Embed Size (px)
DESCRIPTION
Master Thesis written in cooperation with Loccioni company
Citation preview
1
SMARTAND MICRO GRID: MARKET
AND ECONOMICANALYSIS.ASSESSING OPPORTUNITIES FOR LOCCIONI COMPANY
Master Dissertation
Master Candidate: Giovanni CialdinoSupervisor: Prof. Lino Cinquini
Academic Year: 2012/2013
2
Table of contents
Table of contents..................................................................................2List of abbreviations............................................................................5Acknowledgment..................................................................................7Introduction........................................................................................... 8Part I: Technologies and market background.........................111. Electric Grid and Electricity Market..........................................12
1.3 EU energy markets......................................................................141.4 Organization of the Energy Market in Italy.............................. 151.5 Geographical organization of Electricity Market.....................161.6 Key element of the Italian Electric Market...............................181.7 General functioning of electricity markets in Italy...................191.8 MGP............................................................................................... 201.9 MA.................................................................................................. 241.10 MSD............................................................................................. 251.11 The Electricity bill in Italy..........................................................261.12 Conclusion.................................................................................. 27
2. Small scale energy production..................................................292.1 Photovoltaic...................................................................................292.2 Wind Energy................................................................................. 332.3 CHP................................................................................................362.4 Conclusions...................................................................................37
3. Energy Storage...............................................................................393.1 Advantages of Storage Systems...............................................393.2 Storage Technologies................................................................. 423.3 Regulatory Environment.............................................................453.4 Potential Storage Markets..........................................................513.5 Conclusion.....................................................................................55
Part II: Smart-Grids and Micro-Grids............................................574. Smart-grids......................................................................................58
4.1 Effects of renewables in the market price................................58
3
4.2 Effect of Renewables on the grid..............................................634.3 Smart-grids....................................................................................654.4 Sensitizing Customers to Grid balance issues....................... 664.5 Conclusions...................................................................................68
5. Microgrids........................................................................................69Fundamental components of micro-grid.........................................695.1 Microgrid Benefits........................................................................ 755.2 Microgrid Costs drivers............................................................... 785.3 Potential customers.....................................................................805.4 Possible introduction schema....................................................875.5 Conclusion.....................................................................................89
Part III: Smart and Micro grid business opportunities..........906. Loccioni: catching new opportunities..................................... 91
6.2 Market feelings, relevant interviews......................................... 927. Storage and Electricity costs..................................................... 95
7.1 Cost model....................................................................................957.2 Comparison with electricity costs..............................................97
8. Frequency Regulation................................................................1018.1 An overview on Frequency Regulation..................................1018.2 Primary Frequency Regulation Pricing.................................. 1068.3 Decision making.........................................................................1188.5 Conclusion.................................................................................. 125
9. Demand Response......................................................................1279.1 ENBALA business model.........................................................1279.2 Demand Response in some EU countries............................1289.3 Conclusions................................................................................ 132
10. Microgrid Business.................................................................. 13310.2 Microgrid in USA......................................................................13310.2 Microgrids in Italy.....................................................................13510.3 Microgrid market in Turkey.................................................... 13810.4 Conclusion................................................................................140
11. Small Islands and Simulations..............................................14111.1 Italian islands............................................................................141
4
11.2 Country Islands........................................................................14311.3 LCOE.........................................................................................14511.4 Cape Verde case.....................................................................14611.5 Minor islands case...................................................................14911.6 Industrial microgrid..................................................................15011.7 Conclusion................................................................................151
Summary and Conclusion.............................................................158Summary............................................................................................158Conclusions.......................................................................................160
Bibliography......................................................................................163Sitography......................................................................................... 164
5
List of abbreviations
Abbreviation MeaningAEEG Italian Electricity and Gas AuthorityAU Unique Electricity PurchaserCHP Combined Heat and PowerCONS Consorzi StoriciCOOS Cooperative StoricheCRF Capital Recovery FactorDSO Distribution System OperatorEESS Electrochemical Energy Storage SystemESS Energy Storage SystemFRNP Non-Programmable Renewable Energy SourcesGRTN National Transmission Grid ManagerGSE Italian Energy Market ManagerHV High VoltageLCOE Levelized Cost of EnergyMA Market for AdjustmentMGP Day Ahead MarketMSD Market for Dispatching ServiceMV Medium VoltageNPRES Non-Programmable Renewable Energy SourcePRF Primary Frequency RegulationPV PhotovoltaicRES Renewable Energy SourcesRIU Rete Inetrne di UtenzaSEU Sistemi Effcienti di UtenzaTSO Transmission System OperatorUK United KingdomUSA United States of America
6
To Shannina who tolerated me while doing this job
7
Acknowledgment
Writing a thesis is a long and complicated task. It requires a lot of effort,research and time. Sometimes it also requires to sacrifice part of thepersonal life at expenses of the closest people. Therefore I want first of all tothank my family and Shannina for their tolerance and their ability to listen tome even when they are not fully interested.Another important thank goes to prof. Cinquini who always replied timely tomy inquiries and managed to read and review my draft at record time.A last very big thank goes to Loccioni company who gave me the possibilityto growth professionally and scientifically during the time I spent with them.
8
Introduction
The 3rd of March 2020 European Commission adopted a 10 years strategyfor the advancement of economy of the European Union. This strategy,called “Europe 2020” aims at “smart, sustainable and inclusive growth”with greater coordination of national and European policy.Among the main “Europe 2020” target there are the so-called three 20s: Reduce European greenhouse gas emission of at least 20% compared
with 1990 levels; Increase share of renewables energy consumption to 20% of total
energy; Achieve 20% of energy efficiency.In order to achieve these European-level goals, national goals have beensetted for each country. Targets are different from country to country,reflecting its national situations and circumstances. For example Italy has arenewable energy target of 17% and an energy efficiency target of 27.8%.Starting form 2011 countries such as Italy, Germany, Spain and Denmarkstarted a strong policy of promotion of renewables, increasing significantlytheir share of production for non-forecastable renewables. HoweverEuropean national grid were designed to have a mono-directional flow ofenergy and a forecastable production. Differences between traditional andrenewable generators contributed to a significant increase in grid instability.Grid with Traditional Energy
sourcesGrid with Renewable Energy
SourcesForecastable production Non Forecastable productionMono-directional Energy Flow Bi-directional energy flowProducer and Consumer Producer, Consumer and Prosumer
All protection systems in European grid were in fact designed for amono-directional flow of energy, while introduction of renewables anddistributed generation allows bi-directional flow of energy. Furthermoresince production become less and less forecastable it is more difficult toperform grid balance and to match demand and supply. Another relevant
9
problem is that often renewables generators are located in remote, poorlyconnected areas with weak grid conditions, therefore energy that theyproduce cannot always be dispatched. Grid instability has been increasing somuch that many of biggest blackout in human history happened in the verylast years. Smart-Grid are one of the possible solution to these problems.Smart Grid challenge is about re-thinking traditional national gridundertaking relevant investments toward the definition of a new, moreflexible one. However, these investments takes a long time to beimplemented therefore countries are not willing to invest money in thisdirection since it is not certain whether better technologies will emerge inthe meanwhile. Solutions that most counties are considering concernintroduction of storage for grid support and and coupling electric grid with aproper ICT infrastructure.Microgrid, on the other hand deals with increasing the amount of energeticindependency for local communities and might give another relevantcontribution to reduce grid traffic and blackout risks. They are systems madeof production centers, consumption centers and smart energy controlsystems. Three different kinds of microgrids are possible: on-grid (i.e.connected to the main grid), off-grid (i.e. isolated from the national grid) andmixed (which can be isolated or on-grid depending to the condition).The goal of this work is to asses potential business opportunities forbusiness integrators in the field, with a special focus on Loccioni company(Italian International company willing to play a major role in the business).The path followed to achieve this goal has been to study literature and lawon the topic and to spend a four month period within Loccioni in order tounderstand which of their competences which could be leveraged in thesenew markets. Interview with several stakeholders have been relevant toasses main market applications. Assessment of market applications has beenfollowed by another relevant review of literature and legislation of severalcountries and by a financial assessment for each possible application.Following this logical schema the work has been divided into three parts.Part I describes functioning of the electric market, of distributed generationsystems and energy storage technologies and potential markets. Part II
10
describe problems introduced by renewables and how smart and microgridscould be a possible solutions to these problems. The third part of the workdescribes potential applications in the sector and try to asses opportunitiesfor Loccioni company.
Giovanni CialdinoEmail: [email protected]
Mobile: +39-3939255523QQ: 2221698217
Skype: giovanni_cialdinoLinkedin: it.linkedin.com/in/cialdino/
11
Part I:Technologies and market
background
12
1. Electric Grid and Electricity Market
This chapter discusses some peculiarities of electricity market and analyzewith some detail how the “free market of energy” (Libero Mercatodell’Energia) has been organized in Italy.
1.1 Special features of and electrical grid systemElectrical systems are rather complex and peculiar, in fact they work like asystem of Communicating Vessels: all the supplied energy is withdrawnwithout being possible to understand where does the energy come from. Asimple communicating vessel system is shown in Figure 1.
Figure 1: Simple communicating vessel system
Furthermore and electrical system is subject to many technical andeconomical limitations.
Technical limitations
Technical limitations concern peculiarity of electrical systems and are givenby:
一、Continuos balance of supply and demand of electricity. Thisbalance should be continuos and should take into account transmissionlosses;
二、Control of Voltage and Frequency. These two parameters must bekept within a very limited interval in order to guarantee that equipment canwork in safety conditions;
三、Respecting limits of all electrodes. It is necessary that the energyflow in every electrode will not exceed its limits;Technical limits are determined by the law of physics and the distributiontechnology so that have to be respected over the long term.
13
Economic limitations
Economic limitations are given by economic conditions and currenttechnological limits:
一、Variability and inelasticity of demand. Power request might havesignificant variability within one day (short term, hourly based variability)and within the year (long term, season based variability);
二、Absence of storage systems and dynamic limitations for timelyadaptations. Actually electric energy is not directly stored in significantamount because of economic reasons. Indirect storage is usually achieved bypumping water up and transforming into electrical energy when needed.However this and other traditional production processes have rather longadaptation time, so that it is not easy to instantaneously match demand usingthese techniques.
三、Network externalities. When energy is supplied it immediatelyreaches all electrodes. So that any divergence from equilibrium in one pointis immediately propagated all over the grid. Path of Energy cannot be tracedlike in a communicating vessels system.
1.2 Management of Electrical Grid SystemSuch a complex system requires a central entity who is able to coordinateproduction and consumption of energy taking care that all technical andeconomical limitations are respected. This entity is usually called“Dispatcher” (Dispacciatore) and its main goal is to be sure that frequencyand voltage lies within identified limits. In a monopolistic system the energydispatcher performs two main activities:
一、Defines immission and withdrawal programs. This activity isusually referred as commitment and scheduling activity. The dispatcherdefines in advance (usually one day or one week) production programs of allproducers in such a way to satisfy demand at minimum cost. Theseprograms define production and consumption for each hour of the given day,respecting all technical and economical limits. The dispatcher can allocate aproduction reserve in order to face any unpredicted event.
二、Real time balancing of the system. The dispatcher will use the
14
allocated reserve of energy in order to align at any moment demand andsupply. Usually intervention is triggered by some value becoming very closeto imposed limits.In non-monopolistic market some market drivers are introduced but themain goals are the same. As it will be explained in the rest of the chapter,Italian free market of energy identifies the dispatcher in two institutions:Gestore dei Mercati Elettrici1 (GME) and Gestore della Rete diTrasmissione Nazionale2 (GRTN), called Terna S.p.A. .
1.3 EU energy markets
Following European directive 96/92/CE on the creation of a common energymarket, many EU countries moved energy market from its status of naturalmonopoly into a free energy market. In this chapter we are going to describein detail Italian free energy market. Figure 2 shows some EU energy marketand their managing companies. Although in every country the goals of themarket manager is to promote competition and fairness, in regulating such astrategic market two main direction have been adopted. Some markets like“Powernext” in France and “EEX” in Germany are purely financial marketwhere price and amount of produced energy depends on financial data.Other markets like “Libero Mercato dell’Energia” in Italy are financial andphysical market where price and amount of production are based on afinancial bidding but are regulated taking into account physical constrain ofthe grid3.
1 Electricity markets manager2 National grid manager3 http://pti.regione.sicilia.it (cons. 08th August 2013)
15
Figure 2: Some active organized market in EU
1.4 Organization of the Energy Market in Italy
Because of its strategical importance Italian energy market is regulated byItalian parliament who appoint the Government and the Ministry of Industry(Ministero per le Attività Produttive). The Ministry controls someinstitutions which operatively manage the national grid and the market.These institutions are: Autorità per l’energia elettrica ed il gas4 (AEEG): whose mission is to
promote competition in the electricity and gas markets; Aquirente Unico5 (AU): whose mission is to guarantee supply of
electric energy to electric energy dealers (clienti vincolati in Italian); Gestore dei Mercati Energetici6 (GME): whose mission is to organize
and manage electricity market guaranteeing neutrality, transparency,objectivity and competition among producers;
Gestore della Rete di Trasmissione Nazionale7 (GRTN): whosemission is to arrange transmission and delivering of electricity to final
4 Authority for electrical energy and gas5 Only buyer6 Energy markets manager7 National grid manager
16
users.This complex organization is derived from the described complexity of theelectrical system.
1.5 Geographical organization of Electricity Market
Grid subdivision
In order to efficiently identify the supply and consumption program it isrelevant to estimate all technical limits of the electrical grid. Since thenational grid reaches almost every remote point of the country, this task israther complicated. GME uses a simplified model of the grid showing onlymain connection between 6 geographical areas. Within each area similarmodels are used. In particular National grid is divided into: Six geographical areas. They correspond to six different geographical
areas of Italy: North, Center-North, Center-South, South, Sicily,Sardinia;
Six virtual areas. They represent connection with non-Italian grid:Corsica, France, Switzerland, Austria, Slovenia, Greece
Limited production pole: they represent production units whoseconnection capacity with the main grid is inferior to productioncapacity (i.e. They cannot produce at full capacity).
Figure 3 give a visual representation of national grid subdivision andtransportation limits between main geographical zones.
17
Figure 3: Italian geographical zone, virtual zone and limited production pole. Inthe yellow arrow maximum transportation limits are indicated.
Offer points
Each geographical or virtual zone is made by different offer points. An offerpoint represents the minimum unit to define production and withdrawalprograms either in electricity markets or in bilateral contracts.Production programs’ offer points usually correspond to single productionunits. These units are dispatched by GRTN who take into account theircapacity and their capability of adaptation (i.e. How fast each unit canrespond to GRTN request) and address request to each single unit. Onlyproduction center smaller than 10 MVA can be aggregated as a singleproduction offer.For withdrawal programs aggregation is possible. In particular aggregatingseveral withdrawal points with a production point is very useful to manageunbalances. In order to aggregate withdrawal point it is necessary that those
18
points belong to the same dealer, are located in the same area, areconnected with the same voltage (in order to compute and allocatetransportation losses) and have the same VAT regime (i.e. VAT is the samefor all these uses)
Dispatching operators
For each offer point (either a production point or an aggregate of withdrawalpoints) a Dispatching operator (Operatore di Dispacciamento) is identifiedby GRTN. He is responsible of balancing the grid in the area (verifying thatimmission and withdrawal programs are respected and being the executer ofGRTN’s balancing policy). Dispatching operator is also responsible of feesthat producers and dealers have to pay to GRNT for not respecting programs
1.6 Key element of the Italian Electric Market
Italian Free Market of Energy operates as a regulated free physical market.Energy can be purchased in two different kinds of transaction subject toverification of technical constrains by GRNT who controls and guaranteethe safety and functioning of the grid system. Electricity can be purchasedthrough the energy markets or through bilateral contracts.
Energy markets
Differently from the previous Italian monopoly for energy, planning ofproduction for the next day is done by GME, who collects from energysuppliers selling offers for any “offer point” and for any hour of the next day.Demand for the next day is not estimated anymore by GNRT but bycustomers (i.e. energy dealer company). Offers are selected with a minimumcost criterion, ordering for a decreasing price all offers in order to have thecheapest possible supply of energy. However, differently from financialelectricity market, the Italian is a physical one so that each “economically”accepted offer should be approved by GRNT on the base of technicalconstrains8 and not only on the base of electric market result.
8 Typically GRNT controls if some point in the grid can sustain that amount of energy
19
Bilateral Agreements
Producers and energy traders (clienti idonei in Italian) might also decide topurchase energy through a private contract and not through the marketorganized by GME. Obliviously in this case the supplier and the dealerfreely choose the amount of purchased energy and the price. However theGRTN must still verify that all technical limitations are not violated from theperspective of the particular agreement and from the global perspective(since other parties might be willing to use the same part portion of the grid).In order to have a global perspective GRTN communicates data concerningbilateral contracts as virtual offers, i.e. as particular offers having zeroselling price and infinite purchasing price9. This kind of exchange is usuallyreferred to as market over the counter.
Dispatching service market
As discussed above, in order to guarantee continuos balance of the gridGRTN can count on a reserve of energy production. This reserve is built ondaily base selecting offer in the market of dispatcher service which isorganized by GME. However, in this market GRTN select all offers andcontacts selected suppliers. Reserve might be activated in case of need.
Disciplining Unbalances
Discipline of unbalances promotes good behaviour form producer andpunish bad behavior. A behaviour is consider good if it respect the programdetermined on the market
1.7 General functioning of electricity markets in Italy
GME organize three different markets in order to fix production andwithdrawal programs and to allow GRTN to balance the grid. In particularthese markets are:
9 In the next paragraph GME operation will be described in detail. However consider that hereGME role is to collect production and consumption program for the next day, not to match supplyand demand
20
Mercato del Giorno Prima10 (MGP). It is finalized to exchangingenergy between producer and traders and determining production andwithdrawal programs for each hour of the following day. Transitcapacity is allocated for each couple of zones for each bilateral contactsand market transaction through this market. Usually this market takesplace in the morning of the previous day. All energy operators can takeplace to this market in relation to their offer points.
Mercato di Aggiustamento11 (MA). In this markets energy operatorscan adjust their programs determined in MGP presenting newpurchasing and selling offers. All energy operators can take place tothis market in relation to their offer points.
Mercato per il servizio di dispacciamento12 (MSD). In this marketoperators present offers concerning their availability to increase ordecrease the amount of energy introduced or withdrawn from the gridat any hour of the next day. GRTN uses these offers in a programmaticway (to adjust those programs violating grid technical limits and in realtime to guarantee grid balance. Only Dispatching operators canparticipate to this market.
1.8 MGP
MGP is the market to define price and amount of exchanged energy for eachhour of the next day. GME organize the market and communicates results toGNRT which verify that all technical limits are respected in order to insuregrid sustainability and to determine national demand of energy. Thecounterpart for each market operation is GME: all operators present theirpurchasing and selling request to GME who matches request.
Offer typologies
Each offer point (either a single production point or an aggregation of
10 Market of the previous day11 Market for Adjustments12 Market for dispatching services
21
withdrawal points) can present three different kind of offer: simple, multipleand predefined. Simple offers are given by a couple amount of energy, unitprice [MWh; €/MWh]. Multiple offers are composed of maximum 4 couplesamount of energy, unit price. Predefined are single or multiple offers thatcan be presented by electricity operators and used by GME if no other offersare presented for a given hour of a given day. Selling offers can be presentedonly in immission points while purchasing offers can be presented inwithdrawal points. Some points, called mixed offer points, can presentpurchasing offers and selling offers. A common application of mixed offersis given by water storage plant which pump up water when electricity ischeaper (purchasing electricity) and sell water when electricity has highprice (immission of electricity in the grid) making profit while contributingto having a flatter price for electricity. Figure 4 shows the shape of a singleoffer (the flat one) and of a multiple offer in the plane “amount of energy” X“unit price”.
Figure 4: Representation of single and multiple offer13
Preliminary stage
Before MGP takes place GRTN communicates to GME some preliminaryinformations which GME makes available to the whole market. In particularGRTN communicates:
13 pti.regione.sicilia.it
Multiple Offer(max four couples)
Multiple Offer Simple Offer
22
Amount of energy needed for each hour of the next day Maximum transit limit Hourly immission programs for production facilities controlled by
GRTN.GME add the standard reference price14 and communicates all these data tothe great public.
Offers
Electricity market operators might present their offers, which can beaccepted or rejected by GME on the base of legal and financial guarantee.Afterwards GME start the algorithm to “solve the market” in a way thatmaximize the value of transactions.In particular:
一、All selling offers are ordered for increasing price in the aggregatedsupply curve and all purchasing offers are ordered for decreasing price in anaggregated demand curve. Intersection of two curves determines theequilibrium price, the equilibrium amount of exchanged energy, immissionand withdrawal programs for each offer point.
