ Amsterdam,

2 Agenda Current status of smart grids across CEE, situation and challenges Learnings from our pilots Future development of smart metering and smart grids Conclusions

3 Ripple control = smart grid v 1.0 Origins developed during World War II in the grid deployed in 60s, response to scarce resources Deployment fully: CZ, SK partially: AT, HU, DE, GB,... Functions / benefits engagement of customers (2 tariff system) decreased load of the grid (both lines and transformers) decreased volatility of produced energy (thus less depletion of resources ) smooth load diagram emergency load management under new conditions also tool for e.g. management of intermittent RES Ripple control / smart grid v1.0 is predominantly used to manage aggregated load diagram

4 CEE drivers for smart grid v 2.0 Shift in power production central conventional sources > decentral, local under control / manageable > intermittent + out of control Shift in power consumption e-mobility consumer > prosumers Shift in grid usage / development transit flows quick development of new connections Strategic intents affordable, reliable and environmentally friendly supply self sufficiency EU legislation smart metering, information availability and customer choice quality of supply, incl. SAIFI, SAIDI Aggregated load diagram management Local control / ballancing of power flows in real time

5 Agenda Current status of smart grids across CEE, situation and challenges Learnings from our pilots Future development of smart metering and smart grids Conclusions

6 Starting position for countries where are not implemented load controll and/or demand side management systems Thanks to the ripple control we already are partialy compliant with EU requirements in area of smart metering and have basic tools for grid management ČR with ripple control SMART METERING SMART GRID Active customer s participation, savings More information for customers Higher quality and broader offer of services Enhanced grid management

7 Majority of our customers can not benefit from smart metering, system does not supply information required for decission 0,80 0,70 0,60 0,50 Real consumption Type diagram flat fee 5 / month 0,14 / kwh off peak 0,25 / kwh peak Electric owen owen Microwave owen owen Freezer Dishwasher 120 kwh / yr 50 kwh 300 kwh 250 kwh 0,40 Washing machine 120 kwh 0,30 Ironing 70 kwh 0,20 Lights Lights 250 kwh 0,10 TV, TV, audio audio 500 kwh 0, PC PC 400 kwh Σ~2.000 kwh Σ~ Kč= 400 per year Data delivered to customer by smart metering system compliant with Directive 72 Information delivered to customer to support his decission about energy consumption, not delivered by smart metering system

8 Any new smart based product or service is not acceptable if it limits customer comfort Ask oneself: Would I move activity to different time of the day due to different price of electricity over the day? owen, stowe washing machine ironing dish washing TV, DVD,HiFi PC, notebook pool, sauna aircon garden sprinkler tumble dryer lights cooling and freezing additional heating water heating caffee, tee % 23 NO YES %

9 Future calls for new functions in low voltage level: Smart metering Massive roll out is not economical feasible for many countries Majority of customers do not benefit from standalone smart metering technology To become feasible, smart metering should: include real time load management functions focus on customers with potential of controlled load be offered as a part of service (energy audit / optimisation, load management) become a tool of smart grid infrastructure Direct load management Demand side management based just on financial stimulation cannot be reliable toll for grid management, smart grid needs direct load control Currently, ½ of energy delivered to households in CR is under controll of ripple control (boilers, acumulative heating, direct heating, heat pumps) There is opportunity to enhance ripple control, e.g.: broaden set of involved customers (SMEs, offices, industrial parks,...) broaden set of controlled devices smoother levels of control curently only on/off integrate as a tool for smart grid infrastructure

10 Agenda Current status of smart grids across CEE, situation and challenges Learnings from our pilots Future development of smart metering and smart grids Conclusions

11 Fixed physical networks have been historically slow to penetrate Zdroj: MIT Technology Review

12 however, it doesn t guarantee they cannot be quickly abandoned Number of fixed lines Telefonica O2 CR Incl. ISDN, millions Components of tariff are not balanced: fixed monthly fee cost of local calls cost of international calls cost of internet connection Customers and market reacted naturally as follows: massive cancelation / switch from fixed to mobile phones quick introduction of IP telephony automated virtual switchboards to select optimal provider for each call exceptional expansion of wireless providers of internet connection

