TECHNO-ECONOMIC ANALYSIS OF SMART GRIDS Daniela Velte

TECHNO-ECONOMIC ANALYSIS OF SMART GRIDS Daniela Velte & Angel Diaz Tecnalia Research & Innovation Brussels, 12 April 2012

SMART GRIDS IN THE WIDER CONTEXT OF A CHANGING ENERGY MARKET The deployment of smart grids is expected to last several years, foreseeably up to 2030. Within this period, further important changes are likely to occur in the energy sector, affecting functions that the smart grid is supposed to deliver, for example, peak load shaving. The paradigm change in the energy sector can accelerate the demand for smart grids, or deter investment if certain functions, for example electricity storage, can be covered more efficiently or more economically by alternative technology innovations.

Which long-term trends in the energy sector are relevant for smart grid deployment? 1. Which part of future energy consumption will actually be electrical? 2. Which part of the new, decentralized electricity production from renewables will actually be fed into the grid and how much will be used for own consumption? 3. Which are the most cost-effective solutions for integrating intermittent production from renewable sources and enhancing security of supply?

Which long-term trends in the energy sector are relevant for smart grid deployment? Which part of future energy consumption will actually be electrical? Power demand in Seville Special attention must be paid to the following trends: Substitution of electricity uses for heating and cooling by thermal processes Advances in electricity storage technologies There are strong arguments for making a greater use of (renewable-assisted) district heating and cooling networks (“Blueprint on Energy Infrastructure Priorities 2020 and beyond”), which would curb peak demand overall electricity consumption substantially, especially in Southern locations. There is also a strong R&D drive to bring lower-cost storage technologies for all grid levels to the market. Advanced batteries can be a competing technology to smart grids or part of a system solution, for example, for microgrids, fostering distributed generation.

Smart Grid function: integration of renewables - or self-consumption? “Dynamic grid parity could occur as early as 2013 in the commercial segment in Italy and then spread out in Europe to reach all types of installations considered in all the selected countries by 2020. ” (EPIA) PV’s generation cost PV Revenue Source: EPIA 30 – 75% of the electricity produced in PV installations will be consumed directly (EPIA). Increased costs of electricity sourced from the grid will make off-grid solutions more attractive, but no estimate is available of the possible impacts of this trend on the European electricity system. Smart grid deployment could raise customer bills by 8. 4% to 12. 8% (EPRI) in times of rising energy prices for fossil fuel power generation. How long will customers remain “captive”?

Smart Grid function: Improving security and quality of supply “If supply quality in Germany sank to Spanish levels, losses to the general economy would amount to 1. 500 to 3. 200 million € per year” Smart grid benefits are expected to be greatest in feeble or island networks with a high risk of power outages. The “value of lost load” for society and different customer groups has been estimated at 10 € / k. Wh on average, and these losses justify public investments in grid improvement. The French system operator RTE foresees a serious capacity shortfall and risks of supply interruptions as early as 2016. Smart microgrids could fulfill a back-up function for essential and strategic services.

Smart Grid function: the enabling technology for e-mobility The present grids will not be able to support the additional demand for electromobility if cars are charged during the day. For this reason, plug-ins need to be installed at the place of residence. But: the large-scale deployment of electric vehicles faces serious hurdles related to costs and material scarcity. Tailored solutions based on varied energy sources for different types of fleets (scooters, agricultural vehicles, urban buses, …) need to be considered.

Smart Grid function: Integrating Renewables Integrating wind power: “Up to 30% of renewables can be incorporated in today’s electricity grids. Smart solutions are already being adopted on the transmission level” Siemens Permanent Magnet Generator Smoothing the outputs from renewable energy sources such as wind, wave and photovoltaic allows the proportion of energy supplied by these technologies to increase from around 20% to 50% without creating instabilities in the network. This smoothing can be achieved with storage, improved prediction and smart management of the grid, such as automated control centres. The main challenge for the European electricity system is presently the integration of production from large off-shore wind farms, which will foreseeably be aided by HVDC (High Voltage Direct Current) lines on the transmission level.