Figure 5: Supply and Demand Equilibrium point
二、If energy flow does not violate any technical limit there is onlyone equilibrium price P*. Sales offer with a cheaper price and purchasing
14 It’s the price applied to purchasing offers without price indication
EquilibriumQuantity
Equilibrium Price
23
offer with a more expansive price are accepted.三、If energy flow violates some technical limits, the algorithm
separates the market in two market zones, above the limit (exportation zone)and below the limit (importation zone). The process is repeated and two newcouple amount, unit price are identified for each market. At the end of theprocess two local prices are identified. If some technical limits are notrespected the algorithm is repeated.
四、After the market is solved, GME uses the same price for allconsumers. This price is called Prezzo Unico Nazionale15 (PUN) and isgiven by the average of local price weighted for consumption. PUN isapplied only for withdrawal of energy in geographical zones (inside Italy).For energy production and purchasing in virtual zones (outside Italianborders) local prices are used.
Bilateral contracts
Data concerning bilateral contracts are communicated from GRTN to GMEas special offers with zero selling price and undefined purchasing price.These offers have the same treatment of all the others since they also occupytransmission lines and contribute to determine PUN.Figure 6 shows how GME and GRTN deal with market offers and bilateralcontracts.
Figure 6: Functioning of the algorithm for determining local prices
15 Unique national price
24
Transit right
Market splitting implicitly works like an auction. If the price is equal to P*transit right has no value since it is not a scarce resource and it is given forfree to bilateral contracts and to the most competitive market offers. If onetransit is violated in the first loop of the algorithm the market price is not P*transit is a scarce resource and transit right will have a non-zero price.In particular the right to transit from the zone x to the zone y will be equal toPy-Px (the price difference between the purchasing zone and the selling zone).In the case of bilateral contracts producer and purchaser will pay Py-Px forflows contributing to increase transit from area x to area y and will receivePy-Px for flows contributing to decrease these transits. Transit right is firstlyallocated to bilateral contracts and later to the most competitive offers in themarket. In the case of market offer transit right is already included in theprice difference among the two zone so they do not have to pay GME anytransit right any more.
1.9 MA
Market for adjustment is necessary because GME treat every hour in anindependent way so that some producers might receive unfeasible requests.For example 300MW facility with 2 hours turning on time might receive afull capacity production request for the whole day except that from 10:00AM to 11:00 AM. In this case the facility could not satisfy the requestbecause it cannot turn off for 1 hour, so it might offer cheap energy in thathour time. During MA both sale and withdrawal offer can be done in bothimmission, withdrawal and mixed points. In fact now that energy programsare basically made reduce in consumption can be considered as sale ofenergy.Figure 7 show in a very simplified way how MA can balance production andwithdrawal offers.Working of MA is totally similar to the working of MGP. The onlydifference is that a non-arbitrage fee is applied to all accepted offers. Let’s
25
assume PZ-MA to the hourly price determined for the zone z during MA. Inthis assumption the non arbitrage fee per unit of energy will be given byPZ-MA - PPUN. In case of purchase of energy this fee will be paid to GME ifthe difference is negative otherwise it is received from GME. On the otherhand, for production of energy this fee is received from GME is thedifference is negative otherwise it is paid to GME
Figure 7: MA is useful to balance production and withdrawal offers.
1.10 MSD
MSD is used by GRTN to find resources for energy dispatching. It takesplace in the previous day but acceptation of offers happens in two times. Thefirst one happens immediately after their presentation and it is used to solveany residual unbalance of energy flow and respect all technical limits. Thesecond one happens in the delivering day and it represent the reserve thatGRTN uses for real time balance. GRTN is the only seller and buyer in thismarket and only dispatcher operators named by GRTN can take place into it.Electricity dealers and producers must offer all their available power butthey can decide the price. In this markets only simple offers are admitted.
26
Sale offers can regard an increase in production or a decrease inconsumption while purchasing offers can regard a decrease in production oran increase in consumption.Also in this case a non arbitrage fee is applied with the same modalitydescribed in MA.
1.11 The Electricity bill in Italy
The described structure and functioning of electricity markets has immediatereflection on the electricity bill received by Italian companies. It presentseveral entries:
ENERGIA FORNITA (Supplied Energy) [€/kWh]: it is the only voicewhich can be bargained on the Italian free market of energy choosingthe supplier and the pricing method (fixed price, dual time pricing,energy market based pricing...). This entry is proportional toconsumption and includes also network losses. Price is directly orindirectly linked to the price of the energy exchange in the energymarket.
DISPACCIAMENTO (Provision)[ € ] e [ € /kWh]: It is mainlyproportional to the consumption but there is also a small monthly fee.Components are chosen by Autorità per l’Energia Elettrica ed il Gas(AEEG) (Italian authority for Electric Energy and Gas) and can vary onmonthly and yearly base.
USO DELLE RETI (Grid Usage) [€ ] e [€ /kWh]: It is basicallyproportional to consumption plus small monthly fee. Also in this casetariffs are chosen by AEEG on yearly and 3 months base.
QUOTA POTENZA (Power Share) [ € /kW]: it is computedmultiplying for a given price the monthly power required in the 15minutes of highest usage. The value of the given price is fixed annuallyby AEEG
IMPOSTE (Tax) [€ /kWh]: are proportional to consumption and arefixed by AEEG.
27
Figure 8 shows how different costs are allocated in a medium company inItaly16. The figure gives a general idea but scenario might change fromcompany to company.Most of the cost are proportional to consumption, therefore hypnotizing aflat cost of energy, i.e. a cost of energy which is directly proportional to theamount of energy consumed, Quota di Potenza gives the only exception.This entry is related to the peak of consumption. Therefore even if twocompanies consume the same amount of energy, the company which absorbmore power17 will be heavily penalized. The reason for penalizing userswho absorb peaks is that for the GRTN is more difficult to balance energyflow and respect all grid technical limits while it would be easier with a flatdemand curve since the grid should be designed and maintain to sustainpeaks.
Figure 8: Different shares of each electricity cost for a middle size company inItaly.
1.12 Conclusion
The Chapter presented a brief overview about monopolistic and liberalizedelectric market. To have a more detailed analysis Italian case as beenanalyzed. However, electric market main structure is similar in many
16 these data are confidential the name of the company will not be disclosed17 Power is energy per unit of time. Two companies might consume the same amount of energy, butone might have a flat absorption profile while the other one might present peaks. In this scenario thesecond one is penalized,
28
European countries. At the end of the chapter a broad introduction to maincomponents of electric bill have been presented. Even though structure of abill is similar around Europe, grid tariffs have much different weight fromcountry to country
29
2. Small scale energy production
This chapter analyzes some small scale production technologies and discusstheir diffusion in some countries of interest (mainly in Italy). Thesetechnologies usually use renewable sources or traditional sources in veryhigh efficient way. Technologies which are going to be analyzed are:Photovoltaic, Wind, CHP.
2.1 Photovoltaic
Price and market trends
Solar market has been growing in EU because of strong incentivesintroduced by some key countries like Germany and Italy. The goal of theseincentives was to develop local capability in the photovoltaic industry, tohave more energy production in Italy and Germany (countries whereelectricity is among the most expensive in the word) and to have decrease inrenewables’ prices reaching fast the scale and moving down the learningcurve for companies in the industry. Strong incentives have been workingand price decreased rather fast because of pressure from Chinesecompetitors. However starting from late 2012 in Italy and Germanyincentives have been either removed or strongly decreased and Italian andGerman photovoltaic market started to slow down. However pricescontinued to drop in order to make solar panel more attractive to customerswho are going to purchase them without government help18. Figure 9 showsprice trend for different modules technologies.
18 Solar Energy Report 2013, Energy and Strategy Group, Politecnico di Milano
30
Figure 9: Prices for photovoltaic modules of different technologies
EU has the biggest installed photovoltaic capacity in the world withGermany and Italy being the world’s leaders. Figure 10 shows howcumulated power is divided in the world scenario while Figure 11 presentthe same data at European level.However world scenario is changing. Table 1 shows that in 2012 Chinaovertook Italy for amount of new installed photovoltaic becoming the 2nd
market in the world.
Figure 10: Installed capacity by country in the world scenario
In the following years China and USA will most likely become biggestmarket in the world while EU will still retain an important position thanks tosome Easter EU countries like Romania and Bulgaria.19
19 Solar Energy Report 2013, Energy and Strategy Group, Politecnico di Milano
31
Figure 11: Installed capacity by country within EUTable 1: Installed and cumulative power in 2012 for different countries in the
world
Country 2012Installed Power
2011Installed Power
2012Cumulated Power
Germany 7 600 7 400 32 278China 3 500 2 000 7 000Italy 3 480 9 370 16 280USA 3 200 1 700 7 583Japan 2 000 1 100 6 914France 1 200 1 510 4 200United Kingdom 1 100 700 1 975India 1 000 150 1 461Greece 912 350 1 536Australia 800 700 2 200Bulgaria 670 145 815Belgium 655 850 2 672Canada 200 300 763Thailand 210 150 360Korea 209 N/A 963Israel 60 N/A 250Total Europe 16 803 21 000 69 400Total World 33 700 27 700 101 000
32
Future trends in Italy
With shrinking of government incentives Italian photovoltaic market willconsiderably shrink. Evolution of the market is directly linked to reachinggrid-parity, i.e. the condition in which cost of energy produced byphotovoltaic systems is the same as the cost of energy purchased from thenational grid, and some non-monetary incentives like simplifying somebureaucratic procedures, allowing group purchases in order to make usersbuy for cheaper prices and introducing the possibility to directly sell energy.In particular Italy recently introduced these kind of incentives in a verylimited form, they are called Gruppi di Acquisto Fotovoltaici (GAF)eSistemi Efficienti di Utenza (SEU).GAF consist in the possibility for to for a no-profit organization (called GAF)to present themselves, an association of users, as a single purchaser and beable to bargain better conditions.SEU represents the possibility for a producer to directly sell energy fromrenewables to a single consumer through a private grid. Obviously thismight be an enabling regulation since it reduces risk of photovoltaicinvertors through electricity purchasing contracts subscribed by users.Contracts of these kinds might help GRTN to regulate flow on national gridand to respect technical limits. Most important limitation concerns: thesingle consumer limit (who does not enable to apply this model to residentialblocks) location of the plant, unicity of connection to the grid (who does notallow producer and consumer to have separate connection to the grid andthus to not be liable only for their individual share of risk). Main advantagegiven by SEU is that in this case the final customer is not charged thevariable part of the grid usage fee for that portion of energy which is locallyproduced. In Figure 8 we saw that this share can be around half of the cost oenergy, giving a good advantage to SEU.
33
2.2 Wind Energy
Price and Evolution of technology
Wind energy production technology has been evolving very fast and is themost mature of renewable sources. Even though overall efficiency is ratherlow, around 15%, it is so far the most widely spread of all renewables sincecost of production from wind is almost equal to cost of production fromtraditional sources, i.e. it can operate in grid-parity conditions20. Howeverthis strongly depends on the positioning of Aerogenerators and of windconditions of the place. European cost of per unit of power is around1.3M€/MW. In Italy this cost is 20% higher (1.6M€/MW) because of longand time consuming bureaucracy. In fact while authorizations take fouryears in Italy, they take two years in Germany or France so that installedgenerators have out-of-date technology. It has been estimated that 1.9GW ofextra power might now be present in Italy.
Market trends
Wind energy has been a very promising and fast growing market in theworld even though in this case leadership has been lying in China and USAas shown in Figure 12.In the last years Brazil is becoming the most interesting Wind market, eventhough not the biggest, since in this country cost of production from wind islower than cost of production from gas, even considering that Brazil in richin gas. In particular production cost of 1MWh form aerogenerator is 61,79$while production cost from gas is 63,98$. For this reason more than half ofcapacity of new energy installment in the last two years have been windbased. At the same time, national law has been incentivizing localdevelopment of technical skills in several parts of the supply chain.Italy has still a lot of unused wind potential in particular in the South of Italywhere wind speed is higher than in the North and would allow efficientproduction Sicily, Puglia, Campania and Sardinia are the most promising
20 Wind Energy Report, Energy and Strategy group, Politecnico di Milano
34
regions. However, long and complicated bureaucracy (authorization time isaround two years, the double if compared to France or Germany) does notallow producer to install up to date technology so that 1,9 GW of extrainstalled power could be present with a faster bureaucracy. In fact when acompany is allowed to install authorized aerogenerators, thoseaerogenerators are already out of date in the other EU countries21.Another obstacle facing development of wind energy in Italy is that windabundant places are historically in less connected area so that GRTN (TernaS.p.A.) often has to disconnect the plant in order to respect grid’s technicallimits, for this reason around 500GWh of production have been lost 2012.
Figure 12: Cumulative installed wind power in 2009, 2010 and 2012 for several
world countries.
Mini-generators
Mini-generators present very different technology from big generators andalso market evolution has been deeply different. Even though there is nointernational classification for mini-generators we are going to call a minigeneration site a site ranging from 1 KW to 200 KW of installed power.However mini-wind generation site are not very common so that this is stilla growing market in many countries. One big advantage of these systems isthat they can work even with lower wind presence being able to work with a
21 Wind Energy Report, Energy and Strategy group Politecnico di Milano
35
wind speed of 2 m/s in the residential case. However, reducing the scale ofaerogenerators induce a strong increase in costs. For plants below 10KW thecost is around 5000€/kW therefore it is much less expensive thanphotovoltaic. Introduction of a standard tariff reimbursement of around300€/MWh make investment in mini-wind generators rather profitable inItaly. Without entering details of incentives in Italy22, Figure 13 shows theIRR of a 20kW generation site in Italy with 2012 and 2013 incentives. Thenewer incentive are more convenient in case of smaller amount of workinghours (less windy places).Since most of mini-wind generators potential has not been exploited in Italya rapid growth could be foretasted even though it could be slowed down byexcessively complicated authorization procedures. In particularly Sicilymight have a very high growth potential given by the low presence ofmini-wind generation with very favorable conditions wich brough the islandto by the leader of big size wind generators.Figure 14 and Figure 15 give and idea of diffusion of “big” wind generatorsand mini wind generators in Italy.
Figure 13: IRR for mini-wind generator with 2012 (300€/kWh) and 2013 (291€/KWh) regimes.
22 For the interested reader the “Wind Energy Report” from Energy and Strategy Group -Politecnico di Milano is suggested.
36
Figure 14: Wind-generators installed capacity for different regions in Italy
Figure 15Mini wind-generators installed capacity for different regions in Italy
2.3 CHP
Although CHP (combined heat and power) is not a renewable source ofenergy it is often incentivized by governments because of jumps inefficiency it allows. CHP consists in producing energy from traditional orrenewable sources (mainly biogas, natural gas or GPL) and reuse heatproduced in the process (generally wasted) as a source of industrial heat orin order to facilitate other electricity generation processes. CHP hasbecoming a popular source of energy since the minimum efficient scale of asmall gas power plant has been reducing electricity production from smallplants have similar efficiency conversion rate to big plants. Figure 16 showworking principle and gives a general idea of efficiency rate for CHP
37
system.
Figure 16: Efficiency comparison CHP and traditional source plant
Studies published in Confindustria website shows that such a technology isconvenient for companies in need of heat for industrial processes. Paybackis estimated in around 3.2 years for a 1MW system, as shown in Table 2.Cost of natural gas powered CHP systems are around 900€/KW. A jump inthe amount of CHP systems has been registered in those industries requiringheat for industrial processes. CHP has been particularly interesting in USAbecause of the relatively cheap methane prices.
2.4 Conclusions
This chapter discussed main generation system used in small scaleproduction with a special focus on market trends. Part II will discussproblems introduced by this sources of energy in the national grid. Smartgrid will be discussed as the most reasonable solution to those problems.
38
Main Assumptions:
Cost of plant 900 000€
Cost of gas 0,30 €/Smc (1Smc=9,6kWh)
Average Cost of electricity 110 €/MWh
Maintenance Cost 8,0 €/MWh
Working hours 4 500/year
Without CHP
Electric Consumption 1000 x 4500h = 4500000 kWh Electricity Expenses: 110x
4500h= 495000€
Gas consumption 1250x4500h/9.6 = 585900 Smc Gas Expenses: 585900x0.30=
175770€
With CHP
Gas consumption 2500x4500h/9.6 = 1171875Smc Gas Expenses: 351560€
Yearly maintenance cost 4500x8 = 36000€
Yearly saving 495000+175770-351560-36000 = 283210€
Payback (without financial costs) Aprox. 3,2 years
Table 2: Payback of CHP system
Figure 17: Natural gas prices in USA, Japan, UK23
23http://upload.wikimedia.org/wikipedia/commons/6/6c/Natural_Gas_Price_Comparison.png
39
3. Energy Storage
The basic idea behind energy storage systems is to store energy when thereis excess production and to use energy later on when it is needed. Storagesystems are complex systems made of several components. Furthermoredifferent technologies can be used to store electricity. This Chapter willfocus on Electrochemical Storage systems (ESS)
3.1 Advantages of Storage Systems
A Energy storage system (ESS) is a system which is able to store energy incertain conditions and release energy in other conditions. Depending on thetechnology that is adopted and on the management of the system we canidentify Power Applications (where the most interesting data is how muchpower can be supplied by the system at any moment) and EnergyApplication (where the most interesting information is how much energy canbe supplied by the system at constant power).24
ESS might theoretically help to balance and stabilize modern grids. Withrespect to a generic ESS, mechanical, electrochemical or pumped hydro, thesystem could provide operations of: time shift, renewables integration, timedeferral of investments, security of electrical systems, grid services andpower quality.
Time Shift
Time shift applications are related to arbitrage on electricity price, i.e. thepossibility of acquiring energy when it is cheaper and immit energy to thenational grid when it is more expensive. In such a way speculation could bepossible for the owner of the ESS and price mitigation could be a sidebenefit for grid users. In particular arbitrage might be done using onlystorage, and therefore trading energy in the time (from “cheap” time to“expensive” time), or associating it with renewable production, and
24 Power is given by Energy per unit of time P(t, ·) = ∂E(t, ·)/∂t
40
therefore accumulating produced energy in order to sell in in the most“expensive” time slot.Another interesting application of time shift might be done by prosumer (i.e.Consumer of electricity with their own generation capability) in order tomaximize the amount of self-consumed energy. This last application mightbe interesting in countries incentivizing self consumption to grid immission(like Italy is recently doing).
Renewables Integration
Storage systems might efficiently assist renewables in order to fully exploittheir potential. In particular wind generators are usually installed in remotearea poorly connected to the main grid. Therefore, as we discussed inchapter 2, their potential cannot sometimes be fully used in order to avoidgrid congestion. A Storage system might be able to store some energy whentoo much energy is produced and the grid is not able to support theimmission in order to introduce energy on the grid when less energy isproduced.Furthermore ESS might increase predictability of energy immission if theycan store a greater amount of extra-generated energy and immit some energywhen meteorological are worst than expected. In this way the market forallocation of energy (MGP in Italy) can work in a more efficient way and theeffect of extra-generated energy might be shift to final user in the form ofcheaper electricity price.A last possible element of greater integration between Renewables andtraditional national grid might be represented by the possibility to partiallysubstitute thermical sources of electricity in order to face renewables’unpredictability. In fact gas and oil generators are rather slow and a fastresponse is very expensive. On the other side electronic storage system areusually very fast in response and they could be used to smooth traditionalgenerators’ response.
Deferral of relevant investments
ESS can be used to support transmission line when relevant investment isneeded for its update. Safety rules impose that the line should be designed in
41
order to sustain the peak of consumption in the line itself even though thisbarely happens. An increase in consumption in an area might requireupgrade of the line in order to avoid accidents and blackouts. An ESS mightdiffer this investment in the future supplying the extra-energy when it isrequired and accumulating energy when the line is not fully used. At thesame time a smoother charge profile for the grid might increase its usefullife further deferring investment in grid update.
Security of electrical systems
ESS can improve security of electrical system by providing a black start incase of black out. In fact many big generators need electricity in order tostart electricity production. ESS might solve this problem supplyinggenerators with stored electricity allowing the restarting of the grid after ageneralized black-out. For this reason in the future energy storage might beincludes in national grid defence plan by governments.
Grid Services
ESS might provide useful grid services and provide efficient regulation offrequency and voltage in the line. In fact these regulations are easier to beperformed by a ESS than by a traditional plant.Another useful ESS service might be synthetic inertia, i.e. the ability of ESSto artificially give inertia to renewables in order to avoid “random elements”.Finally ESS might be use by the national grid manger as a primary,secondary and tertiary energy reserve able to be more responsive thantraditional ones.
