The way in which energy is generated and utilized is rapidly evolving, disrupting the traditional models for managing and distributing electrical energy. These rapid changes are dictated by political, consumer and economic pressures in order to reduce air pollution in cities and address climate change. In addition, the cost of renewable energy and storage is decreasing significantly and utility customers are increasingly adopting electric vehicles (EV), electric heat and smart technologies. As a result of the rapid adoption of these new technologies, there is an increasing need to reconsider how electricity networks are operated and how the new technologies are managed.
Surge in Renewable Energy
More than half of the electricity generated for the large European economies, including the UK and Germany is expected to come from renewable energy resources (DER) by 2030 according to BloombergNEF's New Energy Outlook modelling. Also, on the demand side, an equally significant change is on its way as consumers adopt new technologies and move to become active participants (prosumers) in the balancing of electricity supply.
In response to these changes, there is a real risk that utilities will lose revenue and even their consumers to rooftop solar and other forms of DER. Therefore, if nothing changes, the utilities may act as only the occasional backup source of electrical energy for many of their previous consumers.
Utilities that are regulated entities are concerned regarding these changes and the possibility that their value will decline in the future. Yet, if utilities adapt to change, the opposite could be true: Utility networks will still be required to ensure that the electrical energy coming and going from numerous generating sources is a well-managed, efficient and reliable source of energy. These networks will help address one of the major challenges created by the influx of renewable energy: the variability of solar, wind and other resources.
Transitioning to the new world of energy will be faster and less expensive if flexible technologies become the backbone of the network. Instead of investing in expensive transmission systems and distribution networks and new backup generation, the system must encourage all forms of flexibility so that it can smooth the peaks and troughs in demand and supply over short-time periods.
Utility grids will play a critical role in this new world of energy by becoming the core that interconnects all sources of energy generation to and from the end consumer thereby maximizing the value of grid assets. The generation will come from many distributed resources, but transmission and distribution companies will play a key role in connecting the generation to the demand.
Load Flexibility Goes Beyond Demand Response
Transmission and distribution companies will need to embrace load flexibility, which is a form of demand response that uses real-time control of electricity usage, sometimes with common household appliances such as smart thermostats and water heaters. Load flexibility is helpful because it can quickly lower demand to balance the grid.
Load flexibility can add to the demand response that already exists, creating higher values at lower costs. It can provide frequency regulation, distribution-level capacity and other grid services. And it is capable of assisting the grid in a geographically targeted way lowering the demand to avoid the need to invest in new infrastructure.
Load flexibility options will range from better demand-side response to energy storage and smart appliances to better trading via interconnectors.
Demand-side response has been the most common form of load flexibility for many years in certain markets. Under this program, large energy consumers are incentivized to reduce demand during peak periods. This can be done by on-site generation (sometimes using diesel generators) or reducing consumption by disconnecting large electrical loads.
In the future, rather than focusing on peak demand, electricity customers might use on-site battery storage to store cheap renewable energy when there is a surplus and supply it back to the grid when electricity is needed.
Energy storage batteries are able to shift between charging and discharging, and therefore can respond very quickly to a range of needs.
They can assist to address frequency changes under primary reserve regulations.
Short-term load shifting is another option; as they can smooth the hourly and daily variability of renewable energy. This is particularly helpful when a reduction in renewable energy is required.
Smart appliances such as water heaters also can provide flexibility. For example, controlling electric resistance water heating could provide grid services similar to those provided by batteries. Grid-connected water heating programs are now in place in numerous US states because they’re capable of helping integrate renewable energy.
As more EVs come on the market, their batteries can also be used as flexible loads by using “smart chargers,” which vary the rate of EV charging to meet system needs. Charging can already be prioritized for off-peak hours. In future, utilities could also charge more when renewable energy production is in excess, thus reducing the curtailing of these clean energy sources and increasing their value.
EVs will even be called on to release energy back to the grid in so-called vehicle-to-grid connections, thus acting like battery storage systems. This in turn will lower the cost of EVs, helping accelerate that market growth and the overall avoidance of fossil fuels. For this to happen, regulators and utilities must provide clearer incentives and market places for EV charging irrespective of the location of the interconnection.
Extra-High-Voltage (EHV) interconnectors that link different electricity markets in adjacent countries are another important source of flexibility offering the opportunity to import and export energy. This is particularly useful if the adjacent EHV systems have different peak load demand profiles. A good example of this is seen in the Nordic countries where renewable energy is easily shared across the regions and into the Northern Europe countries.
The Role Of Energy Prosumers
Prosumers, energy consumers who generate power, can also contribute to load flexibility. They generally equip themselves with solar photovoltaics (PV), geothermal energy, or a ground-source heat pump, and possibly battery storage and an EV. In its November 2017 study, “Tipping Point,” BNEF predicted that the capacity of small-scale solar power from such prosumers would increase four-fold in Europe over the next 30 years, along with increases in small-scale battery storage. So not only do prosumers provide a private source of infrastructure investment; they can provide flexibility by storing renewable energy for release during peak periods. Like EVs, this source of flexibility will be more powerful when regulatory and utility rules and markets are clarified to enable participation from the most cost-effective options.
With the growth in prosumers, the grid will need to become smarter: managing and balancing generation, storage, and consumption with bi-directional electricity flows. Smart circuit breakers are one technology that will help accelerate the development of smart grids. They would also allow for switching on-and-off the larger loads, such as EVs and heat pumps so that utilities can manage local system constraints.
The Important Need for Regulatory Change
To take advantage of the clean energy and flexibility available, utilities and regulators need to make important regulatory changes. Firstly by ending regulatory uncertainty. The business case for these new sources of flexibility is far from clear in many markets, such as the United Kingdom, France and Germany. By contrast, the Nordic (Nord Pool) market has a very market-based system that encourages innovation, and these continue to evolve. For example, in Finland, smart meters are common and in Norway, where the growth in EV has been rapid, new “peak tariffs” will be introduced in 2020 that motivate customers to adopt smart charges to optimize the time of charging in line with supply.
All areas need open and transparent markets to eliminate uncertainty, create incentives for flexibility, and encourage innovation and private investment. Such measures will allow everyone to share the benefits of flexibility. Prosumers, either on their own or through aggregators, should be able to monetize their solar PV, energy storage and other technologies. Energy distributors could also offer incentives to flexible consumers.
Utility Grids Will Remain The Backbone of the Future Energy System
While these changes are taking place, utility grids will be even more crucial as they can act somewhat akin to trading platforms for stocks. Grids are the connectors that bring buyers and sellers together. As the core infrastructure of the energy system, grids must allow new entities such as aggregators and prosumers to participate in energy markets.
For example, in the future, an EV owner will want to charge their EV during the day when solar production is high and later in the day the owner may need to discharge the battery to compensate for the drop in solar production supplying surplus energy to the network. During the night when the wind is high and load demand is low the battery will be re-charged for the morning commute. Hence, ownership of an EV may not only be for clean transport, but will prove to be a cash positive purchase.
The new world of energy will need service providers to manage such transactions. Also required are regulations to allow EV, storage, PV owners and others to get compensated for creating that much-needed flexibility. Technologically, all this is already possible due to the rapid growth of digital connectivity. New regulations, implemented with the help of transmission and distribution companies, will make this possible thereby creating a cleaner, more efficient system that provides benefits to numerous players. Key to achieving this goal will be a strong grid and service operators to maximize the value of each electron.
Louis Schaffer, PMO (Project Management Office) is Leader, Electrical Sector for Eaton's Corporate and Electrical Sector for Europe, the Middle East and Africa.
