RENEWABLE ENERGY & INNOVATION TOWARDS SUSTAINABLE ENERGY FOR ALLWorkshop. Milan, June 17, 2015

Electric systems & the growth of renewable generation

Ignacio J. Pérez-ArriagaCEEPR, MITInstituto de Investigación Tecnológica (IIT), Comillas University

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The major current uncertainty about the future of the power

sector relates to the competition & collaboration between the centralized an decentralized

paradigms

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In the EU & the US…

Policy Game Changers: The Energy Union

“…we have to move away from an economy driven by fossil fuels, an economy where energy is based on a centralized, supply-side approach and which relies on old technologies and outdated business models. We have to empower consumers through providing them with information, choice and through creating flexibility to manage demand as well as supply.”

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New York REV

“…distributed energy resources will become integral tools in the

planning, management and operation of the electric system.

The system values of distributed resources will be monetized in a

market, placing DER on a competitive par with centralized

options.”

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The presence of distributed energy resources

“Small and medium-size installations of less than 30 kV have dominated Germany's solar expansion in recent years, so that 70 percent to total PV capacity is now connected to the low-voltage grid. "In some low-voltage grids," they say, "the installed PV capacity can even exceed the peak load by a factor of ten.”IEEE's Power and Energy Magazine (March-April, 2013, devoted to solar energy)

Fraunhoffer ISE

Solar generation in California hit a new daily record of 6,078 MW on May 31. 2015, according to the state's grid operator, besting the previous record set just two weeks before.

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Let’s focus on another aspect of the centralized vs. decentralized

struggle:The off-grid vs. on-grid dilemma

in the provision of electricity access in developing countries

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In the mountains of Cajamarca in Peru…

Isolated rural community in Cajamarca (Peru). Example of dispersed population.Source: Julio Eisman. Acciona Foundation. Peru Microenergia.

Isolated rural community in Cajamarca (Peru). Example of dispersed population.Electrified by Peru Microenergia. Acciona Foundation.

Isolated rural community in Cajamarca (Peru). Example of dispersed population.Electrified by Peru Microenergia. Acciona Foundation.

Isolated rural community in Cajamarca (Peru). Example of dispersed population.Electrified by Peru Microenergia. Acciona Foundation.

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Could we figure out a regulatory approach (technical, social, financial,

environmentally sound) that makes sense to provide electricity access under

these conditions?

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In a village of the state of Uttar Pradesh (India)…

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A single PV panel & battery for the entire village…Uttar Pradesh, India, July 2014

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… using the trees as support for the cables…

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… and not far away from the existing power grid

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How come the village is poorly electrified by an independent &

unregulated entrepreneur company, instead of being connected to the

nearby grid?

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In the village of Karambi, district of Mutete, in

Rwanda…

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… and not far away from the existing power gridKarambi village on the top of a hill

… and not far away from the existing power gridThe health center

… and not far away from the existing power gridThe secondary school

… and not far away from the existing power gridWater reservoir

… and not far away from the existing power gridCommunity center

… and not far away from the existing power gridPrimary school

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How to make the case that the electrification of the school & the surrounding area is an attractive

business model for potential investors?

And for all villages with a school in Rwanda (global 22% electrification)?

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Three major gaps regarding universal energy access

Equity, ambition & opportunity

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The three gaps in energy access

The equity gap (the ethical dimension)“It is shameful & unacceptable that today today billions of

people lack access to the most basic energy services”(International Energy Agency, WEO, Nov-2010)

The opportunity gap (the business dimension)“There is another way to look at the challenge: energy

access as an opportunity for business”(“From gap to opportunity”, International Finance Corporation)

The ambition gap (the technical dimension)“The world’s poor need more than a token supply of

electricity. The goal should be to provide the power necessary to boost productivity and raise living standards”

(Morgan Bazilian, Roger Pielke, 2013)

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What does it mean to have “access to electricity”?

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The meaning of “access”

To be “connected” to the main grid? To allow bare minimum consumption? As much electricity as similar people with access? As much as you can afford? How about productive & community uses?

A grid connection may seem like the ideal, but in reality, the grid may not provide very many hours of service per day In the District of Bihar in India, households only received 1.3

hours of service per day in bad months, and 6.3 hours in good months.

Off-grid systems, like solar home systems and micro-grids, can provide more predictable electricity supply, but typically only a few hours per day

Example: Electrification planning results for the district of Vaishali (Bihar, India; 400,000 households)

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Is there an “opportunity gap”?And how to make it effective

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Understanding the utility function

The demand-price curve describes the response of demand to price Consumers are willing to pay a high price for

the most essential electricity services

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This electricity supply is not subsidizedUttar Pradesh, India, July 2014

At the very basic level of consumption, lack of access may have a strong financial component

Addressable market for modern energy products and services

Source: IFC, “From gap to opportunity: Business models for scaling up energy access”, May 2012. Figure A.1

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Off-grid facilities are being deployed in many developing countries outside the

scope of regulation

Should off-grid power supply be regulated?

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Should off-grid power supply be regulated?

NO, because the lack of regulation provides more opportunities for electrification & entrepreneurs may come up with new ideas to reduce costs & to improve service

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Should off-grid power supply be regulated?

YES, because the lack of regulation with result in chaos in the multiplicity of technologies, abuse of monopolistic power & poor quality of the facilities

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Should off-grid power supply be regulated?

Consequences of lack of regulation Non-standard & non-grid compatible technologies

➜Investor is exposed to risk of grid connection ➜Pressure to recover investment costs ASAP➜Wasted assets if grid connection happens➜Local (renewable?) generation will be replaced by

centralized generation mix Possibility of monopolistic behavior &/or poor quality

of service May lock-in limited supply technology permanent

poverty condition

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How could regulation help?

Unregulated off-grid electrification helps people &, also, cannot be fully avoided, beyond general safety standards For instance, new technologies (solar power kits)

allow the provision of electricity to become just a house appliance

But regulation can create incentives to deploy grid-compatible off-grid solutions in those places where the grid may arrive Otherwise, those mostly renewable-based assets

will be replaced by a coal-dominated generation mix

Share of electricity generation by source & selected regions (New policies scenario)

Source: IEA WEO 2014

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Grid-compatible microgrids

How could regulation help?

Establish minimum technical requirements for grid compatibility If grid connection eventually happens, the entrepreneur

will be compensated for the cost of the grid & will become an independent generator

Entrepreneur will be paid a regulated efficient cost Consumers would pay an affordable tariff (e.g. same

social tariff as those grid-connected) The difference with respect of the actual cost of supply

will be covered by a subsidy, which could be obtained from a levy in all the remaining tariffs or other means

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Universal electricity access is the new frontier of regulation

of the power sector!!!

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Thank you for your attention