Power quality
ESS installed in crucial point of low and medium voltage transmission linemight be used to increase power quality providing a more stable voltage andfrequency. Furthermore in some application they might continue to supplysome areas when users are disconnected from the main grid in order to avoidinverse flow and protect feeders.
42
3.2 Storage Technologies
Storage systems are made of several components, not only of energyaccumulator. In general a storage system is made of: Accumulator of electrical energy Equipment for grid connection Inverter (able to convert from DC to AC) System for battery and grid connection control Remote storage management systemGovernment and companies are heavily investing in energy storagetechnologies so that today several accumulator options are available fromthe most traditional one to the most innovative.In particular accumulator technologies can be classified into:Electrochemical, mechanicals, electrical, chemical and thermal. Figure 18shows a classification of accumulator technologies. The next paragraphpresent a very brief and general overview on electrochemical accumulator.Specifics of some common accumulators are shown in Table 3
Electrochemical Accumulator
This kind of accumulator transform chemical energy into electrical energyand the other way around. The general functioning principle is that aRED-OX reaction happens in two separate electrodes and electronmovements is used to generate current. Reverse reaction happens whenexternal electric field is applied to the battery. Most commonly usedtechnologies are: Aqueous Electrolyte: usually provide low performance and low energy
density High temperature batteries: usually made with cheaper materials,
longer useful life, require high temperature to work Electrolyte Circulation: can dis-couple supplied energy and power but
can work on a limited temperature range Lithium batteries: is the most versatile technology useful both in power
and energy application. However a good management system is
43
necessary to avoid fires.
Figure 18: Storage systems classification
StorageSystems
ElectroChemical
Mechanical
Electric Chemical Thermal
AqueousElectrolyte
HighTemperature
Lithium
ElectrolyteCirculation
PumpedHydro
CAES
Fly Wheel
SMES
SuperCapacitor
Hydrogen
Syngas
MoltenSalt
Heat
44
Table 3: Specifications of some batteriesTe
chno
logy
Bat
tery
Stor
age
capa
city
[A/h
]
Spec
ific
Ener
gy[W
h/kg
]
Spec
ific
Pow
er[W
/kg]
Effic
ienc
y[C
harg
e/D
isch
arge
]
Am
pero
met
ricef
fcie
ncy
Num
bero
fcyc
les
Tem
pera
ture
rang
e
C-ra
te
Elet
trolit
aac
quos
o
Lead
batte
ries
1÷10
000
1000
0
15÷2
5
25 20÷4
0
40 70÷8
5
854
80 800
-20÷
60
60 C/1
0
LNic
kel-C
adm
ium
8150
0
1000
0
50÷6
0
500÷
800
60÷7
0
70÷8
0
1000
÷120
0
-50÷
70
C/8
÷C/5
Hig
hte
mpe
ratu
re
Sodi
um/su
lphu
r
628
240
210
90 100
4500
C/8
Circ
olaz
ione
elet
trolit
a
Vana
dium
25 100
60÷8
5
80÷9
0
1000
0
0÷40
C/1
0
lithi
um
Lith
ium
0.1÷
1000
0
40÷1
80
200÷
3000
80÷9
5
100
1500
÷500
0
-30÷
60
C/3
45
3.3 Regulatory Environment
Regulation concerning storage systems are in the embryonal phase in manyEuropean countries. In EU Italy and Germany are the only countries whoprovided some regulatory framework with Italy (starting from 2011) havingthe most advanced regulation concerning Transmission and Distributionsystems and Germany having regulation concerning prosumer (starting from2013). This paragraph will provide a general overview of Italian regulatoryframework. Although it is the most advanced in EU there are still manyproblems and many storage applications are not regulated at all.
Big impact of renewables in Italy lead the Government and the authority forelectrical energy to introduce legislation concerning storage as a mean tostabilize the national grid and have a more predictable supply of energyfrom renewables. Several kinds of normative acts have been taken in Italyaddressing in a direct or indirect way the topic of electrochemical energystorage, in particular these acts concerns: guidelines, incentives and relatedacts.
Guidelines
Guidelines so far concern on the Transmission system operator (Terna S.p.A)and Distribution system operators (like ENEL, ACEA, A2A, ...). This factstresses the point that the government and the authority want to focus theirattention at grid level and not at prosumer level. Considering that ItalianGovernment and electric authority perceive storage as an interesting but notstill economically sustainable technology, their orientation is veryreasonable. However at the same time prosumers who want to invest instorage find themselves in a gray area, not being sure whether they are ableor not to use certain technologies. Italian guidelines on storage where givenin rapid succession since 2011 and are: D.lgs 3rd March 2011 n. 28 (“Decreto Rinnovabili”): According to this
decree the Transmission System Operator should prepare an
46
empowering plan for the national grid able to guarantee a betterfunctioning of renewables. At the same time AEEG should provide areward on the base of efficacy and rapidity of execution of the plan.
D.lgs 1st June 2011 n. 93: This decree identifies how Transmission gridoperator and distributor operator should provide services. In particularthe Transmission grid Operator need to present every year a 10 yeardevelopment plan. Both kinds of grid operators are enabled toimplement and manage diffused electrochemical storage systems.
ARG/elt/199/2011, 29th December 2011: This AEEG resolution focusesattention on investment to empower distribution grid and in particularon those investment to better integrate renewables generation. It alsoprovides incentives to Terna (Italian transmission grid operator) for theimplementation of electrochemical storage system if it is planned in theten years plan, removable, guarantee immission of energy fromrenewables, complements dynamic grid control, it is finalizedregulating frequency and in absorbing energy which cannot beabsorbed in a more economical way.
Incentives
Several incentives oriented toward transmission and distribution operatorshave been introduced by AEEG. These incentives have been introduced by: ARG/elt/199/2011: this resolution, introduced in the previous paragraph
allocated incentives in the for of a return on invest ment of 8.4% fortransmission operator and 8.6% for distribution operator. Incentives canbe increased of an extra 2% if requirement presented in AEEG288/2012/R/eel are respected (transmission operators) and if otherrequirements (to be given) are respected for distributor operators.
AEEG 288/2012/R/eel: this resolution allows the transmission operatorto claim an extra 2% ROI is the application maximize immission in thenational grid of energy produced by renewables (energy intensive),increasing absorption from renewables of at least 50% and if theinvestment present a relatively high merit factor (benefit/costs)
AEEG 43/2013/R/eel: this resolution introduced the extra 2% incentivesalso for “power intensive” application like the two project presented by
47
Terna in Caltanissetta and Ottana. AEEG/66/2013/R/eel: this last resolution increased the number of
“energy intentive”incentivized projects from 3 to 6 at the condition thatthey can allow prediction of energy production from renewables andfrequency regulation. Terna started 6 project signing a contract with theJapanese NGK for the supply of lithium storage systems for a total of79 MW and 470 MWh.
Related acts:
Together with direct regulation and incentives there are some indirect actsinfluencing storage market and regulation by addressing other problems.This paragraph presents a list pf them without giving too many details.Interested readers might easily find regulation online.In particular these rules concern: Technical connections of renewable generator to the national grid for
photovoltaic (Regole tecniche di connessione A.68 “Codice di rete diTerna”) and wind (Regole tecniche di connessione A.17 “Codice di retedi Terna”)
Connection of active and passive users in Medium and low voltagelines (CEI 0-16 and CEI 0-21)
Promotion power quality and improving National Electrical Service(AEEG ARG/elt/160/2011 and AEEG ARG/elt/ 198/ 2011)
Introduction od grid services for medium and low voltage producers(AEEG ARG 84/2012/R/eel and A70 (Codice di rete di Terna) and CEI0-16:2012)
Introduction of unplugging option of diffused generation for theTransmission operator (A.72 “Codice di Rete”)
Decree giving AEEG the power to define how responsible ofphotovoltaic production can use storage system integrated with inverterin order to improve management of produced energy and to store partof production (D.min 5th July 2012, “V Conto Energia”). However the31st of May 2013 AEEG still did not present any resolution. ANIE(association of electrical and electronic companies) presented a requeston the topic
48
Summary of Italian regulatory environment
The “2013 Smart grid report” by the energy and strategy group ofPolitecnico di Milano present the table shown in Table 4 as a summary ofwhat kind of storage operations are actually regulated in Italy. A green cell(marked with “DR”) indicate that there is a clear regulation concerning theactivity, a yellow cell (marked with “IR”) indicates that there is an indirectregulation while a red cell (marked with “NR”) indicates that no regulationhas been provided. It can be noted that many potential activities are still notregulated. The table also shows that the Government and the Authoritieshave been focusing attention on Transmission and Distribution Operatorsmore than on prosumer or microgrid.
49
Table 4: Summary of Italian regulation concerning electrochemical Storage.NRR (No Regulation Required), DR (Direct Regulation), IR (indirect Regulation,
NR (No Regulation)
Actor/Functions
FRN
Ppl
ant
TSO
DSO
Mic
rogr
id
Pros
umer
Ener
gyA
pplic
atio
ns
Energy price arbitrage (EESS) NRR NRR
Energy price arbitrage
(EESS+FRNP)NRR NRR NRR
Increase energy self-consumption
from FRNPIR IR
Reduction of Power Share IR IR
Increase load flexibility
(load following, peak shaving)NR NR
Reduction of Grid Congestions DR DR
Regulation / predictability
Production programsIR IR IR
Regulation Interface profile
HV/MVDR
Postponement / Reduction
Grid investmentsDR DR
Participation to black start functions NR DR NR
Integration with defence systems NR DR NR
Pow
erA
pplic
atio
ns
Congestion resolution in the
planning phase
Synthetic Inertia NR DR NR NR NR
Primary Frequency Regulation NR NR NR
Secondary and Tertiary Frequency
RegulationNR N
R
DR NR NR
Real time Grid Balancing NR NR
Voltage Regulation IR DR DR IR IR
Voltage Quality NR IR
Service continuity DR IR IR
50
Incentives in other countries
As we discussed in the beginning, Italy is in European frontline for asconcern storage electrochemical regulation although Italian regulatoryframework presents several problems. Germany stated to regulateelectrochemical storage in May 2013 introducing incentives for prosumer(user which are not still regulated in Italy). Incentive system has beenintroduced in Germany the 1st of May 2013 and concern photovoltaicsystems coupled with a electrochemical accumulator. Kreditanstalt furWiederaufbau (KfW) (bank of landers and federal government allowedincentives) providing loans with very low interest rate finalized toimplementation of photovoltaic system with storage. German ministry forenvironment provide incentives to KfW up to 30% of the financed systemand only after the system is properly working a partial refound can berequired. The total financing is 50 mln € to be equally divided in 2013 and2014 and is open to everyone except state-owned companies and partial orglobal producers of financed systems. Main requirements are: Capacity of photovoltaic system smaller than 30kWp; Installment and working od the system after31st December 2012; Less than 60% of produced power in immitted into the grid; More than 7 years of warranty of the storage system; Inverter should have an interface to remotely control it depending on
the grid’s working.
In 2013 with the “Storage Act” USA also started a regulation of Storagesystem. In particular three different kinds of incentives are recognized: Grid connected storage in transmission and distribution lines (to store
and sell electricity or to improve grid’s reliability) can detract from tax20% of investment for storage able to provide at least 1MW per 1h.Maximum dimension of financed project should be 200 mln $ and theTotal amount allocated by US government is 1500 mln $
Grid connected Storage in commercial or industrial users (to performpeak shaving operations or to increase self-consumption of locallyproduced energy) can detract from tax 30% of investment for storage
51
able to provide at least 4kW for 5h. Maximum dimension of financedproject is 3.3 mln $
Grid connected Storage in residential users (to perform peak shavingoperations or to increase self-consumption of locally produced energy)can detract from tax 30% of investment for storage able to provide atleast 500W for 4h.
3.4 Potential Storage Markets
Potential investment
Energy market involve several operators. This paragraph summarizes areport from “Energy and Strategy Group” from Politecnico di Milanoreporting potential application of storage system for several actors and IRRfor those investment. Some of these investment could be done in Italyaccording to actual law while for other application regulation are not stillclear. Analyzed actors are FRNP (Producer of not programmable renewableslike photovoltaic or wind), Transmission system operator, Distributionsystem operator, microgrid and prosumer. Table 4 shows possibleapplication of storage system and regulatory environment in Italy.Table 5summarize the analysis made by “Energy and Strategy” Group atPolitecnico di Milano. Highlighted application are those which at themoment are not supported by clear regulations. In order to evaluateinvestments some assumption on IRR were made. In particular a 8% IRRhas been considered acceptable for FRNP, TSO and DSO, a 6% IRR formicrogrid and a 4% IRR for Prosumers. Negative IRR are shown in Red,IRR above the acceptable threshold are shown in Green while the others(positive but not still acceptable according to assumptions) are in Yellow. Itis interesting to note that all “green IRR” correspond to highlightedapplications (and therefore not still regulated) and only one “yellow IRR”Correspond to not highlighted applications regarding an increase ofself-consumption, power quality and decrease of unbalances for a microgrid.However regulation in the field is evolving rather fast so that many
52
applications might soon have a clearer legal framework.
Italian market Size
Another part of the same report analyze market size of storage in Italy. Thereport assumes that in the near future FRNP will be asked to provide somekinds of grid services and to immit energy in a more predictable way. Underthis assumption market for electrochemical storage in Italy from 2014 to2020 is of 7GWh and 10 bln € investments with TSO and DSO contributingonly to 12% and prosumers, microgrids and FRNP (respectively 39%, 28%,22%) representing the most appealing part of the market. If law requiringextra regulation will be applied also to existing FRNP market will reach thesize of 23 bln € in 2020. In particular storage systems (which nowadays arenot still competitive) might eliminate missed production from renewablesfor 20mln €/year and Transmission losses for 70 mln €/year. At the sametime they could partially reduce development cost decrease cost related toinefficiency in energy market. These costs are estimated to be around 4150mln €/year (see the report for further informations).However boom of storage market can take place only if price for storagewill decrease significantly. According to the “Energy and Strategy” Group,who made all the previous estimations, significant reductions on storagetechnologies price will happen within 2020.Another interesting condition is an evolution of the regulatory frameworkconsidering Dispatching Law which will allow DSO to invest on storagesystems to provide grid services an increase power quality and anobligation/option for FRNP to provide some grid services. The last point hasalready been introduced by principle by Italian Authority but never clearlyapplied. Italian equivalent of IEC, CEI, with the technical norm CEI0-16:2012 make some movement in this direction.
Storage Market in Italy
Storage market in Italy is still in the embryonal phase. AEEG is stimulatingTSO and DSO to undertake some “pilot projects”. However a rapidevolution of the regulatory framework is necessary in order to “unlock” apotential big market. Incentives
53
To DSO and microgrid might this big market start and foster reaching ofefficient scales and lower prices.
3.5 Conclusion
The Chapter gave a brief introduction to electrochemical energy storagesystems and to their potential technical benefits. Economics benefits havestill not been discussed in this chapter. A brief overview of Italian andGerman regulation about EESS has been presented with a summary of areport about Italian regulated applications and market size made byPolitecnico di Milano.
54
Table 5: Economical analysis from “Energy and Strategy” group at Politecnicodi Milano. Highlighted application are still not supported by clear regulation in Italy
Pros
umer
IRR
-18.
8÷
-16.
4
-12.
6÷ -8.7
-10.
6÷ -6.1
App
licat
ion
-Inc
reas
ese
lf-co
nsum
ptio
n
-Inc
reas
ese
lf-co
nsum
ptio
n-D
ecre
ase
unba
lanc
es-P
ower
qual
ity
-Inc
reas
e．．．．．．．．．
self-
cons
umpt
．．．．．．．．．．．．．
ion．．．
-Dec
reas
e．．．．．．．．．
unba
lanc
es．．．．．．．．．．
-Pow
er．．．．．．
qual
ity．．．．．．．
-Grid
．．．．．
Serv
ices
．．．．．．．．
Mic
rogr
id
IRR
-21.
7÷ -21
1.2 ÷ 2.5
4.6 ÷ 6-0
App
licat
ion
-Inc
reas
ese
lf-co
nsum
ptio
n-D
ecre
ase
unba
lanc
es
-Inc
reas
ese
lf-co
nsum
ptio
n-D
ecre
ase
unba
lanc
es-P
ower
qual
ity
-Inc
reas
ese
lf-co
nsum
ptio
n-D
ecre
ase
unba
lanc
es-P
ower
qual
ity-G
ridSe
rvic
es
DSO
IRR
-14.
6÷
-10.
4
10.6 ÷ 13.9
12.2 ÷ 15.6
App
licat
ion
-Vol
tage
cont
inui
ty
-Vol
tage
cont
inui
ty-H
ighe
rqu
ality
Volta
geco
ntin
uity
-Hig
her
qual
ity-G
ridSe
rvic
es
TSO
IRR -9.0 ÷ -6.1
-7.4 ÷ -4.4
0.6 ÷ 4.5
App
licat
ion
-Grid
Serv
ices
-Inv
estm
ent
post
pone
men
ts -F
RN
Pin
tegr
atio
n
-Inv
estm
ent
post
pone
men
ts -F
RN
Pin
tegr
atio
n-G
ridSe
rvic
es
FRN
P
IRR
-23.
5÷
-20.
7
-15.
4÷
-11.
9
App
licat
ion
-Arb
itrag
e-U
nbal
ance
redu
ctio
n
-Arb
itrag
e-U
nbal
ance
redu
ctio
n-G
ridSe
rvic
es
55
Part II:Smart-Grids and
Micro-Grids
56
4. Smart-gridsPart I provided some basic elements for our discussion. The objective of partII is to introduce the concept of smart grids and microgrid in a intuitive way.Renewable energy production cannot be reliably fore-casted. Manycountries have been promoting renewables giving to “renewable” energy adispatching priority and no grid balance responsibilities. This means thatcompanies producing from renewables can just inject into the grid all theproduced electricity without scheduling (because it is not possible toschedule) and without cooperating in balancing the grid.Increase of renewable shares in many countries like Germany, Italy,Denmark and Spain introduced several problems into the electrical market.Firstly instability of supply generated a price instability (price is given byDemand and supply equilibrium). Secondly, since renewables producers donot provide balancing service, grid balancing capabilities has beendecreasing with the increase of renewables’ shares. Thirdly sometime energyproduced by renewables is greater than the grid technical limit in the areaand cannot be used.Smart grid concept relies on using the existing grid in a smarter and moreefficient way in order to offset all these problems.This chapter will provide a detailed discussion of problems related torenewables introduction and their possible solution.
4.1 Effects of renewables in the market price
As reported in the introduction to this chapter Italy, Denmark and Germanyhad a rather fast spread of renewables. Figure 19 shows evolution of windand photovoltaic power in Italy from 2005 to 2006. In 2013 these twosources of energy represented the 12% of the total Italian supply of energy.In order to reach the national goal of 36% of the energy demand fromrenewables before 2020, problems related with managing the instabilityintroduced by renewables should be faced.
57
Figure 19: Installed wind (green) and photovoltaic (red) power in Italy as a share
of national Electric energy demand
Diffusion of renewables (in particular of solar and wind energy) implies theintroduction of energy sources which cannot be planned in national gridsaccording to the modalities described in Chapter 1. This is a big challengefor the national grid manager who interacts with the government in order toprovide incentives for renewables. The problem is even more tricky incountries which are poor of alternative resources, like Italy. On one siderenewables could be a partial solution to cover energy deficit and decreasethe price of energy (in the next future) while on the other side the gridshould be able to support immission which are not coordinated. Anotherproblem is given by the fact that production from renewables does nothappen in the desired amount and at the desired time, but it usually needsthe presence of a stochastic renewable source (sun or wind). Therefore theremight be times in which all produced energy cannot be consumed and timesin which there is an high demand for energy but there is not enoughproduction from renewables.Report made on the 18th of June 2013 by AEEG to Italian Senate shows thesituation Italy, one of the most critical market for renewables sourcesbecause of its position and the lack of other source of energy. Figure 20shows proportions of different sources for Italian energy over time. It can beseen that from 2002 to 2012 amount of renewables almost doubled. Inparticular Figure 21 shows that installed solar energy capacity jumped fromalmost zero to a capacity very close to that of water. Although renewables
58
did not satisfy Italian need of energy and Italian prices are among thehighest in Europe and in the world (see Figure 23), introduction ofrenewables and photovoltaic in particular allowed an inversion of the trendin energy prices as shown in Figure 22.Some interesting information regarding the effect of renewables can befound in the Report mentioned at the beginning of the paragraph. Figure 24shows demand and energy prices in two working days in May 2006 and2013. Energy demand decreased by 10% (mainly because of Italian crisis),while energy price decreased by 24.3%. The “belly visible in the red curve”shows the effect of renewables: energy become cheaper when photovoltaicproduction is the highest. On the other side energy is more expensive than in2006 in those moments when renewables effect is the lowest: in the nightand early morning.
