Electricity distribution and embedded
renewable energy generators
Martin Scheepers
ECN Policy Studies
www.ecn.nl
Florence School of Regulation, Workshop, November 24, 2006
Contents
1. Distributed generation: RES & CHP
2. 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
3. What is the optimal amount of DG?
2
1. Distributed generation: RES & CHP
RES & CHP in EU-25 scenarios
Share in total electricity
supply
60%
50%
40%
30%
20%
10%
0%
2000
2010
Base line scenario
2020
2030
Policy scenario
high RES & efficiency
%-CHP
3
%-RES
%CHP
%-RES
Source: PRIMES
1. Distributed generation: RES & CHP
Distributed Generation (DG)
Large-scale
generation
Combined Heat and
Power (CHP)
Renewable Energy
Sources (RES)
• Large district heating*
• Large industrial CHP*
• Large hydro**
• Offshore wind
• Co-firing biomass in coal
power plants
• Geothermal energy
Distributed
Generation
(DG)
•
•
•
•
Medium district heating
Medium industrial CHP
Commercial CHP
Micro CHP
* typical > 50 MWe
** typical > 10 MWe
4
•
•
•
•
Medium and small hydro
Onshore wind
Tidal energy
Biomass and waste
incineration/gasification
• Solar energy (PV)
1. Distributed generation: RES & CHP
Current DG share in total generation capacity
Source: DG-GRID/Risoe
5
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
6
2. Impact of DG on the DSO business
Impact DG on
Business Model DSO
DG
DG
Capital
expenditures
Extensions/
Extensions/
reinforcereinforcements
ments
Equipment
supplier
DG
Revenues
connection costs
Consumer/
DG Operator
Consumer/
DG Operator
Connection
Connection
charges
charges
UoS
UoS
charges
charges
Operational
expenditures
DSO
DSO
(Distribution
(Distribution
System
System
Operator)
Operator)
UoS
UoS
charges
charges
(cascade)
(cascade)
Ancillary
Ancillary
services
services
Money flow
Energy
Energy
losses
losses
reinforcements
replacing
distribution assets
TSO
TSO/
DG Operator
DG
ancillary services
DG Operator/
Large power
producer
DG
energy losses
O&M
O&MCosts
Costs
Source: Dispower/ECN
7
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
8
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
9
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
1400
1200
Cost (M£)
1000
800
600
400
200
0
2.5
5
7.5
Installed capacity (GW)
Passive rural network
10
Active rural network
Source: DG-GRID/Imperial College
10
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
1400
Cost (M£)
1200
1000
800
600
400
200
0
2.5
5
7.5
10
Installed capacity (GW)
Passive urban network
Active urban network
Source: DG-GRID/Imperial College
11
2. Impact of DG on the DSO business
Average annual energy losses (UK case)
Losses LV-network not included
10%
9%
8%
Energy losses
7%
6%
5%
4%
3%
2%
1%
0%
0
2,5
5
7,5
10
DG capacity connected (MW)
DG concentration / network management type
Low/ Passive
Medium-high/ Passive
Low/ Active
Medium-high/ Active
Low-medium/ Passive
High/ Passive
Low-medium/ Active
High/ Active
Source: DG-GRID/Imperial College
12
2. Impact of DG on the DSO business
Replacement of distribution network assets
Replacement value of DG
(for the UK)
DG penetration
DG with low density
in the network
DG with high
density in the
network
2.5 GW
108 €/kW
110 €/kW
5 GW
110 €/kW
112 €/kW
7.5 GW
113 €/kW
97 €/kW
10 GW
113 €/kW
44 €/kW
Source: DG-GRID/Imperial College
13
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

14
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).
Consumer/
DG Operator
Consumer/
DG Operator
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
15
Capital
expenditures
Extensions/
Extensions/
reinforcereinforcements
ments
Equipment
supplier
Revenues
Connection
Connection
charges
charges
UoS
UoS
charges
charges
Operational
expenditures
DSO
DSO
(Distribution
(Distribution
System
System
Operator)
Operator)
UoS
UoS
charges
charges
(cascade)
(cascade)
Ancillary
Ancillary
services
services
Money flow
Energy
Energy
losses
losses
O&M
O&MCosts
Costs
Source: Dispower/ECN
TSO
TSO/
DG Operator
DG Operator/
Large power
producer
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/ kW DG + € B/ MWhDG
Incentives
 Negative effects on revenues should at least be neutralised
 (Temporarily) positive incentives could be used to promote DG
integration
16
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
17
3. What is the optimal amount of DG?
Costs reductions expected with
increasing RES
Cost of Electricity (ECU(1990)/kWh)
10
Photovoltaics (~65%)
1
1995
1980
Electricity from
Biomass (~85%)
Wind Power - Average (82%)
0.1
Wind Power - Best
Performance (82%)
Supercritical Coal (97%)
1995
0.01
0.01
18
© OECD/IEA, 2001
1985
0.1
1
10
Cumulative Electricity Production (TWh)
NGCC (96%)
100
1000
3. What is the optimal amount of DG?
What is the optimal amount of DG?
Direct system costs
Overall costs
Overall costs,incl.
innvoations
Generation costs
Market & network
integration costs
0
Market & network
integration costs,
incl. innovations
Time /
DG/RES share in load flow distribution grid
Source: ECN
19
More information:
http://www.dg-grid.org
http://www.electricitymarkets.info/distributedgeneration/index.html
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