13 Customers may be tempted to abandon centralized grid (in fact, the more we protect it the faster it happens) TRANSMISSION GENERATION DISTRIBUTION INVESTMENT SHORTCUT AVOIDING THE CENTRALISED GENERATION AND DISTRIBUTION RETAIL OPPORTUNITY IDENTIFICATION CONSUMPTION

14 Smart grid Real-time Local power flows balancing is the missing part Energy storage Generation control Volt / Var control Self healing LOCAL POWER FLOW BALLANCING Isle operation Robust, reliable infrastructure Load / consumption control Demand side management Direct load control Charging stations Smart metering

15 Future call for new functions in low voltage level: Local Power flow balancing Load shedding is not enough Local power flow ballancing is a crucial function of smart grid, covering: power generation control (incl. RES, intermitent, distributed) power consumption control (incl DMS, load control) storage control volt / var control charging stations control Local power flow balancing is a key capability of smart grid

16 (Unfortunately) Current electricity incumbents are by definition not well positioned to win in the decentralized arena Share in electricity production, 2011 Growth in decentralized generation brings more players into the market. Investment funds are interested apart form private investors (e.g. Allianz) Germany TWh 100% ČR TWh 80,1 2,4 100% 80% 80% 60% 40% 60% 40% 20% 20% 0% Total Wind + PV 0% Total Wind + PV E.on, RWE, Vattenfall, EnBW ČEZ Others* Others *Note: Majority of wind power plants is privately held ; Almost all PV power plants are privately held

17 In the new decentralized energy sector, new skills are needed to win. Current electricity generators and distributors must hurry to acquire them quickly Utilities seek new competitive advantage Conventional utility Brownfields Complex technology Big investments on a one-time basis Deutsche Telekom as example of new player in utility market Integrates: mikro CHP installation, maintenance, bundling management + Endpoint devices Smart utility Customer relationship Bundled services with added value Consumer funding Central smart dispatch centre for small power plants + Providing energy management service New commercial opportunities for incumbents as well: to provide: installation operation maintenance funding energy supply electricity buy up smart dispatch... energy storage in off-peak hours Pozn.: V Německu mikro a malé kogenerace podporovány investiční dotací a provozní podporou.

18 Agenda Current status of smart grids across CEE, situation and challenges Learnings from our pilots Future development of smart metering and smart grids Conclusions

19 Conclusions (1/2) Smartgrid is a new technology that may transform electricity business the same way mobile telephony and Internet transformed telecommunications Local/regional flow control may allow to utilize a number of new ways of consumption as well as decentralized generation Smart metering as such is an important component but does not bring the benefits EU legislation aims for Current electricity incumbents are by definition not ideally positioned to win in this new arena New requirements levied by EED as well as other EC legislation together with increasing pressure on distribution tariffs makes the incumbents position even harder

20 Conclusions (2/2) It is note clear yet where the profits will be made With local, often renewable, generation, it is not likely to be on wholesale electricity margin One source of revenue will be made for back-up capacity both in generation and distribution. However, this pie will be shrinking, so only the most cost competitive players will prevail New revenues will come from smart bundling, energy advisory, consumer financing, many other not-yet-invented services It is not only the energy companies who need to think about the new services and revenues models Technology companies need to take their share of innovations and risk taking if they want to succeed as well

Thanks for your attention Ing. Pavel CYRANI, MBA Chief strategy officer ČEZ, a. s. Duhová 2/1444 140 53 Praha 4 pavel.cyrani@cez.cz www.cez.cz www.futuremotion.

21 Thanks for your attention Ing. Pavel CYRANI, MBA Chief strategy officer ČEZ, a. s. Duhová 2/ Praha 4 pavel.cyrani@cez.cz Pavel Cyrani is a Chief Strategy Officer since October 1, 2011, he became member of the Board of Directors in October 20, 2011 Pavel Cyrani has worked in the CEZ Group since 2005, prior to his current position he managed Asset Management Department and also the Controlling Department in Finance Division. Before his engagement in ČEZ, a. s. he worked as a management consultant in McKinsey & Company, where he specialized in the energy industry. Pavel Cyrani graduated from the University of Economics, Prague, Department of International Trade, and obtained a MBA title in finance at the Kellogg School of Management in the USA. Pavel also gives lectures on the University of Economics on Department of Environmental Economics and actively performs on conferences oriented on finance and performance management.

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