Figure 20: Sources of energy in Italy
Natural Gas
Oil
Renewables
Coal
59
Figure 21: Different proportions of renewables sources of energy per installedpower [GW] and actual energy production [TWh]
Figure 22: Evolution of average daily energy price in Italy
60
Figure 23: Evolution of average daily energy price in Italy, France, UK, Spainand Germany
Figure 24: Comparison of Energy demand and prices for two working days in May2006 and May 2013
61
4.2 Effect of Renewables on the grid
Chapter 1 introduced the Balancing and Dispatching Market and discussedabout importance of instantaneous grid balance. Renewables might createseveral technical problems related with planning the proper amount ofenergy in the Previous day Market (MGP in Italy) and in the Dispatchingservice Market (MSD in Italy) and to guarantee a high level of security inthe national grid.A measure of the level of criticality is given by the flow inversion. Flowinversion happens when electricity flows from the lower voltage line to thehigher voltage line (i.e. in the opposite way from how it was designed). Thewidespread diffusion of renewables has generated an increase or inverseflow phenomena. This is given by the fact that energy generated in lowervoltage lines cannot be consumed locally and moves through higher voltagelines. Data provided by Enel Distribuzione (Italian Distribution SystemOperator) shows how this phenomenon has been increasing in recent years.A comparison between Figure 25 and Figure 26 indicates how thephenomenon has been increasing with diffusion of renewables.
Figure 25: proportion of transformer operating in reverse flow in 2010, 2011 and2012
During holiday days (when electricity consumption is lower) the mediumMarket voltage line can globally operate in reverse flow operation in a waythat is much different from the typical one. In particular, the figure shows
62
how the reverse flow operation can be linked with the highest solar radiationand therefore highest photovoltaic production.
Figure 26: Reverse flow in a holiday day in 2012 (after massive introduction of
photovoltaic in Italy)
Reverse flow could generate problems in changing voltage setting for thelow or medium voltage lines creating problems for the whole lines. In factthe feeder voltage gives the voltage setting point in proximity of thetransformer. A reverse flow of energy might increase this setting point andcreate overvoltage problems for the whole grid. Furthermore if frequencyand voltage levels were much disturbed by a generating unit, the protectionsystem might unplug that unit from the grid starting a chain effect whichwill unplug all renewables. A scenario where considerable amount of energyis supplied by renewables might present significant blackout dangers25.Renewables might therefore present various economical and technicalproblems for the national grid.
25 For further reference “Protection of Power Systems with DistributedGeneration: State of the Art”, Martin Geidl, 2005
63
4.3 Smart-grids
Problems introduced by renewables represent a big challenge to nationalgrids. Furthermore todays European grid have been designed after WorldWar II with a fit and forget approach. This means that grid have beendesigned to tolerate more than the peak of demand in each zone. Howevercontinuous increase of demand creates several challenge since Transmissionlines might not be able to supply the proper amount of energy,On possible solution is to replace parts of the grid with newer and morecapable ones. However this approach is costly and takes long time. On theother hand continuous spread of Distributed generation and selfconsumption started another significant trend in which, even though demandincrease, the amount of energy withdrawn from the grid might decrease. Inthis scenario is difficult for GNRT (in Italy Terna S.p.A.) to decide whethergrid should undertake significant update process or not. One possibleoutcome is, in fact, that when more capable grid will be ready there will noneed of such capacity any more.Smart-Grid represent another possible approach to the problem. Smart Gridapproach is to couple the actual grid with a ICT system and to use theexisting grid in the most possible efficient way.In order to do so it is necessary to: Maximize local consumption fro Distributed generation Introduce Storage element to support the grid Control significant part of the DemandMaximize local consumptionThe first smart grid goal can be achieved by controlling generating unit,local storage and consumption units. Such a system is called Microgrid andwill be the focus of the next chapter.Storage introductionStorage system have been analyzed in the previous chapter. ESS can supportthe grid in renewable integration and in balancing functionsDemand Control
64
The technological frontline for Smart-Grids is, however, demand control.Demand control consist in “shaping” demand curve using instantaneousprice instead of equilibrium price, For Example, in order to have a flatdemand curve utilities might instantaneous increase electricity price forcustomers. Advances home appliances might “read” price signal andpostpone or anticipate some actions. Some simple demand response programhave already been introduced in USA for bigger consumers this programwill be analyzed in the third part of the work.
4.4 Sensitizing Customers to Grid balance issues
The present paragraph discusses some strategies which have beenimplemented in several counties to sensitize customers to grid balance issuesusing some form of monetary reward. Discussed strategies are: Dual-time pricing Curtailment Programs Grid Balance
Dual time price
As we discussed in Chapter 1, electric grid is a very complicated system andits management involve several actors from the Government to the consumer.In order to guarantee a proper grid load, and since night consumption ismuch lower than day consumption, in some countries different electricitypricing were introduced for the day and the night in order to shiftconsumption to the night hours. This “approach”, known as double timetariff, is the easiest and less effective way to balance grid usage and has beenin usage for several years. Although the solution is not innovative and itsefficacy is rather limited, it tries to approach the basic problem of balancingthe grid and sensitize customers through a price motivation.
Curtailments programs
A more recent solution, a further stap toward greater grid balance, has beenthe Demand side response or Curtailment Programs.
65
These programs respond to the peak power needs of the power system.When extra amount of power is needed in the local network, utilities payloads to curtail demand, instead of paying for additional capacity fromgenerators. Loads that participate in these programs can expect to be calledupon four to six times per year with each curtailment event lastingapproximately four hours. The owners of the loads are contractuallyobligated to bring the electricity usage for the contracted load to a halt. Loadowners receive a capacity payment for responding, but, in the event theycannot meet their commitment, there is a penalty.
Grid Balance
Grid Balance relies on a technology developed by Oak Ridge NationalLaboratory and licensed to ENBALA. In a relevant paper “Examination ofthe potential for Industrial Loads to provide ancillary services” OakLaboratory examined the ability of users to supply ancillary serviced to thegrid by modulating their loads. ENBALA actually implements thistechnology in US and Canada with a rather innovative business model.This program, acts to match, in real-time, the supply and demand ofelectricity on the power system. Total system demand changes continuously,requiring the grid operator to initiate frequent, rapid changes (every fourseconds) in generation or load to correct small imbalances of supply anddemand. The demand-side loads that comprise ENBALA ’ s networkincrease or decrease their electricity consumption in exchange for a newrevenue stream. All events are automated, in real-time, and are transparent tooperating processes. There are no penalties if a company’ s loads are notavailable to respond.From the user point of view, ENBALA affords building automationinvestments in order to control some customer processes which are notrelevant for the customer itself. For not relevant they mean that the processmight be postponed or anticipated without compromising the customeroperational processes. In this way ENBALA can optimize utilities needreconfiguring part of the demand. Utilities can have significant saving sincethey can follow consumption profiles declared in the previous day marketand avoid penalities described in Chapter 1. On the other hand customer
66
receives an economical compensation on the base of their asset flexibility.Any time shifting operation can be not authorized by the customer whoretains a sort of “veto right” for each operation proposed by ENBALA. Theprevious paragraph showed which are processes retain higher flexibility.
4.5 Conclusions
Introduction or renewables present several changeling problems fortraditional grids. Development of smart grids represent a way to avoidrelevant and risky investment. The basic idea behind smart grids is to use thepresent grid in the most possible efficient way.
67
5. Microgrids
This chapter focus on microgrid and presents a general discussion on thetopic. Microgrid have been introduced in the previous chapter as a systemwhose diffusion might avoid problems to the national grid. Howevermicrogrids might present significant advantages also to private companiesadopting them.A microgrid is usually defined as “a partially Independent portion of thegrid” containing the main grid key elements: production, consumption,storage and control. Microgrids are in general used to give partial or totalautonomy to some companies or areas trying to control consumption andgeneration in order to maximize some function (like energy produced fromrenewables or more commonly reduction of costs). Main voices ofelectricity bill in Italy have been discussed at the end of Chapter 1. It issuggested to the reader to review that brief paragraph in order to betterunderstand how a microgrid can minimize cost function. In general Energycan be purchased according to several pricing models. Among the mostpopular in Italy there are: Tariffa mono-oraria (single time price): consists in having the same
price per kW defined by contract at any moment in time; Tariffa bi-oraria (dual time price): consists in having two different and
fixed price for energy in two different time slot (usually day and night); Tariffa di mercato (market based price): follows energy market price
with some mark-up applied by the energy dealer.In the following paragraph it is assumed that user decide to adopt a marketbased price in order to efficiently manage different price of energy duringtime and optimize consumption according to market conditions.
Fundamental components of micro-grid
A micro-grid is composed by the following basic components: Automatized control system;
68
Energy generator (usually from renewable sources); Storage system; Consumption center.In the following part of the paragraph each component will be brieflydiscussed. In particular discussion of the automatized control system willshow potential of the a smart microgrid.
Automatized control system
The first stage of implementation of a smart grid is to map all mainconsumption centers and to introduce a control system able to anticipate orto postpone the beginning of some processes in order to minimize the totalcost of energy. In fact some energy-hungry processes can be anticipated orpostponed without compromising users’ processes. Figure 27 shows atypical profile for the power consumption of an industrial process.The consumed energy is given by the area below the curve. Even in thesimple case of flat energy price (tariffa mono-oraria), if all processes werestarted at the same time the peak will be much higher and the Power Share(Quota Potenza in Italy) of the energy bill would be much higher. So it ismore convenient to postpone or anticipate some processes which are notcrucial for the industrial process. Typical examples are given by charging aircompressor, starting air conditioning half an hour ahead or later and so on.This would be the easiest and most obvious application of a smart energymanagement system, however it is rather complicated to implement sincethe company pays for the 15 minutes of higher consumption and it istherefore important to have a very reliable energy management system withalmost no failures.Amarket based price of energy might provide more advantages allowing thecompany to perform some processes when there is excess of self-producedenergy from renewables, i.e. with zero marginal cost, or when energy is verycheap26. Therefore there is potential to reduce and better manage companiesor system energy consumption. However, in order to perform this task in avery reliable way it is important to introduce energy generators and storage
69
systems. Convenience of the system strongly depends on the “internalenergetic flexibility” of the user, however carefully designed businessmodels might provide interesting economic result as will be discussed innext chapters.
Figure 27: Typical power consumption profile of industrial processes. The
difference between peak power usage and steady state power usage might bevery big in some processes.
Energy generator
Many companies took the opportunity to install generation capacity whenEuropean governments provided very good incentives. So today companiesare able to generate part of the energy they consume, even though this isusually not enough to cover all their needs. Capability to generate energy ina distributed way is relevant for companies and for the country as a whole,especially for countries like Italy lacking other resources, but might generatesome problems as we have discussed in the previous Chapter. Increase ofself-consumption would be the best and easier answer to decrease linecongestion. Microgrids, coupled with predictive algorithms, might help to
70
achieve this goal using automatized control system to move in time someconsumption and storage system to decide how much should be stored andhow much should be immitted to the line. Again proper business modelswould be relevant to align prosumers, microgrids and Distributors interests.
Storage systemsAn energy storage system (ESS) is a device able to storage and supply userswith stored electricity. Electrochemical energy storage systems (EESS) havebeen analyzed in Chapter 3 which also provided an overview of possibleapplications among prosumers, microgrids, TSO and DSO.In smart grid and renewable energy applications, where energy efficiencyand reliable power supplies are critical, an energy storage system is anessential device and the interest for these devices is increasing. Theproduction of renewable energy sources such as solar and wind powerlargely depends on the weather. The efficiency of the power supplied bythese renewable energy sources can be maximized when paired with anenergy storage system. Efficient renewable energy storage can store a largeamount of power from a renewable energy source when it is sunny or windy;the energy is stored in the energy storage system and is available for lateruse during cloudy or windless conditions. At the same time the Storagesystem can store energy when local demand is low and release energy whendemand is high. The total effect (on renewables and demand assistance) isthat the user consumption profile will look flatter.Figure 28 gives an idea of how a storage system would work in the case inwhich the user produce enough energy renewable sources to supply himselfbut should face the unavailability of solar energy during the night. In thisoversimplified case the storage system would accumulate energy during thetime of peak production in order to release energy afterwards when theproduction is very low.
71
Figure 28: Basic functioning of an energy storage system27
In order to achieve this goal it is necessary to develop a proper ITinfrastructure close to the Energy storage system so that it could becontrolled on a predictive base regulating consumption required by the userwith the fore-casted future production. However an energy storage systemcan be used to achieve other challenging goals linked to the use of energyfrom renewable sources. For example it might be used to regulate thefrequency of produced electricity and to provide peak time response. Therange of usage for Samsung Electricity Storage Systems (one of the mainproducer in the world ) is shown in Table 6. However Chapter 3 showedhow some applications do not still have a clear regulatory framework inItaly.
Consumption Center
Consumption center is not really a component of a smart grid but it is givenby all the energy consumption sites which exist in a company usually evenbefore the introduction of the microgrid. The kind of processes which areused are usually not easily modifiable by the smart grid provider and theonly variable is, in general, the timing of processes. Consumption might beregulated through automatic controllers as discussed in the previous section
27 www.samsung.com (cons. 10th August 2013)
72
on the topic. “Internal energetic flexibility”, i.e. the possibility of movingsome consumption in time without interfering with the main processes,might be rather high in some industries. This is one of the key aspect inimplementation of successful smart microgrids.
Table 6: Usage of Samsung EESS28
5.1 Microgrid Benefits
This paragraph analyzes benefits given by adoption of smart micro-grids.Smart grid presents direct benefits and some externalities. At the same time
28 www.samsung.com (cons 20th August 2013)
Power Storage Energy Storage Energy Storage
Frequency
RegulationPeak Shifting Load Leveling
Community
EESS
Residential
EESS
Purp
ose
- Maintain
constant grid
frequency
- Grid stabilized
backup power
- Peak demand
time shift
- Renewable
generation peak
time shifting
-Energy arbitrage
-Renewable
capacity firming
-Neighborhood
backup
-Local peak
shifting and power
quality
stabilization
-Residential
Backup
-PV
integration
Pow
er
MW+ MW+ MW++ 10-25 kW 3-10kW
Dis
char
ge
time
~ 30 min 1 ~ 2 hours 4 ~ 7 hours 1 ~ 3 hours 1 ~ 3 hours
Driv
ers
-Renewables
-Gas Turbine
Replacement
-Renewables
-Gas Turbine
Replacement
-TOU: Time of
Use
-DR: Demand
Response
-Distribution
Stability
-Residential
Renewables
-PV
-Net Zero
Energy Home
73
adoption of microgrids can present many benefits to Distribution andTransmission grid operators, contributing in the reduction of grid congestion.This paragraph will briefly introduce all these kind of benefits. A properbusiness model should manage to align all the interests in order to foster amarket which is expected to need some time before gaining an actualspeed-up. Before analyzing global benefits, benefit introduced by the soleapplication of building automation system will be discussed since it is theonly component which as not been discussed in previous chapters.
Building automation benefits
Saving on Electricity bill achieved with relevant building automationsystems can go from 5% to 15%29 for commercial building. Similar figurescan be obtained in industrial setting although the variability is higher since,depending on the company and on the industry, some processes might be runlater or in a more efficient way while some others not. In some cases a 30%saving can be reached. These numbers are relative to the sole buildingautomation, not considering its introduction into a microgrid. Introduction ofthe building automation system into a microgrid might determine furtherbenefits.
Company benefits
Cost reductionThe main benefit related to adoption of microgrid for the company is to
reduce the cost of energy. This can be done, as said before, with a smartusage of automatized control system, local generators and storage system inorder to absorb energy from the grid when it is cheaper or to avoidabsorption when energy is more expensive. However, realistic analysisshould take into the economic cost of these activities. Financial computationwill be done in Part III.
Greater Independency from national networkA Smart microgrid might give to the company some autonomy to work
independently from local network. In particular, in case of black out, storage
29 Can2Go white paperhttp://www.can2go.com/documents/wp_can2go_energyefficiency.pdf (cons 18 July 2013)
74
system and local generation might allow some hours of autonomy to theindustrial plant.
Sale of EnergySince the marginal cost of producing energy from solar panels is very
low, when production from solar is particularly high market price of energymight be low (as discussed in the previous chapter). In some liberalizedmarket microgrid might help the consumer to sell solar when there is apeak of demand in order to increase the revenue.
Greater Power QualityMicrogrid can increase power quality regulating with greater precision
the frequency and level of voltage. This can be very useful for somecompanies operating in robotics sector whose machinery are very sensitiveto the frequency and level of supplied voltage. Higher power quality mightalso be useful to companies operating in countries where extremely poorgrid conditions treat plant safety. Another option for microgrid could be toprovide regulation services to Distribution companies. However at themoment in Italy and other countries there is no clear regulation on the topicmeaning that the microgrid cannot supply the Distribution grid withrewarded regulation services.
Society Benefits (Externalities)
Renewable sources and PollutionMicrogrid allow a more efficient usage of renewable sources making
them more competitive and increasing their efficacy. In doing so microgridsindirectly promote more environmentally friendly source of energy giving asignificant contribution to reduce pollution and CO2 emissions
Increase countries’ energy independencySome countries, like Italy, are heavily dependent on foreign energy. So
it is important and strategic to reduce dependency on import having a sourceof self production. For countries lacking of more traditional resources butwith convenient geographical position, evolution to smart microgrid cangive a significant help in order to reach higher level of energeticindependency, for example increasing significantly the amount of energyproduced from sun and wind.
75
Electricity distribution and Transmission companies
Postponement of grid investmentAdoption of microgrids could be a very good news for electricity
transmission operators (TSOs) . In fact a grid should be designed in order tosustain the peak demand. With the increase of the amount of demandedenergy it is important also to redesign significant portion of te grid in orderto sustain higher peaks. As discussed above main microgrid goals are peakshaving and load shifting to provide a rather flat consumption profile formicrogrid users. This is not in contrast with the goal of consumingelectricity when it is cheaper since electricity is cheaper when demand islow and supply is high. Diffusion of flatter local consumption profile willhelp the goal of achieving a globally flat consumption. Thereforeautotomized control, local generation and energy storage system will help tomake the demand flatter and to postpone grid investment.
5.2 Microgrid Costs drivers
Cost of implementing a microgrid is not easy to estimate since it stronglydepends on the users of the microgrid, on its need and on its “internal energyflexibility”The most important cost components of a microgrid are given by “Energystorage system” and “Building automation system”, assuming that usersalready have some source of energy production, otherwise these investmentshould also be added. However these costs can be easily found in reportslike “Solar energy report” and “Renewables energy report” from “Energyand Strategy” Group of Politecnico di Milano.
Building automation
The cost of implementing building automation is rather relevant andnon-standardized. In fact building automation system strongly depend on theuser of the microgrid and should be heavily customized, with the cost ofcontrol unit being around 10000€ and the rest of the cost relying on
76
implementing the system and designing the proper solution for the user.
Energy Storage System
Electrochemical storage is still too expensive for large scale application.Actual prices for finite products ranges around 1 to 2 thousands dollars perkWh for a standard microgrid application30. Prices However, as discussedin the previous chapter, prices are expected to significantly drop within 2020.Drop in prices will be lead by: Investments made by some countries (most likely Denmark, Spain,
Italy and Germany having a share of non-predictable renewablesgreater than 15%) in order to control immission of energy fromrenewables and to provide better grid management
Higher drop in prices will be linked to introduction of electric carslinked to increase in oil prices and spread of electric vehicles
For example a McKinsey report31 give an actual price of almost 600$ perKWh for the lithium cell32 and says that with increasing of oil cost hybridcars will soon become a sustainable business and the scale will drive downcost of production of Lithium cells which should reach 250$/KWh in 2020.A visual representation is given on Figure 29.Different technologies are emerging in the battery scenario. StanfordUniversity and EOS Energy Storage are working on Zn based batterieswhich might have cheaper costs much before the mass introduction ofelectric cars. In particular EOS has a target price of 160$/kWh to be reachedwithin 2014, much cheaper than Lithium-based technologies even thoughpresenting lower features. The project is very promising since big companiesare partnering with EOS for development of Zn-Air batteries33.
