Power firms want funding model for smart grids

Developing smart grids will require changing the financing model of electricity distribution as current practice is mainly focused on cutting costs, representatives of the industry said last week (26 November).

BACKGROUND:

The European Union has endorsed a package of legislative measures to reach its 2020 targets of cutting emissions by 20% and increasing the share of renewables in its energy mix to 20% (EurActiv 12/12/09). Furthermore, the EU has pledged to raise its reduction target to 30% in the event that other developed nations agree an ambitious new climate deal in Copenhagen in December.

The EU hopes to harness information and communication technologies (ICT) in the fight against climate change. According to estimates by consulting firm McKinsey, widespread use of intelligent devices and applications could reduce global CO2 emissions by as much as 15% by 2020.

On 9 October, the European Commission published a set of recommendations to increase the use of intelligent technologies in reducing emissions (EurActiv 12/10/09). It invited member states to adopt common standards for smart metering systems by 2010 with a view to establishing a timeframe for their full roll-out by the end of 2012.

Demands to cut power costs while investing in smart grids to reduce CO2 make for a difficult business model for electricity distribution system operators (DSOs), a conference organised by electricity industry association Eurelectric heard in Brussels.

Incentives from regulators to DSOs will have to move from rewarding efficiency improvements to sustainability, the speakers agreed.

Smart grids use digital technology, allowing real-time management of networks and bi-directional flows and facilitating the integration of intermittent renewable sources. The first step is smart meters, which give consumers up-to-the-minute information on their energy use.

"Our regulators are not thinking in an integrated way. They are all economists and concentrating on efficiency," said Jan Peters, director for asset management at Enexis, a Dutch electricity company.

Europe's electricity networks will require significant upgrades in coming years to adapt to growing demand. Missing the opportunity to digitalise the grids at the same time would be a lost opportunity as the same networks will still be used 50 years from now, the speakers said.

But the electricity industry is worried that it will end up paying for all the investment without receiving reasonable returns (EurActiv 20/05/09).

"While distribution system operators have traditionally been in charge of innovating, they don't get the benefits of CO2 cuts," according to Hans Ten Berge, Eurelectric's secretary-general. "DSOs are not trading emission rights nor do they get the returns for renewables investment," he explained.

"There's something which is not completely in parallel here," he stressed.

While the move to intelligent grids will represent nothing short of a revolution in electricity distribution, it is not the immediate priority for the industry. Several managers of DSOs in different EU countries reported that the old logic of investing in efficiency will rule in the next five years, but indicated that their companies would start to invest in the integration of renewables and smart meters in five years after that.

Consumers pay the bill

In Spain, the government has set an obligation to roll out smart meters by 2018. Distribution system operators say the estimated €1bn that will have to be invested in the next ten years presents a good opportunity to go all the way, as doubling that would allow the move to smart grids, said Antonio Espinosa de los Monteros of Spanish electricity firm Iberdrola.

But he pointed out that the meters will not come for free to the consumer, who will have to pay around 70% of the rental price. The rest will go to a new way of managing the system, a cost that regulators should bear, he said.

Nevertheless, smart meters will also allow households to play a more active role in the energy sector. This is not only because they will be able to control their own energy consumption, but also because making the electricity grid bi-directional will enable them to sell the energy they produce from renewables on-site back to the grid.

But despite the many benefits, such as reduced peak demand and anticipation of potential black-outs, smart grids will also come with efficiency losses when the network is used at capacity, Peters warned.

"We have to optimise. If we are putting less copper into the ground, we are doing it in a smart way, but that means that there are more losses," he said. Such losses would be reduced if the energy distributed increases and is consumed locally in the neighbourhood, he explained.

Standardisation next step

The experts stressed that the next step towards commercialising smart meters will be standardisation, because the technology is already available. This will be important to ensure that the intelligence flows free.

But there was disagreement as to whether the market for the instruments should also be competitive.

Ricardo Klatovsky, energy and utilities leader at IBM, which provides IT solutions, stressed that there should be as much competition as possible. "So the instrument part using standardisation has to be a completely competitive market," he said.

But DSO managers pointed to problems regarding natural monopolies in the existing infrastructure. They also brought up the problem of prioritising between contradictory requirements for the network when several households want to sell and buy energy at the same time, which might require regulation.

"The problem with smart grids is that we have monopolistic infrastructure and we will not double this," said Peters. "So I believe that we need in effect a minimum basic infrastructure with smart components in it [...) That is, I believe, part of the DSO."

SOURCE : Euractiv