Experience you can trust.1

The importance of markets for the emergence of SmartGridsPier Nabuurs

i-SUP 2008

April 22-25, 2008, Bruges, Belgium

2

Overview

• Rise of “Smartgrids”

• Technical developments (context EU, national and local markets)

• Changes needed in regulation to integrate DER/RES and influence of support schemes on their integration

• Investments needed in the EU (ageing) network and business models for DER integration

3

Rise of “Smartgrids”

There are remarkable changes ahead…

… a paradigm shift

…the Third Industrial Revolution?Prof Jeremy Rifk

4

A Smartgrid facilitates generation and distributes electricity more effectivelyeconomically, securely, and in a sustainable way. It integrates innovative ools and technologies, products and services, from generation, ransmission and distribution all the way to and from consumer appliances and equipment using advanced sensing, communication, and controlechnologies.” (EPIC, San Diego, adapted)

A definition for a Smartgrid?

Characterised by:

• Two-way distribution flows• Less distinction between T & D• Customer information• Customer participation• Variability & intermittency• ‘Internet-like’

Utilising:

• Renewable Energy Sources• Micro-generation and CHP• ICT & Power Electronics• Energy storage• Transport integration

5

Where will power flow in 2020 & beyond ?

30GW of solar power in the

South ?

Ackgt TechFreep

GW of wind ower in the orth ?

Customer Interaction and Intelligent Appliances

MicroCHP and PV

plus wind variation / cloud cover / customer choice…

6

A more Internet-like power grid emerges

Central & Dispersed sources

Smart powerelectronics

Central & Dispersedintelligence

Seamless integrationof new applications

End user real timeInformation & participati

7

Technical developments

Electric utilities are cautious in the use of new technology• Long term investments• Limited competition (grid companies)• Liberalisation has made utilities more reluctant towards

innovation• Lock-in

– Distribution companies– Regulators– Technology supplier

• Lack of incentives

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Changes needed in regulation to achieve EU/national 2020 targets• CO2 reduction

– example: carbon credits• Innovation Incentives

– Example OFGEM• Energy saving

– example: smart meters• Integration of renewables• Management of Demand

– Example Load Shedding

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-500

500

1500

2500

3500

4500

5500

6500

7500

8500

9500

1989

/019

90/1

1991

/219

92/3

1993

/419

94/5

1995

/6

1999

/020

00/1

2001

/220

02/3

2003

/4

0ct 0

4 - A

pr05

(IFI

1st 6

mth

s)20

05/6

2006

/7

Financial Year

£0

00

* Data from 1989/1990 to 2003/2004 is the collaborative spending on R&D amongst the DNOs through a single provider.* Data from Oct 2004 - April 2005 and the last financial year (2005/2006) shows reported total IFI spend.

UK Distribution Company IFI spend on Network R&D since 1990

• c.180 projects

• Projects are initiated by the companies

• Ofgem does not‘approve’ each project

• Only one compais spending to icap

• Av. intensity is 0.27%

• Forecast benefitotal €70m (NPV

Impact of IFI Incentive

UK Distribution Company R&D trendPrivatisation

>

m >

Impact of new incentives

10

Smart metering for households

manualprocessing manual

processing

Current situation

Databasestandardmeter

Smart meteringdisplaykWh, m3, €

gateway interface, protocol

interface,protocol

smart meter Database

serviceprovider

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Example costs and benefits in NL (G+E)

-37.5

-25.0

-12.5

0

12.5

25.0

37.5

50.0

62.5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

cost-benefit item

NPV

per

cos

t-ben

efit

item

(EU

R\h

ouse

hold

)

meters

data infra

E-savings

meter reading

call center

monthly bill

switch

competition

DR

fraud

grid faults

12

Costs and benefits per actor

-2 000

-1 000

0

1 000

2 000

3 000

4 000

5 000

6 000Con

sumer

s

Meterin

g

Compa

nies

GridCom

panie

s

TSO

Energ

ySup

plier

sEne

rgy

Produ

cers

Gover

nmen

t

(CO 2

& taxe

s)