30http://energystoragejournal.com/with-batteries-grid-storage-opportunites/31http://www.mckinsey.com/insights/energy_resources_materials/battery_technology_charges_ahead32 This cost does not refer to the finite product but to the “raw” cell33 For further information http://www.eosenergystorage.com/
77
Figure 29: battery market according to McKinsey
Engineering and implementation Costs
Engineering Costs present higher variability and strongly depend on the userof the microgrid. In fact understanding which processes should be part of thebuilding automation systems and which not and the degree of control ofstorage depends on the company activities, on the expected production ofenergy (topic which is strongly related with weather forecast) and on theuser’s energetic flexibility. Therefore a general and theoretical estimation ofthese costs is not often feasible.
5.3 Potential customers
As we have been discussed microgrid solve problems of energyindependency, high cost of energy in the market, power quality andcontinuity. For these reasons some areas or users having stronger motivationto realize smart microgrids might be identified: Areas with high percentage renewables; Areas requiring grid update; Areas unconnected to the main grid; Users needing higher power quality and reliability; Users with high “internal energy flexibility”; Users wanting more autonomy from the main grid;
78
Local government interested in developing certain capabilities in itsarea;
Users whose consumption is greater than the minimum efficient scaleof production.
This paragraph discusses these cases.
Renewables integration
In many European countries production from renewables has beenconstantly increasing because of favorable government polices (in particularin Germany, Denmark, Italy and Spain). Chapter 4 discussed “negativeeffects” that a high percentage of non predictable renewables (like solar andwind energy) might generate to the system. Microgrid can help to regulaterandom production and consumption in order to match demand and supplyin a particular area so that less energy is transmitted through theTransmission system increasing self consumption, and in some cases,consumption from neighborhood.Integrating more renewables present obvious advantage for the energyproducer, who could sell higher share of its energy, while TSO will haveless problems in managing grid and for the collectivity, not having to sustainbig investments to upgrade local grid.
Area requiring grid update
Some areas might have a high increase of electricity demand, for examplebecause of new industrialization, and the local grid might become unable tosustain peaks. A microgrid covering the area might defer in time biginvestments for grid update. In the easiest application a storage system willbe installed to execute peak shaving operations. However, most advancedsolutions might require a mapping of greater consumption centers and amanagement of their internal flexibility in order to match availability ofenergy and local consumption. In this way the utility might keep stricter toplanned consumption, not needing last minutes adjustments. Customersmight benefit of a greater control of their consumption and might getbenefits form contributing to utility’s cost reduction.
79
Areas unconnected to the main grid
In many countries there are remote areas that are weakly connected ortotally unconnected to the grid. These areas are usually geographically faraway from main cities or close to changeling geographical barriers. In somecases municipalities of these remote areas might be interested in developinga microgrid, totally independent form the main one, and managing their ownsmall electrical system. In fact, given their small scale, usually cost ofproduction in these locations is very high therefore a combination ofrenewables and storage system might be competitive. In Canada (hugecountry with rather small population) many villages are far away from themain cities. An interesting case study is the implementation of a microgridin the town of Bella Coola34, in the British Columbia, whose location isshown in Figure 30 and in Figure 31. Bella Coola, with its population of2000 people is one of the 50 communities in the British Columbia notconnected to the power grid. Before 2010, the community used the close byriver fall as a main source of electricity. However in this way it wasimpossible to cover peak demand of energy which was satisfied by anextremely expensive and polluting diesel engine. In 2010 GE and Powertech,a controlled company of the local utility, BC power hydro, implemented amicro-grid whose functioning is shown in Figure 32. Excess Energydeveloped by hydro plant is used to create H2 storage which is turned intoenergy when needed. The micro-smart grid allows a better integration ofrenewables which now can be efficiently used in Bella Coola.Similar solutions are going to be adopted to supply higher quality electricityin remote areas in India35.
34 For all information, figures and data concerning Bella Coola micro smart grid, seehttp://www.gereports.com/powering-bella-coola-b-c-with-smart-grid-hydrogen/35 http://www.scidev.net/global/climate-change/news/smart-grids-and-reure
80
Figure 30: Bella Coola’s location Figure 31: A view of Bella Coola
Figure 32: Bella Coola grid functioning schema
Need for higher power quality
Smart microgrid can have interesting application in environment wherepower quality is rather low. Low power quality is usually due tonot-adequate infrastructure so that investment in microgrids, andintroduction of storage systems in particular, might increase power qualitydeferring grid investments and avoiding fines for not adequate powerquality.In cases where Distribution and transmission companies do notundertake necessary investments to increase power quality, final users mightconsider the introduction of micro grid to increase quality of their electric
supply. In particular this can be applied to companies where demandingelectricity features are required, like in robotics sector, or to companies
81
operating in countries with rather poor power supply. Serbian case studieshave proven the great increase in power quality introduced by amicro-grid37.
Capitalizing internal energy flexibility
The previous chapter discussed about the possibility of automatize energyconsumption centers in order to have a centralized control. Many processescan be moved in time without changing the nature and the efficiency of theglobal process. In particular moving some energy-hungry processes mightsignificantly change the overall load in the Distribution grid. Somecompanies might be willing to “capitalize” their flexibility movingconsumption according to the utilities’ will and ask for a share of the savedcosts. EnBala38 introduced a relevant business model of Grid Balance.Some processes might have a rather high internal flexibility. A study madeby Oak Ridge National Laboratory39 analyze flexibility in several industrialprocesses and identify the top 30 most flexible industries in USA, whichmight provide an excess of 26 GW. Industries have been classified inmanufacturing, non-manufacturing and commercial. In particular the topthree industries fore each class presented the following energy flexibility: Manufacturing industries:
Pulp, Paper and Paperboard Mills at 21.35% Iron and Steel Mills and Ferroalloy Manufacturing at 15.95% Petroleum Refineries at 15.75%
Non-manufacturing industries: Refrigerated Warehousing and Storage at 23.09% Municipal Drinking Water at 16.00% Data Centers at 8.63%
Commercial loads: Hospitals at 26.83% Commercial Buildings at 26.13%
37 http://dl.acm.org/citation.cfm?id=202847338 www.enbala.com39 Examination of the potential for Industrial Loads to provide ancillary services” by D. Letto andR. George
82
Colleges/Universities/Schools at 22.70%As this study show the amount of internal flexibility is higher than expectedin many sectors. Government can play an interesting role since (at least inItaly) the first, fourth and sixth most flexible consumption centers (hospitals,Universities and Municipal drinking Water) are owned by Government atvarious levels.
Other potential Users
Government might be willing to promote microgrid introduction in order todevelop local capabilities and have a competitive national value chain whenprices will be lower and there will be a boom of the technology.Other early adopters might be users willing to be insulated from the localgrid. Some American universities are moving in this direction in order toavoid continuous blackout in the local grid. In particular cheap Americannatural gas prices can make CHP system very competitive. Coupling CHPwith a microgrid investments, these campus can be insulated from the gridand have cheaper price of energy. Payback for a CHP system in USA inestimated between 6 and 7 years, a rather long time for companies butsustainable for big universities. Furthermore, Campus Energetic autonomywill decrease load in the local grid decreasing also possibility of black-outfor the community.
83
Table 7 Summary of potential adopters and benefiters of microgrids.
5.4 Possible introduction schema
Introduction of microgrids can face resistance of skeptical customers andutilities who might see microgrids as a away to erode their profits. Thisparagraph analyze some possible microgrid introduction schema. Analysiswill not be very detailed, although, since the goal is to find some adoptermodels which might be good in principle. In further chapters some of thesemodels models will be applied to a specific companies and more detailedanalysis will be provided. In particular the paragraph will provide anintroduction on: Utility promoted microgrid Consumer-promoted microgrid VPP based microgrid
Goal Benefit forUser of themicrogrid
Renewables integrationFRNP producer
FRNP producerDSOCollectivity
Areas requiring grid updateconsumers in the area Municipality in
the areaUtilitiesAreas unconnected to maingrid
CommunityMunicipality inthe area
Power qualityDSO
DSO/consumerconsumer
Capitalizing flexibilityconsumer
consumerUtility
Government Collectivity Government
Need for autonomyAdopterCommunity ConsumerCommunity
84
Utility promoted microgrid
Microgrid might be promoted by utility companies (DSOs) in order to bettermanage distribution grid loads and be more competitive in the electricitymarket. In this scenario utility companies promote diffusion of smart meterson a large scale (to monitor consumption), diffusion of building automation(to allow remote control), storage systems (to balance electricity flow andrenewable integration in a single area). Such projects are rather challengingand require big investments. They are usually undertaken in experimentalway (if the government incentivize). Actually in Italy there has been noincentive in this direction, while some counties, like China, show a greatinterest on the topic. However, electricity market structure in China is verydifferent since transmission and distribution are operated by state ownedcompanies under the control of the central government and provincegovernments. In particular China is starting a large scale introduction ofsmart meters with the goal of implementing several microgrids in each areacoordinated by a smart-grid in each provine with a further coordination at anational level. Centralized structure and direct government founding allowsa fast operation in China that plans to have leadership in micro and smartgrid sector within 2020.
Consumer-promoted microgrid
An interesting possible scenario for microgrids market is the diffusion of“customer promoted microgrids”. In particular medium sized companiesmight be willing to install microgrids to efficiently manage their energyconsumption and align it according to electricity market price. From anotherpoint of view this solution is very similar to the grid balance business model.The main difference is that in this case internal management is made by thesingle companies while in the other case is made with the partnership of thedistributor. Convenience of one or the other model depends on theprofit-sharing system which is implemented and on the willingness ofutilities to “buy” flexibility. However, in this case the action of a mediatorbetween consumers and DSO is necessary.A potentially more interesting application is given by the flexibility
85
management or more companies in the same area (for example industrialdistricts). In this case potential flexibility might be rather high especially ifcompanies in the same districts have different “energy needs”. Anotherinteresting potential application for microgrids might be to sell grid servicesto DSOs. Grid services are services regarding frequency and voltageregulation of the network.
VPP based microgrid
In the last potential scenario to be described, microgrids are used to servebig institutional customers (universities, hospitals, etc..) large and mediumsize companies and districts of small companies and are managed by an“intermediator” who interface with DSO has described before. This“intermediator” can manage energy flow on a national level using thetransmission network to transfer electricity from a microgrid to the other. Inmany countries, according to local regulatory environment, thisintermediator should be enabled by government to trade electricity. The finalconfiguration of this microgrid environment would be similar to a VirtualPower Plant, i.e. a system that relies upon software systems to remotely andautomatically dispatch and optimize generation, demand-side, or storageresource in a single web-connected system40. From this point of viewadvantages of a microgrid will be much greater, being able to bargaingreater flexibility with DSOs and to internally transfer energy in order toachieve a balance. However there are problems related to energy transferfees operated by TSO and other legal problems which will be analyzed inthe next chapter.
5.5 Conclusion
The chapter provided a general and intuitive overview of microgrids: whatthey are, what kind of problems they solve and which are cost drivers.It also discussed broadly what kind of advantages microgrids can bring forcollectivity and some general introduction schema. Although, so far
40 http://www.navigantresearch.com/research/virtual-power-plants (cons. 25th August 2013)
86
discussion has been quite general. Starting form the next part, Smart andMicrogrid will be discussed in a more detailed, precise and quantitative way.
87
Part III:Smart and Micro grid
business opportunities
88
6. Loccioni: catching new opportunitiesIn the previous chapters a general overview on the topic of micro-grids,smart-grids and storage systems has been given. However, this overview hasbeen theoretical and no detailed computation have been provided. This partof the work provides a more detailed business anaysis with a focus onLoccioni, international medium-size Italian company which decided to enterthe smart and micro- businessgrid and is looking for suitable and sustainableprojects.
6.1 Loccioni: Profile of the CompanyLoccioni is “a family company established in 1968 by Enrico Loccioni withthe aim of creating in his territory – and delivering to the world – anentrepreneurial model for the work and knowledge development. [...] Byintegrating ideas people, technologies [...] they [...] develop measure andtest solutions to improve the quality of products and processes for themanufacturing and service industry.”41 The company embraced OpenInnovation paradigm and configure itself as an open knowledge companyand as a “technological tailor’s shop, designing and manufacturing turn-keytailor-made solutions for the automatic measurement and quality control ofour customers products, processes and buildings.”42
Loccioni is composed of 5 business units: industry, mobility, energy,environment and human care dealing with different businesses. In particularindustry and mobility are the world leader in their sector supplying homeappliances companies and all the major automotive companies with cuttingedge of technology measuring and testing devices. The other divisions areall much newer and represent a so far successful attempt of Loccioni groupto diversify its business,In particular Energy Business Units deals with ESS, energy flowmanagement and energy efficiency businesses. Continuos research effortand attention for the surrounding environment brought Loccioni to develop
41 http://www.loccioni.com42 http://www.loccioni.com
89
the first energy-sustainable community in Italy, the Leaf Community, whichis close to the evolution of the first medium scale microgrid in Italy,Smart-Leaf.Research effort in the last two years allowed the company to test its energymanagement solutions and its capabilities of integrating Lithium-ionbatteries to perform Voltage Regulation (with one application of 56kW/56kWh for Enel, a test facility contract with RSE, two 32kW/32kWhapplications for ENEL in L’Aquila and Teramo and co-operation in Grid4EUproject with a 1Mw/1MWh application for ENEL).Furthermore, internal development of Smart Leaf allowed Loccioni toacquire advanced capabilities in energy flow management systems,integration of storage into Smart-Grid and predictive algorithm forrenewable generators management.After two years of extensive research and investment the company wants tocapitalize its knowledge finding suitable applications, customers andbusiness models. Challenging goals have been set for production of energy,energy flows management and storage systems, considering that the demandof the most complete microgrid business will raise in the next future.
6.2 Market feelings, relevant interviews
Loccioni believes in the microgrid market and in the future of storagetechnology. Working as a system integrator Loccioni is very flexible in thechoice of the technology to integrate, reducing risk of betting on the wrongtechnology. However, also for a system integrator technological choice israther relevant since it builds a source of competitive advantage in the shortand medium term. Starting from this consideration several interviews havebeen done to people dealing with microgrid sector in Europe in order todesign a relevant business strategy.
Storage technology
Chapter 3 discussed several storage technologies and their differences.Choosing the proper technology is important for system integrators since it
90
gives competitive advantage in the short and medium term and capitalize thecost of R&D in the most efficient way.Actually there are three main technologies for advanced micro and smartgrid applications: Lithium-ion, Sodium-Nickel (produced only by theAmerican GE and the Italian FIAMM), Sodium-Sulfur (produced only bythe Japanese NGK) and Lithium (produced with different sub-technologiesby several companies). In particular Lithium is actually produced by all bignames of electronic industry: Sharp, NEC (Japan), Samsung, LG (Korea),SAFT (France-EU), BYD (China). Big investment on Lithium technologysuggest that at the end it will be the emerging one. The head of RD of anItalian company leading the microgrid sector compares the actual batteriesrace to the silicon race of nineteen-seventies where big investments made onsilicon indicated that it would be the emerging technology despite of thegood properties of alternative ones.
Markets feelings
Finding a market for new technologies is not an easy task and often feelingare as important as data.Therefore several interviews have been made in order to understand whichis the direction of ESS and microgrid systems. Interviews embrace a toplevel consultant in the sector, researcher and relevant figures of oneEuropean TSO.This rounds of interviews highlighted several important trends: Storage might find interesting application in the grid services business.
In particular this conclusion was drawn also by the energy and Strategygroup in Politecnico di Milano and found interesting counter proof. Themost relevant service, also in this case, is primary frequency regulation.Even though this service is still not paid in Italy, the law is changingand the new settlement might bring several interesting opportunities.
Frequency regulation and low power quality will become more andmore relevant problems. According to a national European Researchcenter renewable effect will destabilize the grid which has not beendesigned for bi-directional flow. In particular Figure 33 shows how 5 ofthe 7 largest blackout in history happened between 2003 and 2013.
91
Grid Balance and Demand response programs, which have alreadybeen tested in USA, might become more popular ways to providefrequency regulation services avoiding expensive investments anddelivering value to the final customers.
Islands and Remote areas have a cost of electricity which might justifyMicrogrid implementation. In fact these places often produce electricitythrough expensive and polluting Diesel engines. For this reason arelevant ENTSO member is considering to diversify its business into amicrogrid promoter for small islands and remote areas.
Low power quality issues and related costs might justify investments inmicrogrids in several countries.
Next chapters will analyze business potential in each one of these fourdirections.Before analyzing each of these potential businesses, however, a storagesystem cost model will be developed together with an ideal cost of storageper unit of energy. This cost will be compared with electricity prices inseveral European countries in order to have a road map of places whereinvestment can pay back earlier, i.e. countries where electricity is moreexpensive.
Figure 33: Largest blackout in history43
43 http://en.wikipedia.org/wiki/List_of_major_power_outages (cons. 29th Sept. 2013)
92
7. Storage and Electricity costs
The first step to evaluate the possible application of Energy Storage systemis to carefully estimate its costs. A model developed by Piyasak Poonpunand Ward T. Jewell44 as been applied with some modification. The mainmodification regards the possibility of not using the entire cycle of thebattery, ranging its charge from 0% to 100%, but use partial cycle, forexample ranging the charge from 30% to 70%. According to manyproducers, lifetime of the battery increases more than proportionally withthe reduction of the charge span.This Chapter will briefly discuss the model and the result of somesimulations.
***
7.1 Cost model
An energy storage system presents two main costs: Cost of storing Energy, linked to the unit cost of storage Power-related Cost: linked to the cost of inverter and related power
electronics.Here follows the notation used in discussing the model: P: [kW] Desired power output; n: [#] average numbers of cycle per day; H0: [h] duration of discharge cycle; D: [days/year] annual operating days; e: [%] efficiency of the storage system;45
cs: [%] cycle span46;
44 Piyasak Poonpun,Ward T. Jewell, Fellow, “Analysis of the Cost per Kilowatt Hour to StoreElectricity”, IEEE TRANSACTIONS ON ENERGY CONVERSION, VOL. 23, NO. 2, JUNE 200845 Efficiency od a storage system indicates how much energy is given s output per unit of energyinput46 Cycle Span indicates the percental difference in capacity between the moment in which thebattery start to supply energy and the moment in which it start to recharge. In practice usuallybatteries are not used at 100% of their capacity. For example if a battery operates between 30% and
93
iR: [%] internal rate of return; C: [#] maximum number of cycles in the operating
conditions; y: [years] duration of the investment F: [€] future amount of replacement costThe annual energy production (AEP, [kWh/year] ) is the given by:
AEP=P*n*H0*DThe annual operational maintenance cost (OMC, [$/y]) is given by:
OMC=OMf*PWhere OMf is the fixed operation maintenance cost ([$/ (year*kW) ])Here it follows the computation for the initial investment cost (TCC, [€]):
TCC=PCS+SUC+BOPCost of Power Electronics (PCS, [€])
PCS=PCSU*PWhere PCSU is the unit cost of power electronics ([€/kW]);Cost of Storage Units (SUC, [€])
SUC=SUCU*P*H0/(e*cs)Where SUCU is the unit cost of storage ([€/kWh]);Balance of the Plant (BOP, [€])
BOP=BOPU*P*H0
Where BOPU is the unit cost of the balance of the plant ([€/kWh]);Therefore the total cost of the ESS is given by:
TCC=PCS+SUC+BOPKnowing that the Capital Recovery Factor47 (CRF, [%]) is
CRF=[iR*(1+iR)^y]/[(1+iR)^y-1],The annualized cost of capital (AC, [€/year]) will be:
AC=TCC*CRTIn order to properly evaluate the investment, we would consider thereplacement of the battery if it’s life time was shorter than the desiredduration of the investment.
70% its cycle span is 40%.47 A capital recovery factor is the ratio of a constant annuity to the present value of receiving thatannuity for a given length of time (from wikipedia.org)
94
The replacement period of a battery is given by:r=C/(n*D)
The annual storage replacement unit cost (A, [€/(kWh*year)])is given by:A=sum{k=1, k=mx, (Fk/(1+iR)^k*r)},
where mx=C/r if mod(C, r)=0;mx=div(C, r) +1 otherwise;
If the replacement cost is constant over time,A=F*sum{k=1, k=mx, (1+iR)^k*r},
The annual battery replacement cost (ARC, [€/year])is:ARC=A*P*H0/(e*cs)
Finally, the added cost to unit of electricity (COE, [€/kWh]) will be:COE=(AC+OMC+ARC)/(AEP)
***The model has been implemented in a simple spreadsheet, in order tocompute the cost of added electricity for some different technologies. Figure34 shows the implementation of the spreadsheet.
