GEODE Report: Flexibility in Tomorrow s Energy System DSOs approach

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Eugenia Knight
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2 GEODE Report: Flexibility in Tomorrow s Energy System DSOs approach Report was prepared by Working Group Smart Grids of GEODE GEODE Spring Seminar, Brussels, 13th of May 2014 Hans Taus, Wiener Netze GmbH 2

3 Outline Flexibility in general Power vs. Energy Benefits Customers engagement Where is the potential? Incentives Role of DSOs & interaction between market actors Innovation Recommendations 3

4 Flexibility in general EU energy and climate policy leads to a significant change in the electricity system. Flexibility grows in importance to cope with substantial amount of renewable, often intermittent production. Definition*:, flexibility is the modification of generation injection and/or consumption patterns in reaction to an external signal (price signal or activation) in order to provide a service within the energy system... Report focuses on Demand Side Flexibility (DSF) * Source: Flexibility and Aggregation Requirements for their interaction in the market- Eurelectric January 2014 and EC Task Force Smart Grids Implementation - EG3 report, Flexibility chapter- version May

5 Power vs. Energy Case1 (idealistic): power [kw] 10 5kW power used (peak load) 50kWh energy used Capacity of the line 5 10 time [h] 5

6 Power vs. Energy Case2: 10kW power used (peak load) 50kWh energy used power [kw] 10 Capacity of the line 2,5 5 7,5 10 time [h] 6

7 Power vs. Energy Case3: 20kW power used (peak load) 50kWh energy used power [kw] Capacity of the line 2,5 5 7,5 10 time [h] 7

8 Power vs. Energy Case 1 (idealistic) Capacity of the line [kw] Peak load [kw] Used energy [kwh] 10 > 5 50 Network losses [%] 100% (baseline) Case 2 10 > % Case 3 10 <<< % For a DSO, power is the key dimension for operating and planning an electricity distribution grid The actions of market players always have an impact on the local distribution grid. DSF is about shifting / saving power not energy! 8

9 Benefits of Demand Side Flexibility CUSTOMER cost savings active participation SOCIETY environmentally friendly energy system DSF VALUE throughout the ENERGY SYSTEM NETWORKS (DSOs, TSOs) system efficiency security of supply MARKET Actors (Suppliers, etc.) business opportunities portfolio optimization The main purpose of DSF should be to improve the overall efficiency of the whole energy system. 9

10 An active involvement of customers is a vital success factor?! 10

11 An active involvement of customers is a vital success factor! Today, most residential customers consume electricity whenever they choose to and at affordable prices, which is a comfortable situation for customers. The task is to make customers participate - this requires: To gain customers trust To provide comprehensive information to customers That DSF measures must not impact the living comfort (automation vs. manual) Adequate incentives Simple and transparent products GEODE believes that offering flexibility should be voluntary and based on agreements and incentives 11

Incentives today s energy systems offer weak incentives to small customers to encourage them to engage in flexibility markets Average composition of the electricity bill for EU households: Network

12 Incentives today s energy systems offer weak incentives to small customers to encourage them to engage in flexibility markets Average composition of the electricity bill for EU households: Network charges Energy tariffs Taxes, levies, etc. ~ 30% (in some countries like Germany close to 50%!) -> don t forget about this significant part of the bill! 12 Source: European Commission Retail Energy Market Background Document to Public Consultation, Jan 2014

13 Incentives via grid tariffs Current grid tariff structures focus on energy consumed do not reflect grid costs appropriately and do not provide incentives to customers to optimize the use of the distribution grid (reducing peak loads). In GEODE s opinion a first step towards increasing cost reflectivity of grid tariffs & overall system efficiency is to implement power based grid tariffs. A pricing structure with elements of time of use pricing in retail prices & power based network tariffs could provide the end user with the proper cost reflectiveness of the electricity market and network. 13

14 EUR/year Where is the potential? Results: Cost saving potential of households and heat pumps by load shifting Cost savings for 5% vs. 50% load shi ing per ac vated hour Heatpump 50% HH 50% Heatpump 5% HH 5% Ac vated hours/day Source: Economic potential of demand response at household level Are Central European market conditions sufficient? ; Energy Policy 60 (2013)

15 Where is the potential? The potential to shift load : lies in large industrial customers (already used today) lies in loads like electric vehicles, heat pumps, air conditions or in thermal storage appliances. at household level shouldn t be overestimated Any future EU legislation should take into consideration different realities existing across Europe Cost-benefit analysis to evaluate the realistic potential of flexibility of different customer groups at Member States level is a key issue. 15

16 Smart metering is an enabler Smart Metering systems are a prerequisite to offer new sophisticated tariff products Smart Metering systems with a reading interval corresponding to the settlement period time unit of the market (e.g. 1 hour), are a technical prerequisite to offer flexibility services to the market In most MS the DSOs are responsible for metering The roll-out of smart metering systems is much more than a simple exchange of meters. requires substantial investments It is crucial that DSOs are allowed to re-finance these investments through grid tariffs or other revenue streams 16

17 Interactions of market actors Aggregators may act as an intermediary between providers (customers, etc.) and procurers of flexibility. DSOs, TSOs, suppliers, etc. may all have an interest in a particular flexibility service! coordination is necessary interdependency between market actors increased need for ICT systems The complexity of the energy system is increasing New arrangements between market actors are required 17

18 The role of DSOs is to be the neutral market facilitator to ensures the reliability & stability of the system facilitate the commercial activities of market actors safeguard the interests of customers. GEODE proposes as a general rule that: market players can act freely as long as the distribution grid is not put at risk - traffic light grid status: green. In all other situations priority access to flexibility services for DSOs is a key element. Decentralised generators needs to be accessible for grid planning and operation purposes. To cope with these future challenges it is necessary to increase the real time monitoring ability and controllability in the distribution grid 18

19 Different dimensions of distribution vs. transmission grids High & Highest voltage: ~ km ~ customers Medium voltage: ~ km ~ customers Low voltage: ~ km ~ cust. Primary sub stations ~ Secondary sub stations ~ Source; Statistikbroschüre 2013; E-Control; figures of the electricity grid of Austria l 19

20 Innovation / R&D&D Innovation will be at the core of developing DSF services & products let the market work! A strong commitment of DSOs to R&D&D projects is key to pave the way towards a smart grid in order to develop tailored solutions for distribution grid conditions to get the most benefits out of smart metering systems In particular demonstration projects will grow in importance to facilitate the further development of active grid management and operation. In most MS current regulation models to set grid tariffs focus on short term cost reductions and thus provide almost no incentives for innovation. 20

21 Recommendations / Conclusions Consumers trust (information) is essential to encourage customers engagement The overall efficiency of the energy system should be the main guideline in future regulation DSOs has to be brought in best position to fulfil their role as neutral market facilitator Potential of flexibility needs to be pinpointed locally! (REALISTIC view required) Power based grid tariffs are a step to increase cost reflectivity & set incentives to reduce load peaks Smart Metering systems are an enabler to provide flexibility services to the electricity markets Regulatory framework must empower DSOs to allow: a strong commitment in R&D&D refinance necessary investments 21

22 Flexibility Customers engagement is key! Incentives needed Realistic view on flexibility potentials is required! DSO rules! System monitoring & control (ensuring quality & stability) Facilitation of services GEODE Operational thinking & competence Fast & reliable Bringing reality in discussion 22

23 THANK YOU! Avenue Marnix Brussels Tel Fax info@geode-eu.org 23

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