NPV

per

act

or (M

EUR

)

13

Distributed & Demand Side Resources

• Large penetration levels require significant data management– Aggregation, scheduling, market operations, billing and settlements– Distribution voltage and power quality management, distribution

automation– Islanding and micro-grid operations

Coordinated Voltage VAr Control

Powe

r Fac

torPo

wer F

actor

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Load shifting based on energy price

0.0

0.5

1.0

1.5

2.0

2.5

0 6 12 18 24

Time of Day (hours)

Rel

ativ

e cu

rve

(-)

Residential Customers Amsterdam Power Exchange day ahead price

Does this result in actual energy

savings?

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Changes in Markets (Dutch case)

DTe

TenneT(E)

GTS (G)

Grid companies

regulated market(fixed rates)

Government

APX (E)

energy supplier

producer

energy trader

consumer

metering company

unregulated market(commercial rates)

metering company

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Engagement & commitment stakeholders: a new balance to be struck

Supply Security Supply Quality

Sustainability

Reasonable Cost

trade offs

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EU investment until 2030: 1000 billion ۥ Demand

– Growth 2%/year = +1250 TWh by 2030• Generation

– Replacement & expansion 900 GW needed by 2030– RES 500 GWpeak needed by 2030

• Transmission & Distribution– Ageing assets, expansion and RES+DG integration– 500 billion € until 2030 needed

• Markets & Regulation– Data + information need > 20 billion € investment

(conservative figure based on 100€ per connection)

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The Transition to Smart Grids is not a simple A B !

The Transition from theClassical Grids of today

to the Smart Grids of tomorrow

There is no blue print for Point B… but there is an emerging shared Vision

The task is Europe-wide and beyond… and has considerable export potential

Every network has technical variations… but ‘country specials’ are inadvisable

….. also true for regulation!

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Changes Ahead:

• Cost for oil & gas, and concerns for their security• Grid congestion & costs, and potential loop flows• At risk to the actions of our neighbours• NIMBY–ism and challenge to developments• Value and capability for bulk electricity storage

• Inherent energy security and reserves• Waste and Losses, and Carbon release• Taking energy (and the sector) for granted • Passive, demand only, consumers• Certainty: no longer a familiar path

MORE

LESS

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The Elements for Change

The Transition from theClassical Grids of today

to the Smart Grids of tomorrow

Technology

Standards & Open Systems

Regulatory Frameworks

Commercial Arrangements

Manufacturers & Supply Chain

Demonstration & proving

• a Common Vision• Collaboration• ‘Societal permission’

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The greatest business challenge?

A new emphasis:• Domestic Customers• Transport interaction• The Built Environment• The public at large

Issues for society, policy makers and regulators,not just the sector

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Investment willingness is risk averse

Mansour, Rabobank 2007

Regulatory Incentives?

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Funding for SmartGrids Developments

• EC Research & Development funding– Seventh Framework Programme– ERA-NET

• National Funding opportunities– Varies, according to each MS (numerous)

• Regulator allowances for innovation– UK; the IFI (innovation funding initiative) and RPZ

(registered power zone)• Private Funding options (business models)

– Industry, pension and investment funds (banking)

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Alignment of EU, national and regional research programs

• European Technology Platform SmartGrids• ERA-net SmartGrids because 80% of the public RTD

budgets come from these national programs and:– the grid issues have no MS-borders– grid issues are dealt with differently in each MS

(often resulting in a limited effort to solve it)– the grid is key (facilitator) to an affordable, reliable and

sustainable energy supply• SmartGrids Association

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Summary and Conclusion

• Large impact of RES on grid structure and operation SmartGrids challenge

• New technology and increasing engagement and commitment of stakeholders is needed:– adequate regulation– establishment of funding / support mechanisms – new business models for investment– demonstration & deployment

… to make it FLY…… on the FLY…

Experience you can trust.26

Thank you for your attention.

KEMAUtrechtseweg 310PO box 90356800 ET ARNHEMThe Netherlands

pier.nabuurs@kema.com