Figure 34: Spreadsheet for computed the added cost of electricity storage
7.2 Comparison with electricity costs
Actually the added cost of electricity per kWh of stored energy ranges from
95
0.22€ to 0.26€ depending on the technology and the scale achieved by thesystem integrator.This price is still rather high, and even though cost simulation was made for1MW systems, it can be compared only to the household electricity price insome European countries, where electricity is very expensive. In particular,from data available in the website energy.eu, it can be realized that this priceis comparable with the household price in the European countries whereelectricity is most expensive: Belgium, Cyprus, Denmark, Germany, Ireland,Italy48. Even though unitary energy cost for small systems might berelatively high, there are strong economies of scale for many costcomponents and price of Lithium is decreasing rather fast In particular,according to studies made in 2012 by LuxResearch for the automotive sector,Lithium cost will decrease because of more efficient technologies andeconomies of scale. At the same time increase of demand will make the costof the raw material to rise up. The result of these two counteracting forcesshould be a slow decrease of battery cost after 2013. Future increase ofelectricity prices (linked to reduction of nuclear production) and futurepossible grid stability problems introduced by diffusion of renewable mightcreate a big market opportunity for Lithium based batteries and storagetechnology. Furthermore in many application storage is not used to supplyenergy for the whole system but in small proportion to perform regulationsor load shifting. Batteries might therefore become competitive whensuppling only a small percentage of the whole electricity need.
48 For further information www.energy.eu
96
Figure 35: Lithium cost trend according to LuxResearch study for the automotivesector
97
Table 8: Average household electricity prices in EU countries the 14th September
Country Household[€/kWh]
Industry[€/kWh]
Austria 0.20 147 0.09 312Belgium 0.22 566 0.09 714Bulgaria 0.08 795 0.06 714Croatia 0.11 325 0.08 145Cyprus 0.27 249 0.19 483Czech Rep. 0.15 071 0.09 758Denmark 0.29 525 0.09 434Estonia 0.11 066 0.07 729Finland 0.15 718 0.07 162France 0.14 466 0.07 761Germany 0.26 527 0.11 567Greece 0.14 073 0.09 202Hungary 0.15 613 0.10 383Ireland 0.22 518 0.10 583Italy 0.23 140 0.16 746Latvia 0.13 942 0.09 969Lithuania 0.12 550 0.10 974Luxembourg 0.16 736 0.07 524Malta 0.16 986 0.16 016Netherlands 0.19 323 0.08 852Poland 0.14 618 0.08 522Portugal 0.20 310 0.10 463Romania 0.10 695 0.07 542Slovakia 0.17 322 0.11 921Slovenia 0.15 659 0.08 371Spain 0.18 926 0.10 220Sweden 0.20 361 0.07 197U.K. 0.17 078 0.10 284
98
2013
8. Frequency Regulation
According to Several studies,49 Electrical Storage systems (ESS) mighthave a positive and high Internal rate of Return when used for PrimaryFrequency Regulation purposes. This chapter analyses the topic of primaryfrequency regulation and business opportunities for Loccioni
8.1 An overview on Frequency Regulation
Reserve in a traditional grid
This paragraph provide a simple introduction to the technical problem offrequency regulation in a traditional grid (i.e. A grid without RES).Let’s consider a simple model of the grid like the one shown in Figure 36.
Figure 36: Simplified schema of electric grid
With some rough approximation we might assume that the electric grid doesnot store energy and does not loose energy, therefore:
49 Smart Grid Report by Politecnico di Milano’s Energy and Strategy Group is one of the mostinfluential in this sense
99
where Pej represents the Power generated by generator j and PLj representsthe power absorbed by load j.In the assumption that all the electricity is generated by rotating machines,where Jj is the moment of inertia of the machine j and Pmj is the powergenerated by rotating machine j producing Pej , we have that:
Considering J to be the average moment of Inertia of the system and ω to bethe average pulsation we have that in equilibrium the previous difference isconstant and equal to zero. In particular the system start to loose theequilibrium status, its difference will increase or decrease and the powerdifference, time derivative of the energy difference, will be different fromzero.
in particular since J is a constant of the system, only ω will change. Frombasic physics we know that ω=2πf, which means that frequency will change.However to assure the safety of loads operation, in particular of motors, it isimportant for the electric system to have a stable and known frequency. InEurope, Russia, China and India this frequency is 50Hz. The disequilibriumhappens every time that some new loads are plugged in or out form thesystem or every time that a generator increase or decrease production. Inorder to keep the frequency constant it is important to restore theequilibrium between produced power and consumed power. This task is
212m e
dP P Jdt
100
performed by frequency regulation services. There are three level offrequency regulation: Primary frequency regulation; Secondary frequency regulation; Tertiary frequency regulation.
Figure 37: Effect of primary frequency regulation on frequency and power drop
Frequency control
This paragraph describes how frequency regulation works in Italy. Withminor differences the system is very similar in every country.When power in the grid is not balanced, as discussed above, there is afrequency drop. In order to be immediately able to re-establish powerbalance each rotating machine should provide an half-band of 1.5% of itsnominal power output for primary frequency regulation services. If there isan imbalance, like the one shown in Figure 37, each generator can increaseor decrease the output to rebalance the system. Primary frequency regulationis automatically done by ever generator connected to the grid, therefore thecontrol action will be proportional to the frequency drop (ProportionalControl) to avoid that different generators can interfere with each-other.Primary frequency control should operate at half capacity within 15 secondsfrom the distributing event and be fully operating within 30 seconds.A well known result in Control Theory is that Proportional control leaves amarginal error, i.e. in the steady state frequency will be stable but differentfrom 50Hz. Therefore Secondary Frequency regulation is needed. The goal
101
of secondary frequency regulation is to restore the frequency of the systemat the nominal value (50Hz in Europe, Russia, China, India, . . .) and torestore the primary frequency reserve. In order to avoid interference thesecondary frequency regulation is performed dividing the country into majorzone and having one coordination system for each zone. The singlecoordination system can avoid interference therefore it is possible to have aProportional-Integral Control which lead to a zero error (as known fromControl Theory). Secondary frequency control should be operating after 30seconds from the disturbance and for at least for 15 minutes.After secondary frequency regulation intervened, tertiary frequency reservewill restore the secondary reserve and the system is ready for a newimbalance. Tertiary reserve consist in a stable increase in the power outputof the system. It is activated within 15minutes (ready reserve) or 60 minutes(substitution reserve).As it as been discussed primary frequency regulation should be operating insome second after disturbance. This limit is due to the fact that rotatingmachines have high inertia and cannot easily change the power output. Onthe other side machines inertia helps the system to preserve its frequencysince a frequency imbalance means that the rotating speed of generators ischanging. However it is intuitively that a faster response would be moreeffective and rather beneficial for the system.According to Italian law, but there might be significant differences in othercountries, generators with a nominal power output smaller than 10 MW andelectricity generators from renewable sources are exempted from primaryfrequency regulation services.
Effect of renewables
Many European countries have been supporting renewable sources of energy.Solar and Wind have been the most popular choice since they present a zeromarginal cost of energy and the future price of energy does not depend onthe fuel prices. However, in the case of solar there are no rotatingequipments and the sinusoidal wave is generated by an inverter. Wind farmhave a similar problem, since rotating machine is not directly coupled withthe grid but an inverter is generating a sinusoidal wave. Considering what
102
we have been saying before these machines have no inertia and cannoteasily respond to frequency variations. Furthermore many Europeancountries have been introducing policies to exempt renewable formfrequency regulation tasks. This lead to a decrease of power quality which isnot considered acceptable by European TSO. According to ENTSO study50
relevant frequency deviations, already existing in 2010, see Figure 38, arebecoming more and more relevant with introduction of renewable. Inparticular the beginning and the end of working day are characterized byfrequency problems as shown in Figure 38. These problems have beenincremented by introducing renewables which have no inertia and whichoften are not required to provide grid services. In this way the traditionalgenerators, need to take care of frequency regulation for an higher numberof power generators while reducing production because of renewablescompetition,Electrochemical Storage systems might qualify to perform primaryfrequency regulation, due to very fast response time (order of milliseconds)(which might increase the efficacy of the regulation) and possibility of beingintegrated with renewable sources.
Figure 38: Frequency deviations in the European Network the 11th January 2010
50 “Deterministic frequency deviations – root causes and proposals for potential solutions”
103
8.2 Primary Frequency Regulation Pricing
Given the high cost of electricity storage the first countries to be analyzed inproposing EESS for primary frequency regulations in Europe are the countrywith higher day ahead market cost of Energy.As shown in Figure 39, among these counties there are Ireland, Great Britain,Italy, Cyprus, Germany. Turkey has also been monitored since the countryis close to Europe and there is a fast increase in demand not followed by fastenough increase in production.
Figure 39: Day Ahead Electricity price in main European markets
Ireland
Irish electricity prices are among the highest in Europe. However, Irishregulation force all generators to provide Primary frequency regulation inmandatory way providing an economic compensation which is defined byregulation. In particular in the Ireland grid code primary operating reserve isdefined as“[...]The additional MW output (and/or reduction in Demand)required at the Frequency nadir (minimum), compared to the pre-incident
104
output (or Demand) where the nadir occurs between 5 and 15 seconds afteran Event.”. Compensation rate for the service “is currently €2.26/MWh.This is paid when a unit is capable of providing the reserve (i.e. the reserveis realizable if required). So it is not a utilization payment.” “HoweverEirGrid and SONI, the TSOs in Ireland and Northern Ireland, have recentlycompleted a review of ancillary services with regard to meeting the 2020targets of 40% electricity generation from renewable sources and havepublished a TSO Recommendations Paper in which it recommends apayment increase to €14.27/MWh. The recommendations are currentlyawaiting decision from the regulators in Ireland and Northern Ireland.”51
Even though pricing might be not high enough to justify storage systems,mandatory regimes should be analyzed not considering economiccompensations. In these regimes, producers have to provide, somehow,primary frequency regulation services independently of the economicconvenience.
Germany
In Germany primary frequency regulations services are provided on amandatory base by all generating units with a nominal power output greaterthan 100 MW. Smaller generating units can also supply primary reserve on avoluntary base. Primary reserve is a paid service and is rewarded with amarket mechanism. Balancing service market takes place in the websitehttps://www.regelleistung.net Contact with Tennets TSO confirmed us themechanism described on the website. Payment for Primary frequencyregulation services works with a tender mechanism. In particular there is aweekly tender and winner have to provided the offered power for Frequencyregulation purposes for one week. The price is awarder regardless of theamount of energy provided. Prices vary according to region, however2900€/(MW*week) can be considered a normal price, as can be seen fromFigure 1 showing the weekly tender for the period (23rd Sept. 2013-29th Sept.2013). This pricing mechanism make comparison with other European
51 These information were given by engineer working in the field in Ireland
105
country pricing difficult since what is rewarded is a weekly availability forthe service not the energy by itself.
Furthermore the German website for the Balancing market reports a“symmetric price per ¼ hour, i.e. no price spread between positive andnegative balance group deviation”. Therefore in the best scenario a storagesystem might be paid to charge itself, when frequency is to high, anddischarge itself when frequency is too low. In this scenario, which is themost optimistic one, a storage system would be very competitive. However,Renewable producers do not participate into the balancing market. Due tothe feed-in tariff support scheme there is not much long-lasting experiencewith direct market participation of RES-E to the market in general. Untilearly 2012 most RES-E has been marketed by the TSOs.Understanding how many times per week a generator is called to provideprimary frequency regulation services is a key aspect to compute economicreturn using the cost model for Storage systems. According to unofficialinformation, primary frequency regulation service work around threepercent of the available time. According to this information Primaryfrequency regulation would be paid on average around 575.39€/MWh whichmight justify Storage for primary frequency regulation usages, if Storagehad a Power/Energy ratio equals to 4 (see model in the previous chapter).
106
Figure 40: Primary Frequency regulation services in Germany for the period
23/09/2013-29/09/2013
Nordic countriesNordic countries electric market are unified under NORDEL. In Nordiccountries there is no primary control, but secondary control must bedelivered within 5s (at 50% of nominal power) and totally delivered within30 seconds. Frequency control need to be provided for 2-3 minutes and fullyactivated when frequency drops of 0.1 Hz. Participation to frequencyregulation services is voluntary and demand can participate with Demandresponse programs. Pricing mechanism is divided into a fixed contractualprice for yearly availability plus a market price for energy.Although they operates under unified markets, nordic countries presentsignificant differences in renewables incentives. In Sweden electricity from
107
renewable energy sources is subject neither to a purchase obligation nor to adispatching priority regime. Curtailment occurs only very rarely in Sweden.RES-E generators will be treated like every other market participant and arefinancial responsibleIn Denmark RES-E enjoys priority in use of the grid. When curtailment isnecessary, only off-shore wind parks may be curtailed and only afternon-renewable plants have been curtailed first. The operators of the windparks receive a compensation payment where the output of their parks has tobe reduced. All electricity producers have a balancing responsibility butwind onshore generators receive a balancing reimbursement to compensatefor their balancing costs, which are fixed.Many Nordic countries have been policy leaders for what concernrenewables support and it is interesting to analyze their electricity market inorder to understand possible evolution of the Italian one.Great BritainIn Great Britain there are three kinds of primary frequency regulation:Mandatory frequency regulation, Firm Frequence regulation and FrequencyControl by demand management52. Mandatory Frequency Response (MFR) is an “automatic change in
active power output in response to a frequency change. All generatorscaught by the requirements of the Grid Code are required to have thecapability to provide Mandatory Frequency Response. The capability toprovide this Service is a condition of connection for generatorsconnecting to the GB Transmission System”;
Firm Frequency Response (FFR) is the “firm provision of either aDynamic or non-Dynamic Response to changes in the systemfrequency. The key differences between FFR and Mandatory FrequencyResponse are: under FFR services can be provided by parties outside ofthe Balancing Mechanism and; a firm agreement regarding utilizationis made in advance of service provision”;
Frequency Control Demand Management (FCDM) provides
52http://www.nationalgrid.com/uk/Electricity/Balancing/services/balanceserv/intro/ (cons. 20th Sept.2013)
108
“frequency response through interruption of demand customers. Theelectricity demand is automatically interrupted when the systemfrequency transgresses the low frequency relay setting on site. Thedemand customers who provide the service are prepared for theirdemands to be interrupted for a 30 minute duration, where statisticallyinterruptions are likely to occur between approximately ten to thirtytimes per annum. In particular in order to principate FCDP the unitmust be able to curtail at least 3MW of demand upon request. in GB itis possible to aggregate small load in order to achieve theserequirements. Therefore the figure of aggregator is present in themarket”.
Economic compensation for primary frequency regulation services isprovided through a market system. According to National Grid (British TSO)2012 Report in 2012 average price for MFR was around 0.00426 €/kWhwhile for FFR and Demand Response it was 0.0413 €/kWh53. Figure 41 andFigure 42 from National Grid Report show price for these services in severalmonth in 2012.RES-E generators under the renewable obligation scheme are treated likeevery other market participant and are financial responsible for imbalancecash-out prices54.
Figure 41: MFR pricing in 2012
53 Exchange rate 1.24£ = 1 € has been used54 Source: AF-Mercados Report
109
Figure 42: FFR pricing in 2012
Turkey
In Turkey primary frequency regulation service is provided by any generatorwith a capacity greater or equal to 50 MW reserving 2% of its output for thepurpose. Solar and wind production is exempted form the service. Price forancillary services is decided by a pricing fixing commission on a quarterlybase.
Table 9 shows commission pricing for some quarters in 2012 and 2013.Turkish government is investing a lot on smart grid technology, so thatpossible incentives need to be monitored. More detailed informations aregiven in the paragraph regarding economic evaluation of investment inEESS for primary frequency regulation.
Date Price [TL/MWh] Price [€/MWh]12/06/2013 0,12 0,044
06/12/201218,41 6,818
17/09/201229,13 10,77
06/06/201210,85 4,018
110
Table 9: Primary Frequency Regulation pricing in Turkey
The Evolution of Italian Frequency regulation scenario
In Italy primary frequency regulation is a mandatory and not remuneratedservice provided by all programmable generators with an output powergreater than 10 MW. NPRES are exempted from providing these services.Recent growth of renewables introduced several instabilities so that ItalianTSO asked the regulating authority about the necessity to introducemandatory and not-remunerated primary frequency regulation regime alsofor NPRES. Given the wide diffusion of photovoltaic in Italy, EESS seemsto be the most proper technology for explicating primary frequencyregulation services.Italian regulatory agency, AEEG, started the normative review process withDCO 354 which reported three possible scenarios55 identified byPolitecnico di Milano. These scenarios are:
一、Central Dispatch from TSO;二、Localized Dispatching from DSO;三、Agreed exchange profile in each primary cabin.
Central Dispatch from TSOIn the first scenario Terna, Italian DSO, would offer primary frequencyregulation services for the whole country. This scenario would be realized in
55 For further information, M. Delfanti, V. Olivieri, “POSSIBILI MODALITÀ INNOVATIVE DIAPPROVVIGIONAMENTO DELLE RISORSE PER IL SERVIZIO DI DISPACCIAMENTO DAFONTI RINNOVABILI NON PROGRAMMABILI E GENERAZIONE DISTRIBUITA”, Giugno2013
Date Price [TL/MWh] Price [€/MWh]12/06/2013 0,12 0,044
06/12/201218,41 6,818
17/09/201229,13 10,77
06/06/201210,85 4,018
111
two stages. In the first stage, called fit and forget, the grid is designed tosustain the maximum possible power and all generating units participate toDispatching Market organized by TSO.
Figure 43: Centralized Dispatch from TSO, fit and forget approach56
The evolution of the fit and forget approach should be the smart gridapproach in which DSO should verify that all technical limits are respectedand give communication to TSO who might rearrange the DispatchingService Market. DSO should also be responsible for the balancing of thelocal grid. However it does not need to arrange a market for these service,since it might also use bilateral contracts.Localized Dispatching from DSOIn the second scenario, each DSO is responsible for the dispatching servicesof its own grid and TSO buys from DSO these dispatching services. On theother hand DSO must organize another Dispatching Market to buy AncillaryServices for the local grid. The main problem is that there is very limitedtime to arrange this second dispatching market.
56 From official Authority website
112
Figure 44: Centralized Dispatch from TSO, smart grid approach57
Figure 45: Localized Dispatching from DSO58
Agreed exchange profile in each primary cabinIn the third scenario DSO is responsible for keeping a given balance orunbalance profile for each area of competence. In order to keep this profileDSO should arrange Dispatching services for its local grid. These servicescan be purchased through a market organization or through bilateralcontracts, depending on the DSO policy.
57 From official Authority website58 From official Authority website
113
Figure 46: Third scenario, keeping a given profile for each primary cabin59
All the three scenarios might present interesting business opportunities. Inthe first and second scenario each RES with an output power greater than 1MW might be obliged to provide primary frequency regulation services.These services might be provided using EESS to perform primary frequencyregulation. In the third scenario DSO might be interested in purchasing bigstorage systems and demand response technologies to be able to keep theagreed profile at each cabin.This could open another opportunity for systemintegrators. However this scenario is catheterized by few buyers (1 main one,ENEL, and many small ones) and a lot of sellers so market power isunbalanced in DSO favor.
59 From official Authority website
114
8.3 Decision making
As discussed in the previous paragraph, in some countries primaryfrequency regulation services are mandatory while in other countries theyare provided on a voluntary base under a market mechanism.EESS might be a valuable solution to perform Primary FrequencyRegulation in both cases but economic analysis is different.
