Electricity distribution and embedded renewable energy generators

Electricity distribution and embedded renewable energy generators Martin Scheepers ECN Policy Studies Florence School of Regulation, Workshop, November 24, 2006

Contents • Distributed generation: RES & CHP • Impact DG on the DSO business 2.1 Integration of DG in electricity distribution networks 2.2 Reinforcement costs, energy losses and replacement of distribution assets 2.3 Remuneration of DSO costs 2.4 DSO revenues and incentives 2.5 DG providing ancillary services • What is the optimal amount of DG?

1. Distributed generation: RES & CHP RES & CHP in EU-25 scenarios Source: PRIMES

1. Distributed generation: RES & CHP Distributed Generation (DG) * typical > 50 MWe ** typical > 10 MWe

1. Distributed generation: RES & CHP Current DG share in total generation capacity Source: DG-GRID/Risoe

2. Impact of DG on the DSO business Integration of DG in electricity distribution networks Planning • DG should be considered by DSOs when planning the development of the distribution network (Article 14/7 of the EU Electricity Directive) Operation • DG could also be involved in the economic efficient operation of the network by using active network management* resulting in lower costs • Also including demand side management • DG could provide ancillary services to DSOs

DG reinforcements DG DG connection costs replacing distribution assets DG ancillary services DG energy losses 2. Impact of DG on the DSO business Impact DG on Business Model DSO Source: Dispower/ECN

2. Impact of DG on the DSO business Reinforcement costs related to DG Rural network • Type of DG: • Intermittent: wind, small-hydro • Non-intermittent: CHP • Problems to solve: voltage rise Urban network • Type of DG: • Intermittent: PV • Non-intermittent: CHP, micro-CHP • Problems to solve: fault level increase

2. Impact of DG on the DSO business Analyses of effect of large DG penetration on reinforcement costs Approach • Quantitative analyses of impact of high DG/RES penetration on electricity networks in UK and Finland Parameters varied: • Rural and urban networks • Different DG penetration levels • DG concentration, i.e. the amount of DG connected to specific network areas and levels • Non-intermittent production and intermittent production Alternatives considered: • Status quo, i.e. “passive” network management • Innovative, i.e. “active” network management

2. Impact of DG on the DSO business Ranges of incremental reinforcement costs rural network (UK case)Top → DG high concentrated; bottom → DG low concentrated Source: DG-GRID/Imperial College

2. Impact of DG on the DSO business Ranges of incremental reinforcement costs urban network (UK case)Top → DG high concentrated; bottom → DG low concentrated Source: DG-GRID/Imperial College

2. Impact of DG on the DSO business Average annual energy losses (UK case)Losses LV-network not included Source: DG-GRID/Imperial College

2. Impact of DG on the DSO business Replacement of distribution network assets Source: DG-GRID/Imperial College

2. Impact of DG on the DSO business Impact on OPEX and CAPEX Reinforcement costs • At low DG penetration levels reinforcement costs are zero, but they will increase progressively with higher DG penetration. • Also “DG-density” causes cost increases. Energy losses • DG may initially reduce energy losses, but with higher DG penetration losses will increase. Replacement value of DG • DG can replace distribution assets because the net (peak) load of the network will decrease with increasing DG penetration. The replacement value decreases in case of high DG penetration in combination with high “DG-density” Active network management • Reinforcement costs can be reduced with “active network management” (incl. implementation costs like ICT). However, in some high DG-penetration cases costs will be higher than passive network management. • Operational costs (i.e. energy losses, curtailment compensation, labour costs) will increase. This results in higher total costs in some cases. Type of DG • The type of DG (non-intermittent and intermittent) influences network capacity and losses. • Effects are different for rural and urban networks, also because of the different types of DG connected.

2. Impact of DG on the DSO business Remuneration of DSO costs To guarantee non-discriminatory network access DG connection charges should be based shallow costs (direct costs of the connection). DG UoS charges should be cost reflective preferably differentiated by location and time of use Might be positive (if network costs are increased due to DG operation) or negative (if the savings are greater than the costs Source: Dispower/ECN

2. Impact of DG on the DSO business DSO revenues and incentives Revenues • DSOs revenues are determined by incentive regulation • DG can have a negative effect on the DSOs revenues • DSOs revenues should be calculated taking into account the incremental effect on CAPEX and OPEX of different DG penetration levels, e.g. • Allowance for DG in regulated asset base (RAB) • DSO benchmarking considering DG as cost driver • Tariff adjustment factor (ex post) • Allowance for a direct revenue driver • e.g. TARt = TARt-1(1 + CPI – X) + € A/ kWDG + € B/ MWhDG Incentives • Negative effects on revenues should at least be neutralised • (Temporarily) positive incentives could be used to promote DG integration

2. Impact of DG on the DSO business DG providing ancillary services Ancillary services • DSOs should be able to purchase ancillary services from DG operators • e.g. voltage and reactive power support, energy losses, congestion management, etc. Islanded operation • DG reducing the impact of network outages on customer supply interruptions (i.e. improving quality of service) • Requires active network management, local balancing, etc. DG-DSO arrangements • DG-DSO service contracts • DG regulated payments

3. What is the optimal amount of DG? Costs reductions expected with increasing RES

3. What is the optimal amount of DG? What is the optimal amount of DG? Source: ECN

More information: Thank you http://www.dg-grid.org http://www.electricitymarkets.info/distributedgeneration/index.html

Electricity distribution and embedded renewable energy generators