NON-TECHNOLOGICAL CHALLENGES: Privacy and empowerment “ 35% of customers would not allow the utility to control thermostats in their homes at any price” (Joint Research Center) Who owns the customer’s data and how its access and use will be regulated? Who guarantees privacy and security of customer data? Will sale or transfer of customer data be allowed and under what terms? Do competing electricity providers have access to customer data on the same terms as the incumbent utility? Will there be an opt-out option for customers not willing to participate? How to encourage customer participation once smart meters are deployed?

NON-TECHNOLOGICAL CHALLENGES: Energy savings and equity Who pays for what, who gets the benefits? DSOs Automotive TSOs Potential smart grid beneficiaries ICT suppliers Aggregators Generators “In-home displays are necessary to realice energy savings by realtime feedback on energy consumption” Customers In-home displays typically cost 80 – 200 € and help to achieve average savings of 3. 8%. Customers often expect erroneously that these appliances will be deployed along with smart meters. Potential benefits for industry seem to be much clearer.

Technology trends affecting the deployment of smart grids

“If Alexander Graham Bell were somehow transported to the 21 st century, he would not begin to recognize the components of modern telephony – cell phones, texting, cell towers, PDAs, etc. – while Thomas Edison, one of the grid’s key early architects, would be totally familiar with the grid. ” Source: “The Smart Grid: An Introduction”, US Department of Energy

Tech trends affecting the deployment of smart grids: Future scenario for smart grids Massive introduction of Distributed Energy Resources • Distributed generation, storage, microgrids. • Renewable energy. • Electric vehicle. Active consumer participation. Changes in business models. • Evolution to a more volatile and competitive market. • Offers and tariffs according to the customer needs. . Challenge: Balance optimization between generation and consumption in a more complex power system

Tech trends affecting the deployment of smart grids: Integration of renewables Central Generation 2012 Transmission networks Central Generation Integration Renewables Distribution and Transmission networks 2020 Central Distributed Control Transmission networks Distribution networks Centralised Control Distribution networks Passive Control Renewables DER DG Centralised Control Capacity Renewables DG DER Passive Control Central control Business Forget as usual Fit & Generation Source:

Tech trends affecting the deployment of smart grids: System innovation Advanced systems for network control and business management Control systems for the end user H Control and management (application n) Application n End user data . . . DR control systems Application 2 (e. g. Demand Response ) In home applications : Control and data AMI, MDM Application 1 (e. g. AMI) Data metering LAN (Local Area Network ) WAN (Wide Area Network ) FAN/AMI (Field Area Network ) Network Gateway Generation Transmission Distributed Generation and data storage Substation HAN (Home Area Network ) Smart meter Distribution Home Building Distributed generation and storage Communications layer Application 3 (e. g. Distributed Generation ) Energy layer EMS, DMS, GIS Smart grids applications layer T

Tech trends affecting the deployment of smart grids: Customer centric approach Smart customer Source: Google Source: Honeywell, 2009

Tech trends affecting the deployment of smart grids: The way forward current situation future model

Tech trends affecting the deployment of smart grids: To do list Integration of distributed generation and storage. Management of intermittent generation from renewables sources. Active demand management Electrical Vehicle integration. V 2 G services. Energy efficiency optimisation. Improvement of network efficiency (automation, topology optimization, voltage control, reduction of losses, . . . ) Power quality and network reliability. New network arquitectures (microgrids, virtual power plants, . . . ) “Two-way grid” (bidirectional power flow and communications). Added value services for end users. o i o ng g n . . .

Tech trends affecting the deployment of smart grids: Smart grid benefits Economic advantages: Environmental / social : More efficient grid operation. Increase of renewable energy. Better power quality and faster outage management. Reduction of GHG emissions. More accurate information for decision making. Facilitation of power supply competition. Access to new market to small stakeholders. Reduction of electrical losses. Less waste of energy. Less dependency of external fuel supply.