Countries with Mandatory frequency regulation
In order to provide an example of financial evaluation of a EESS performingprimary frequency regulation services in a country where generator arerequested do to so, Turkish case has been analyzed. Computation is verysimilar for other countries but day ahead market price and incidence of fuelneeds to be adjusted on a national base.In Turkey producer having a nominal power higher than 50 MW are obligedto offer 2% of nominal power for primary frequency regulation purposes.Rewards are decided by the pricing fixing commission every quarter and areshown in
Table 9. Being a mandatory service, reward policy is not relevant indetermining how to perform primary frequency regulation, since thecompany is forced to do so. However, the company need to decide whetherperform primary frequency regulation using energy Storage system or in atraditional way, not producing at maximum output capacity, limiting its
Date Price [TL/MWh] Price [€/MWh]12/06/2013 0,12 0,044
06/12/201218,41 6,818
17/09/201229,13 10,77
06/06/201210,85 4,018
115
maximum productivity to 98% of nominal capacity. Therefore price ofenergy and incidence of fuel cost in final price of energy are the mostrelevant assumption.The hypothetical case of a producer having a 100MW nominal powerfacility has been analyzed. Assuming a day ahead market price of49€/MWh60, a sale on the market of all the extra generated electricity and abattery cost of 1,400,000€/MWh and a Storage duration of 4.7 years, thedecision whether using or not a battery for primary frequency regulationpurposes depends on the electricity generation technology and on thepercentage of fuel cost.Assuming a fuel cost of 75% for gas power plant 45% for coal power plant Negligible for hydro power plantAnd having estimated a sale loss of 858 000 €/year the net cost will be (1-75%)*858 000 = 129 000 €/year for gas power plant (1-45%)*858 000 = 472 000 €/ year for coal power plant 858 000= 858 000 for hydro power plant
Annualized cost of storage will be around 600 000 €/year. Under thisassumption it might be competitive to use ESS for primary frequencyregulation in Turkey in case of hydro power plant. Assumption on incidenceof fuel cost are relevant and need to be verified industry by industry. Forexample if a gas plant was optimized to work on high regimes, incidence offuel cost on the last percentage of production could be estimated to bearound 30%, in this case the estimated sale loss would be around 600 000€/year.Storage useful life is a very influential assumption. Useful life of 4.72 yearswas calculating considering that a storage system can do around 5000cycle61 in his useful life and it needs to do 3 cycles a day. The last dataneeds, however, to be verified by the energy producer. Table 10 summarize
60 This was the market price for the for the 14rth of October 201361 This is a common assumption in the industry
116
available option for the Turkish case study.Even though Turkey still lack specific regulation to allow ESS usages forprimary frequency regulation, regulation is undergoing extensive review inthis direction.
Table 10 options for a power plant in Turkey
In Turkey, a producer might also decide to buy primary frequency regulationservices from another producer in the market. In this scenario another optionwill be available. The producer might produce primary frequency regulationenergy, buy an energy storage system or buy a service form another producer.
117
Service price is established through private contract and the decision willdepend on the contract that the producer manage to have.The assumption that the power plant could sell for the day ahead marketprice all the produced electricity is realistic for hydro power plant, but notalways for traditional power plant, which in some days might not operate athigh regimes. In case of counties whose electricity consumption is fastlyincreasing (demand is higher than consumption) it is reasonable to assumethat also traditional plant can sell all the extra produced electricity. A lastremark about hydro plat is that not always they can produce extra energywithout extra cost, in fact in some case water is not abundant enough or theturbine might loose efficiency above some regimes.
Countries with firm frequency response
In counties where Companies can choose whether provide or not primaryfrequency regulation, revenues from service compensation should beconsidered with the unit cost of storage per kWh in its useful life. Germanyis one of these countries while Great Britain presents hybrid situation asdiscussed above.Therefore if we want to evaluate an investment on storage in Germany toperform primary frequency regulation services, we should consider arevenue of
Revenue from primary frequency regulation services should be consideredagainst the cost of performing such a service with Electrochemical storageor in a traditional way.If a battery had a cost of 1 400 €/kWh and a power/energy ration equals to 4,considering that 2.88 regulation per day are performed, the annualizedcapital cost would be of 80 000 €/year, not considering interest rate.However for batteries with a power energy ratio equals to 1 the annualizedcapital cost would be 4 times higher, not justifying investment on storage.Considering a 5% interest rate, the annualized capital cost of the storagewould increase to 90 000€/year for storage with a power/energy ratio equal
118
to 4 and to 362 000 €/year for storage with a ratio equal to 1.This computation are sensitive to assumptions about storage useful lifeassumption and battery cost. 5200 cycles and 1400€/MWh have beenassumed for each battery. However, when used in partial cycles batteries arelikely to last more and batteries with higher C ration might be moreexpansive. This correction introduce convergency tendencies to analyzedcases even though it is not likely that result will be very much influenced.
Interest rate AnnualizedCapital Costs
Economic reward C ratio
0% 78 615 €/year 150 800 €/year 40% 314 416 €/year 150 800 €/year 15% 90 677 €/year 150 800 €/year 45% 372 710 €/year 150 800 €/year 1
Table 11: Primary frequency regulation with EESS in Germany
8.4 Market Scouting
The previous analysis gave an analytic framework to evaluate financialfeasibility of using EESS for primary frequency regulation purposes incountries with mandatory and voluntary regimes. In countries havingmandatory frequency regulation regime there might be interestingopportunities for plants which can sell all the extra produced electricity andhaving a low marginal production cost. As analyzed in the previousparagraph, convenience relies, in fact, on the possibility to sell more energywithout incurring in relevant extra-cost. Therefore EESS convenience isinfluenced by Day Ahead Market price of electricity. This prices are likely tobe higher in market heavily depending on oil and gas, where hydro-plantsusually do not play the main role.
Even in cases where there is economic convenience, diffusion of EESS forprimary frequency regulation, is still slowed down by missing regulations on
119
the topic in many countries. Countries which are more likely to adaptregulation sooner are counties experiencing grid imbalances (because of fastincrease in demand, like Turkey, or because of significant shares ofrenewables, like Italy and Germany), or counties which need to give a pushto renewables in short time.In order to find a good potential market therefore should meet the followingcriteria Electricity day ahead market price price higher than 35 €/MWh62
Presence of power plants with zero marginal cost. Increase in demand OR Increase in non controllable renewables shares
(wind or solar) (planned or happened)Threshold of day ahead market price was computed considering that theservice is on average requested three times a day. If the service wasrequested more often the threshold price should be increased. This analysishelp to find the market with a “technically” proper environment. Countryregulation need to be analyzed to understand if there are market conditionsand proper legislation.
Maintaining a focus on Europe, wholesale electricity prices should becompared.”Quarterly Report on European Electricity Market”63 is a richsource of information. Figure 47 Shows Wholesale electricity price for thesix main European Regional electricity market: Central Western Europe (Austria, Belgium, Germany, France, the
Netherlands, Switzerland), British Isles (UK, Ireland), Northern Europe (Denmark, Estonia, Finland, Lithuania, Norway,
Sweden), Apennine Peninsula (Italy), Iberian Peninsula (Spain and Portugal), Central Eastern Europe (Czech Republic, Hungary, Poland, Romania,
Slovakia, Slovenia),
62 This is the equilibrium price at which there is no difference between using storage or hydro-plantin a traditional way, considering that the service is requested three times a day63
http://ec.europa.eu/energy/observatory/electricity/doc/20130611_q1_quarterly_report_on_european_electricity_markets.pdf
120
South Eastern Europe (Greece).
Figure 47: Regional Day ahed market price in Europe
Figure 47 shows that Day ahed market prices are the highest in British islesand Italy, Central Western Europe follows.The first countries emerging form the first selection are therefore: UK Ireland Italy Austria Belgium Germany France The Netherlands Switzerland GermanyFor these countries relevant indicators need to be analyzed. Interestingparameters are the increase in demand (data for the period 2008-2011 were
121
available) share of hydro in the country energy mix, share of wind in thecountry energy mix. In fact in some countries generator from these sourcesmight be required to perform primary frequency regulation. In order toanalyze future effort in renewables difference between 2011 renewablesshares and Europe 2020 target were considered.Country MGP
Price
Increase in
demand
2008-201164
Renewable share
to be
implemented65
%
hydro66
%
Wind67
UK HH -6.90% 11.12% 1.6% 6%
Ireland HH -8.34% 9.3% 2.6% 13%
Italy H -3.32% 5.5% 15.2% 5%
Austria M 3.07% 3.1% 55% 4%
Belgium M -2.89% 8.9% 0.2% 4%
The Netherlands M -1.17% 9.7% 0.1% 4%
Switzerland M -1.24% N/A 51.5% N/A
Germany M -1.33% 5.7% 2.9% 11%
Countries listed in the table might be a good starting point when looking forpotential market within Europe. Turkish case is also interesting and has beendeeply analyzed with great detail. It is important however to understandlocal regulation and under which circumstances producers need to provideprimary frequency regulation services (in Germany for example producersare not obliged, therefore evaluation should be performed in a different way,while in Italy the market lacks of regulation and specifications to performprimary frequency regulation services through Storage systems).
8.5 Conclusion
The chapter has been analyzing primary frequency regulation from a
64 World bank data http://data.worldbank.org/indicator/EG.USE.ELEC.KH (cons. 17th Oct 2013)65 Eurostat website (cons. 16th Oct 2013)66 World Bank data http://data.worldbank.org/indicator/EG.ELC.HYRO.KH (cons. 17th Oct 2013)67 Europa.eu website (cons. 16th Oct 2013)
122
technical point of view, describing some relevant markets and to providing aframework of economic valuation. The conclusion was that in countrieswhere frequency regulation is a mandatory service, generator with zeromarginal cost might have, depending on the day ahead market price, interestin electrochemical energy storage systems to perform primary frequencyregulation. On the base of this result a market scouting framework has beenprovided.
123
9. Demand Response
A demand response service aims at balancing the grid with an action on theload and not on the generators. In this way equilibrium between generatedpower and consumed power can be achieved not by increasing productionbut by reducing consumption. The most traditional example of demandresponse is the one implemented in Great Britain, where loads areunplugged in case of grid imbalance. In some American states and Canada,however, advanced grid balance mechanism are adopted. Grid balanceconsist in balancing the grid modulating the loads which are less importantfrom the process point of view. ENBALA represent so far the best example ofthis technology.
9.1 ENBALA business model
ENBALA business model as been discussed in previous chapter. Such abusiness model is rather easy and powerful. ENBALA perform buildingautomation investment in the end user plants in order to control someconsumption centers. The final customers does not pay for this automation.In case of grid imbalance, loads are modulated within some comfortstandards and utility compensation is divided between ENBALA and thefinal customer. Technology has ben developed by Oak Ridge Laboratoriesand licensed to ENBALA. Figure 48 shows a simplified schema ofENBALA business model.
124
Figure 48: ENBALA business model schema
9.2 Demand Response in some EU countries
While on one side Europe tends to impalement grid balance systems, on theother side no big large scale experiments have been done so far. One of thereasons is that European companies have higher level of energy efficiencythan American ones, so that there are less margin for grid balance systems.This paragraph presents a brief overview of demand response programs insome European countries. Particular focus is given to Great Britain andGermany. The former represent the most established market for DemandResponse, while the latter represent a market where demand response hasjust been introduced and there might be more interesting businessopportunities
Great Britain
In Great Britain demand can participate to curtailment programs. Theserepresent a very simple version of grid balance mechanism in which someload are switched off, without considering their inherent flexibility andtherefore compromising the whole process.National grid website (Great Britain TSO) explains that“Frequency Control Demand Management (FCDM) provides frequencyresponse through interruption of demand customers. The electricity demandis automatically interrupted when the system frequency transgresses the low
125
frequency relay setting on site. The demand customers who provide theservice are prepared for their demands to be interrupted for a 30 minuteduration, where statistically interruptions are likely to occur betweenapproximately ten to thirty times per annum.”In order to participate to demand response programs it is necessary to fulfillthe following requirements68: Be available 24 hours a day (declared for full Settlement Periods); Provide the service within 2 seconds of instruction; Deliver for minimum 30 minutes; Deliver minimum 3MW, which may be achieved by aggregating a
number of small loads at same site, at the discretion of National Grid; Have a suitable operational metering; Provide output signal into National Grid’s monitoring equipment.”Price per kWh of energy used for demand side frequency regulation isdetermined through auction mechanism and it does not keep constant. Tohave an idea, the average price of Demand side frequency regulation andFirm Frequency regulation in June 2013 was 0.04945 €69 much lower thanElectricity storage cost.The fact that small loads can be aggregated by demand aggregatorsrepresent a very interesting opportunity. In this case technologies toaggregate the desired amount of electricity without interfering with theprocesses and coordinating several loads might be developed. However, lowcompensation for the service is a relevant barrier to this developmentprocess.
Germany
The 20th December 2012 Germany introduced an ordinance on Interruptibleloads, called "Ordinance on Interruptible Load Agreements” (AbLaV).70
According to AbLaV “interruptible loads are defined as largeconsumption units which are connected to the high and extra high voltage
68 http://www.nationalgrid.com/uk/Electricity/Balancing/services/ frequencyresponse/fcdm/ (cons.21/09/2013)69 1£=1.24€70 https://www.regelleistung.net/ip/action/static/ausschreibungAbLa (cons. 21st September 2013)
126
grid, nearly continuously consume a large volume of electricity and whichcan, when called upon, reduce or interrupt their demand on short notice andfor a fixed minimum duration thanks to the nature of their productionprocess.In accordance with the AbLaV, the German transmission system operatorsissue a call for tenders each month for 1,500 MW of immediatelyinterruptible loads (SOL) and an equal volume of quickly interruptible loads(SNL) through the TSOs' joint tendering platform: www.regelleistung.net.To participate in a tendering procedure, each provider that has breakingcapacity at his disposal and seeks to offer it on the market, needs tosuccessfully participate in the prequalification procedure of the TSO he isconnected to. This is a prerequisite for the subsequent framework agreementwith the relevant connecting TSO”.Requirement for participating the market are public and listed onregelleistung website. In brief these requirements are: Tendering period: monthly Products: immediately interruptible loads (SOL) and quickly
interruptible loads (SNL) Tendering volumes: 1,500 MW of SOL and SNL each Offer size: minimum tender quantity (minimum lot size) = 50 MW and
maximum tender quantity = 200 MW Tendering dates: according to the tendering calendar Offer options: provision of a breaking capacity (in accordance with §
5 section 1 no. 3 of the AbLaV) for: at least 15 minutes at any given time, several times a day at
different intervals for a duration of up to one hour per day, at leastfour times a week
continuously for at least four hours at any given time, once everyseven days
continuously for at least eight hours at any given time, once every14 days
Activation: SOL: automatically frequency-controlled within the second when
127
the level drops below a predefined grid frequency and remotelycontrolled without delay by the transmission system operator(immediately interruptible loads)
SNL: remotely controlled within 15 minutes by the transmissionsystem operator”
SOL represent a very interesting case of demand response. Technically theyare a very challenging case since it is required to curtail at least 50 MW inonly 1 second. Furthermore, very few production plant can curtail 50 MWwithout stopping the whole process.Prices for this services have been so far very generous. In particular, asshows the price in the October 2013 tender was 2500 €/(MW*month) and395 €/MWh. In particular the latter price is more 3.4 times higher than theindustrial cost of electricity in Germany.71 Confidential sources reportedthat so far (15th September 2013) they have never be called to curtaildemand and that they are all from the same industry.Such a new and challenging market might present relevant opportunities onagregation and control of demand curtailment programs.
Italy
Italy does not have demand response programs. However, as described inthe previous chapter, Italy is undergoing an extensive reform of balancingservices. Among the three scenarios identified by Politecnico di Milano, thethird one describes a situation where each DSOs agree with Terna (ItalianTSO) on a given exchange profile and is forced to pay some kind of fine ifthere is a variation above certain limits. As already said, big DSO, likeENEL, might be interested in installing some Storage solution in order tokeep this profile. However high storage costs suggests that DSO might bemotivated to implement some demand response activities to achieve thegreatest part of the balance and leave storage for minor regulations.Authority’s DCO 354 forecast that DSO might buy Distribution grid balanceservices through bilateral contracts or through a Balancing service market.However independent generators might be not willing to participate a
71 Price of electricity for industrial consumer at the 21st Sept. 2013 115.67€/MWh (sourceenergy.eu)
128
monopsonistic market, therefore the second option is the most realistic.In this scenario, demand response services might be introduced in Italy. BigDSO, like ENEL, might be interested in Demand Response services frombig loads in order to be able to cheaply control the grid thanks to thecontribution of few users. However some other utilities serving cities, likeA2A in Milano or some branches of Enel, might be interested in developinga demand response able to control more “commercial loads” like chillersand refrigerators. This technology might later on be applied also forresidential usages.The described scenario opens a lot of opportunities for companies able toprovide the required technological solutions to utilities and, in a secondstage, to home appliances producers.
9.3 Conclusions
The Chapter described demand response programs in USA, UK andGermany and presented a possible evolution of Italian scenario. Germanyseems to be a financially promising market but Demand Responserequirements are too selective. So far only companies belonging to oneindustry have been participating in Demand Response services, howevercompanies from other industries might be interested and have not foud yetthe technology to perform primary frequency regulation without interruptingthe process. It is very relevant to monitor Italian market which might evolvefast at the beginning of the year firstly for big loads and secondly for smallerones up to residential.Technological development might be fostered by cooperation withuniversities. Danish universities in particular seem to have deep knowledgeon Demand Response since wind mills, which have historical presence inDenmark, are difficult to be integrated. Problems generated by wind millintegration fostered development on Frequency regulation and DemandResponse technology positioning Denmark as the leader country for SmartGrid.
129
10. Microgrid Business.
Previous chapter dealt with general and introductive microgrid concept andintroduction schema without giving any details on their implementation andcompany strategy. This chapter will focus on possible business strategy insome country of interest for Loccioni. In particular it will provide a detailedanalysis of Italian, German and Turkish market.Actually in Europe there is no developed microgrid market because energyself-production has been, in general, not competitive. However situation hasbeen evolving rather fast and interesting development are expected in manycountries.
10.2 Microgrid in USA
USA experienced already some microgrid development. In fact natural gasCHP became competitive several years ago because of relatively low pricesof natural gas, as shown in Figure 49. In particular decrease of minimumefficient scale and risk of blackout in isolated areas make CHP a veryinteresting investment especially when the size of CHP plant might allow anarea to operate in island mode, i.e. disconnected from the main grid.
A big-ticket item
Actually microgrid is considered a sustainable long term oriented expensiveinvestment. While expensiveness is impeding large scale diffusion, someinstitutions are willing to invest because of their need for independencyform the main grid (National security Agency) or in order to understand thetechnology (companies who plan to enter the industry and universitycampuses). Greentechmedia, famous online magazine on green technologiesand smart grids says72:<<Microgrids are big-ticket items, but for those who can afford them, theyseem to be reasonable investments. The $71 million White Oak project is
72http://www.greentechmedia.com/articles/read/microgrids-a-utilitys-best-friend-or-worst-enemy
130
expected to save the FDA about $11 million a year. The return on theroughly $60 million Cornell University project [PDF] is expected to beconsistent with the long-term rate of return of the endowment and in therange of 8 percent to 10 percent. For a military base, of course, beingself-reliant is “priceless”>>
Figure 49: Natural gas prices in USA, Japan, UK73
CHP prevalence
CHP allows users of the microgrid to produce energy for a price which ischeaper than the supplier price and to reduce heating consumption at thesame time. Global efficiency can vary from 65% to 90% depending on thetechnology and environmental conditions. This efficiency is much higherthan the traditional power plan one varying from 35% to 55%. In countrieswhere energy is cheaper, like USA payback time is around 6-7 years so thatso far only institutions who can use tax-dollars are building microgrids as along term investment and for creating capabilities. On the other sidePhotovoltaic technology as not been greatly introduced in USA, withexception of some states like California, so that actual microgriddevelopment strongly depends on CHP technology for as concern the source
73http://upload.wikimedia.org/wikipedia/commons/6/6c/Natural_Gas_Price_Comparison.png
131
of energy.
Grid tariffs
A very relevant issue regarding microgrid is the payment of grid tariffs. Inparticular microgrid manage to be competitive because self-produced energydoes not pay a relevant part of grid tariff in USA since this energy istransmitted inside a private network.This is a key topic and many European countries lack regulation on this.
10.2 Microgrids in Italy
Regulatory framework
Italy does not have a clear regulation on self consumed energy thereforemicrogrid market is basically blocked. Before 2008 self-produced andself-consumed energy from any source did not pay grid tariff. Starting from2008, decree 208/2008 (modified by decree 56/2010) introduced someregulation on the topic. In particular this decree established that selfproduction system smaller than 20 MW powered by renewables having oneproducer and one consumers and transmitting electricity through a privateline in a private land do not pay grid tariff. This entities are called SEU(Sistemi Efficienti di Utenza). In particular the law asked Energy Authority(AEEG) to prepare some applicative norms in order to implement theprevious rules. However authority still did not prepared applicative norms,stopping de facto microgrid market in Italy.Authority dilemma is that if some entity do not pay grid tariffs, gridmaintenance costs (which are basically a fixed cost) will be spread onremaining people who will have strong motivation to installself-consumption system in a continuos loop. Despite this dilemma, strongpressure from Solar industry association, led the Authority to publish twoDCO (consultation documents) on the 1st and the 13th of May. Thesedocuments establish the definition of SEU and their grid tariffs advantages.In accordance with previous legislation, these documents also propose that
132
for a limited amount of private grids established before 2008, called RetiInterne di Utenza (RIU), Cooperative storiche (COOS) and Consorzi Storici(CONS) part of grid tariffs are applied only on energy exchanged with themain grid and not on the energy consumed by the end user.As analyzed in the first chapter, a relevant part of energy cost is due totransmission and distribution services, so that saving on these costs mightlead to significant electricity savings.Grid tariff discussed in Consultation document normally amount to 33% to35% of electricity cost in a Medium size company. Therefore legislation208/2008 and 56/2010 introduce significant incentive to self consumptionfrom renewables or from high efficiency CHP (which in Italy is compared torenewables).After some interviews with Italian Authority officers it has been reached theconclusion that right now it would be possible to avoid to pay any grid tarifffor self consumed energy. However when the authority will finally pass thedecree all self-consumption configuration realized after 2008 and notqualifiable like SEU will start to pay grid tariff on the energy consumed bythe final customer and not on the energy consumed in the grid connectionpoint. Final customers should pay grid tariffs also on self-produced energy.Unclear tariffs system has been slowing down microgrid markets for years,waiting for some clear directives on the topic.
Present Opportunities
Even though regulatory framework is not totally clear RIU are alreadytotally listed and no new RIU can be created. RIU list can be found onAEEG Website. RIU producers can have very cheaper energy price sincethey do not pay grid tariff on self consumed energy. These producers mightbe interested in implementing an internal demand response system in orderto maximize self consumption and earn the price difference (self consumedenergy is valued around 160€/MWh while energy exchanged with the grid isvalued around 65 €/MWh)
Possible Microgrid business in Italy
This paragraph will describe a suitable microgrid business for Italian
133
companies. The model is graphically introduced in Figure 50. AuthorityDCOs in fact allows the possibility for the producer and the consumer of aSEU to give a mandate to a third company to interface with DSO or energytrader for the supply of customer’s energy and the sale of extra producedenergy. Companies like Loccioni might provide long term solutions to theenergy producer designing all electricity production centers, final customerenergy efficiency interventions and annual management of energy flows.Since 70% of the produced electricity must be consumed by the finalcustomers (as required by law), customer loads need to be adapted in orderto maximize self consumption and consume higher amount of grid energywhen it is cheaper (this mechanism is close to the demand response).Aggregating several microgrid around Italy, it would be possible to bargaina better price with utilities and provide extra-savings to producer and finalcustomers. In the scenario the producer would basically be a financialpartner who is willing to invest in the production site and energy efficiency.Investments will be repaid through final customer energy consumption.Even though the customer does not want to invest money on energyefficiency modification, it is important that the producer would finance themif their rate of return is higher than the generation system. In fact, in order tohave exemption from grid tariff, the final customer need to consume at least70% of the produced energy. Changes in energy consumption patterns mightinvalidate the feasibility of the whole investment since selling all electricityto GSE would be much less profitable.General contractor would therefore operate as system integrator and energymanager providing value to both the producer and the consumer and, whenseveral microgrids will eventually be implemented, the company wouldeven provide grid service using inherent flexibility.Microgrid might also be ready to implement Energy Storage systems so thatwhen these systems will become cheaper, it could be possible to offer a“plug and play” option to further maximize self consumption and regulateinternal flow of energy.
134
Figure 50: Possible microgrid business
10.3 Microgrid market in Turkey
In 2012 only 8% of energy production came from renewables, thereforeTurkish government decided to incentivize renewables in order to cover partof the increasing electricity demand74.
Renewables policy in Turkey
In Turkey all consumers can produce and self-consume electricity fromrenewables. If the production is inferior to 1 MWe no production license isneeded. The consul of ministries has the right to give authorization up to 5MWe Excess energy can be sold to the closest DSO who will organize thesales of energy with YEK (Renewable energy association). Direct sale toanother consumer is, however, not allowed in Turkey.TEIAS (Government company which operates as TSO) provides insurancein case the local DSO does not pay. Actual regulation guarantee energy sale
74 Semih Ates helped significantly in this part of the research
135
for 10 years. Law to decide what will happen later are still under discussionin the parliament.Net metering schema is recognized in Turkey. Every day local DSOcomputes how much energy was produced and how much energy wasconsumed by a “person” or organization and net metering is applied on thedaily flow of energy. For example if energy is rewarded 0.133$/kWh, thedaily production is 100kWh and the daily consumption is 60kWh at the endof the day the producer will not be charged for energy consumption and willreceive a compensation of 0.133$/kWh*40kWh. Total Net Payments arecomputed at the end of the month.Each person and organization can own several production plants (<= 1MWeor 5MWe) in the same distribution region. However a different contract withDSO should be activated for each plant.In conclusion, in Turkey Renewables are very much incentivized. Howevernet-metering schema does not facilitate internal demand response andstorage systems since companies might use national grid as a cost-freestorage
CHP and reutilization of waste gas
CHP can be realized without production license and have no power limit.However CHP cannot sell energy to DSOs but only consume all the energythey produce. It is allowed to generate electricity by reusing waste gas eventhough from a legal point of view this is considered like CHP. Thereforewhile renewables are very much incentivized, government want to stopdiffusion of CHP and more traditional sources of energy for small scaleproduction.The main conclusion is that there is not big market for industrial microgridin Turkey while there will be a very big market for renewables generators,especially for solar panels.Industrial AreasUnder Turkish legislation, companies in industrial districts are freeconsumers. They can self produce energy or they can buy and sell tocompanies in the same district as they wish. Turkish Industrial district cantherefore be compared to Italian RIU and might show interest for internal
136
demand response services
10.4 Conclusion
After a brief discussion on American situation, the chapter analyzedMicrogrid Regulatory Environment in Italy and Turkey, focusing onpotential business schema. Regulatory framework highlighted a potential forinternal demand response in some Italian industrial ares (classified as RIUby Italian legislation). Turkey present no particular business fordevelopments of complete microgrid and Net metering schema disincentivesstorage solutions for microgrid usages. However, Turkish industrial areasmight however be interested in Internal demand response technology,
137
11. Small Islands and Simulations
Previous chapters showed main cost drivers and benefit drivers for industrialmicrogrids. This chapter focus on small islands problems and on theestimation of present value, and rate of return in a semi-real case microgridinvestment. Particular focus is given to islands microgrid, using the samemodel and methodology to estimate return in industrial cases.
11.1 Italian islands
According to interviews some islands in Sicily, Campania, Toscana andCalabria produce electricity with very inefficient technology havingelectricity production costs ranging from 240 to 1200 € / MWh, while theaverage Italian one is around 65 €/MWh. The reason why so high electricityprices are not perceived by final customers is that small islands cannot havehighly efficiency electricity generation techniques and that there is asolidarity principle so that higher cost are divided among population ofmainland. This policy removes incentives to implement more efficientsystems based, for examples, on Storage and solar production. Example ofItalian “central government reimbursement” for minor islands electricity,called “Aliquote di integrazione tariffaria” are provided in Table 1275.Similar reimbursement principles are present in other Southern-Europeancountries.
75 www.autorita.energia.it (cons 14th October 2013)
138
Table 12 Final “Aliquote di integrazione tariffaria” for minor electric companiesSELIS Lampedusa S.p.A., SELIS Linosa S.p.A. e SMEDE
Pantelleria S.p.A. for years 1999-2008 ( value in c€/kWh)
Year SELISLampedusa
SELISLinosa
SMEDEPantelleria
1999 16.04 35.79 15.272000 23.66 45.02 23.812001 19.45 38.75 20.652002 16.03 30.07 18.452003 14.15 23.67 15.022004 18.65 23.45 16.432005 20.67 27.89 19.252006 21.32 23.61 21.462007 22.18 23.07 19.922008 27.42 27.41 24.39
139
11.2 Country Islands
A different situation might is presented in country islands. In fact thesecountries cannot rely on mainland support therefore they will have the mostefficient price given their technological development. Study of countryislands electricity prices might give a good indication of the actualproduction cost of electricity for small islands. However there are very few“independent” small islands in EU, most of them being in the Caribbean andOceania. Figure 51 shows location of country islands all over the world.Saint Lucia electric company prepares a very detailed yearly report onCaribbean electricity prices76 shown on Figure 58, Figure 59 and Figure 60.Bermuda in particular has a rather high electricity price shown in Table 13
Table 13: Electricity price in Bermuda
Most of these countries produce electricity using diesel engine, thereforetheir electricity price is high and very much dependent on economic andpolitical trends.
76
http://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CDwQFjAB&url=http%3A%2F%2Fwww.investstlucia.com%2Fdownloads%2Fgetdownload%2F138&ei=clNFUurhAcSAhQeUnIHQDA&usg=AFQjCNFsZOHALZsoGf6NvN-F1b8Pb-LghQ&sig2=nKfDLnH9D8vSrYB_Q0OMFg&bvm=bv.53217764,
Island Population Unit Electricity Cost[$/kWh]
Main source
Bermuda 155000 0.5725 Diesel
140
Figure 51: country islands around the world
Cape Verde has also very high electricity price as shown in Figure 52 andFigure 53. In particular these two figures report a domestic electricity priceof about 31.32c€/kWh (below 60kWh) and 38.47c€/kWh (above 60kWh).Medium Voltage prices are also high if compared to Europe, ranging around29.97 c€/kWh.The next paragraph will show that in these islands introduction of amicrogrid might be economically convenient.
Figure 52: Low Voltage Electricity prices in Cape Verde
141
Figure 53: Medium Voltage Electricity price in Cape Verde
11.3 LCOE
Investment in electric system are different from investment in other form ofequipment since their useful life is usually very long. Another difference isthat usually there are many stakeholders. Therefore it is important tointroduce a technique which assign a portion of the investment to each kWhof produced energy so that it will be possible to understand the influenceof the system and be able to take decision regardless of the usually very longpayback period.
LCOE77 (levelized cost of energy) is one of the utility industry’s primarymetrics for the cost of electricity produced by a generator. It is calculated byaccounting for all of a system ’ s expected lifetime costs (includingconstruction, financing, fuel, maintenance, taxes, insurance and incentives),which are then divided by the system’ s lifetime expected power output(kWh). All cost and benefit estimates are adjusted for inflation anddiscounted to account for the time-value of money. Figure 54 shows LCOEformula78
77 http://www.renewable-energy-advisors.com/learn-more-2/levelized-cost-of-electricity/78 http://www.solarserver.com/solarmagazin/standpunkt_velosa_0310_e.html
142
Figure 54: LCOE formula
As a financial tool, LCOE is very valuable for the comparison of variousgeneration options. A relatively low LCOE means that electricity is beingproduced at a low cost, with higher likely returns for the investor. If the costfor a renewable technology is the same as current purchasing costs, thetechnology is said to have reached “Grid Parity”.In order to evaluate LCOE for microgrids solutions a simulator has beendeveloped. This simulator is able to compute the Rate of return, the payback,the discounted payback, the cash flow, the discounted cash flow and the Netpresent value for Solar energy plant, micro-hydro energy plant, CHP, energyefficiency substitution and Electrochemical Energy Storage system. Thesimulator can take loan and taxation into account and also compute LCOEfor each solution. A visual basic macro is able to integrate the result of somesolutions and compute global financial indicators and global LCOE for thewhole system.The goal of the simulation is to understand if there are situations in whichsmart microgrid might be beneficial. In order to have a simple tool, DemandResponse effect has not been considered and the assumption ofnot-modifying load has been done. This is consistent with a conservativeattitude toward the evaluation. Detail simulation tool, like Homer Energy79,are present on the market and are able to take into account many detaileddata which suit the specific case. Basic assumptions of simulations can befount on Table 15, while results can be found on Table 16.
11.4 Cape Verde case
A relevant simulation remarks the situation of private big customers in Cape
79 http://www.homerenergy.com/
143
Verde, one of the countries with highest electricity rate. Price of electricityin Cape Verde as been taken as inputs to the model while a 25% tax ratereflects Cape Verde taxation policy.Under this assumption it can be seen that there is market for microgrid insmall islands, since LCOE of microgrid is much lower that Cape Verde Costof electricity80. The simulation considered a 1MWp Solar plant associatedwith a 200kW/200kWh Lithium-battery able to integrate the solarproduction during the day performing peak shaving functions. The goal ofthe system is not to give total autonomy to the final customer (or associationof customers) but to significantly decrease their daily consumption, Thesolution pays back in 2.2 years considering a 80% loan. Result are shown inFigure 55. Figure 56 shows LCOE for a 20 year life of the solution andFigure 57 shows how that the 20 years LCOE is lower than the average priceof electricity. The very high Internal Rate of return (60%) should be linkedto the high cost of the electricity in the island.
Figure 55 Cash Flow for a 1MWh Solar system and a 200kWh battery in CapeVerde
80 A 4% inflation of electricity cost has been assumed since generators strongly rely on Dieselengines
144
0.00 €/kWh
0.10 €/kWh
0.20 €/kWh
0.30 €/kWh
0.40 €/kWh
0.50 €/kWh
0.60 €/kWh
0.70 €/kWh
0.80 €/kWh
0 5 10 15 20
Anni
€/kW
h
RCOE Costo medio energia acquistata
Figure 56: LCOE for a 1MWh Solar system and a 200kWh battery in Cape Verde
0.00 €/kWh
0.10 €/kWh
0.20 €/kWh
0.30 €/kWh
0.40 €/kWh
0.50 €/kWh
0.60 €/kWh
0.70 €/kWh
0.80 €/kWh
0 5 10 15 20
Anni
€/kW
h
LCOE 20 anni Costo energia acquistata
Figure 57: 20 years LCOE for a 1MWh Solar system and a 200kWh battery inCape Verde
11.5 Minor islands case
The simulation showed that Microgrid solution might be sustainable in Cape
145
Verde. However many Italian, Greek, Croatian and Spanish minor islandshave even higher electricity production costs, so that it could be even moreconvenient for these islands to install microgrid in order to serve the islandelectricity needs. As we discussed in the previous chapter, actuallyGovernment’s helps does not incentivize efficient production of energy.Proper push to local government and cooperation with the national one andEuropean program Horizon 2020 might create interesting opportunities formicrogrid in Small islands.In particular Production cost in minor islands are comparable to end userscost in Cape Verde so that the simulation might be consider realistic also inthis case. Small adjustment in tax and productivity rates are, however,necessary. Results of simulation are shown in Table 1681.Utilities in small Italian islands, in particular, would have very high NetPresent Value, Internal rate of Return and lower LCOE. The reason whythey do not undertake these investment is that expenses are so farreimbursed by Government (in particular by CCSE under decision of theEnergy Authority). Reimbursement are paid spreading the cost to all Italianconsumers in proportion to their consumption, as part of grid tariffs (this isthe component called UC4). Further details can be found on the website ofItalian authority which explains that this component was introduced tosupport inhabitant from minor islands and defend them from unsastainableelctricity costs. In Italian:“La componente UC4 è stata introdotta per garantire il serviziouniversale (pari trattamento per i consumatori) che nelle isole minori,senza collegamento con il sistema elettrico nazionale, presenta costimediamente più alti di quelli sostenuti per lo stesso servizio nell'areacontinentale (centrali più piccole, a combustibile più caro, gestione piùonerosa). Per questo è prevista (dall'articolo 7 della legge n. 10/91)una esplicita componente a carico di tutti i clienti finali per garantireun gettito che copra gli extracosti presenti nelle località isolate.”82
81 Cost of production is Italian islands were computed summing reimbursements decided fromItalian energy Authority (which can be found on the website www.autorita.enegia.it) to averageNational energy price (which can be found on the website www.gme.it). This methodology mightintroduce a slight overestimation of the price. Evaluation might be therefore a bit optimistic.82 http://www.autorita.energia.it/it/UC4.htm
146
Table 17 shows the effect of reimbursements in Italian electricity bill. In2013 the amount of this component varies for several kind of residentialusages with a median of 4c€/kWh while the total household cost of energy is23c€/KWh.In 2007 the tariff was the same for all Low Voltage Residential Usages, asshown in Table 14, it is therefore easier to estimate the total amount ofsubsidies. 2007 total consumption in Italy was around 317 500 million ofkWh and domestic consumption was around 67 000 million of kWh83.Therefore in 2007 minor electric companies received 2.68 billion euros fromdomestic user (45€ per capita) plus a relevant amount form other users.Considering data from Authority website an average of 0.02€/kWh84 couldbe assumed for other consumption for a total subside of [(317-67)*1000]GWh*0.02€/kWh = 5 bln €. Therefore a total subsidee of 7.7 bln€ isestimated to have been paid to minor electric companies ( on average 128 €per citizen).Government reimbursement based on a principal of equality might, however,feed some nonefficient production draining resources from all consumersand sensibly contributing to high electricity costs in Italy. Reform for a moresustainable system are needed in this direction.
11.6 Industrial microgrid
Simulation have been done in order to understand if microgrid can suitindustrial usages. These simulations did not consider introduction of storagesince in this case storage cost per kWh is higher than the cost of electricityfrom grid. Photovoltaic LCOE is still high but, under given electricityinflation assumption, in few years it will be lower than cost of electricity forindustrial users. A big market for microgrid might soon start to be availablewith Southern regions (Sicily, Calabria, Puglia) leading the innovation wave
83 http://www.terna.it/LinkClick.aspx?fileticket=WTd21Z%2fIl18%3d&tabid=418&mid=250184 The table shows a 0.02 €/kWh tariff for medium voltage users (the most common in Italy, 0.03€/kWh for other low voltage users and 0.01 €/kWh for High voltage users.
147
(in fact payback is much shorter in the South due to more appropriateenvironmental conditions). Italy is a very promising country for renewablesand microgrids because of the good natural position and a very highelectricity cost. However, simulations are influenced by Solar panel costsand battery cost. Drop in price is forecast in both Storage, because ofeconomies of scale linked to automotive sector, and Photovoltaic (becauseof Chinese producers’ crisis and new economies of scale due to Chinesedecision to develop photovoltaic). Therefore in one or two years microgridsmight become very competitive.Such high LCOE might, however, be already acceptable for multinationalcompanies operating in countries with poor grid conditions. There is aninteresting movement in this direction from many companies operating inIndia, since costs of related to blackout risk are too high in many industries85.Result of these simulations are shown on Table 16
11.7 Conclusion
Table 16 shows that microgrid solutions are already convenient for privatecustomers in island countries and for utilities in small islands. In the secondcase, however, a complex government reimbursement system does notincentivize local utilities to adopt more efficient production method.Government intervention is expected in this direction. Furthermore Solarsystems are close to grid parity in the south of Italy, indicating that evenwithout incentives they will become soon an attractive investment ifelectricity price will raise.Solar and storage system, coupled with other renewables, might be a reliableoption (with a reasonable LCOE) for companies operating in countries withsevere grid problems and continuous blackout risks.
85 http://www.elcon.org/Documents/EconomicImpactsOfAugust2003Blackout.pdf
148
Table 14 Reimbursement for minor producers for the year 2007 in Italianelectricity bills for Low voltages domestic users86
PhotovoltaicNominal Power 1MWp
Cost 1 300 €/kWp
Guaranteed productivity 10th year 90%Annual loss 0.8%Guaranteed productivity 25th year 80%Cost of Capital 5%Insurance Costs 14 000€/yearMaintenance 39 000€/yearAmortization rate 10%Loan 80%Cost of energy inflation 4.37%Taxation in Italy 27.5%(IRES);
3.8%(IRAP)Taxation in Cape Verde 25%StorageNominal Power 200 kWNominal Energy 200kWh
Table 15: Main assumption for microgrids simulation
86 http://www.autorita.energia.it/it/elettricita/schede/auc_07.htm
149
Figure 58: Saint Lucia electricity Company Report on Electricity in Caribbean
150
Figure 59: Saint Lucia electricity Company Report on Electricity in Caribbean
151
Figure 60: Saint Lucia electricity Company Report on Electricity in Caribbean
152
Table 16: Result of Photovoltaic and Storage simulations discussed in the chapter
153
Table 17: Reimbursement for minor producers for the year 2012 in Italianelectricity bills87
87 http://www.autorita.energia.it/it/elettricita/auc.htm
Grid tariff for minor electricalcompanies support influences nationalprices
154
Summary and Conclusion
Summary
Part I
Part I analyzed electricity markets, production systems and Electrochemicalstorage systems.
Chapter 1 gave a broad view on how electricity is purchased. Marketcomplexity relies on the facts that the grid cannot store energy thereforedemand and supply need to be in equilibrium at any moment. In order toachieve such equilibrium market has been arranged in a complexorganization: the day ahed market, the balancing market and the dispatchingservice market. Each market should cover all imbalances left by the previousones. Chapter 1 closed with an analysis of an electricity bill, whichintroduced the concept of Power Share. In fact National Grid could workbetter if consumption were flat and constant over time. In order toincentivize big customers to have flat consumption utilities give penality toconsumption peaks.Chapter 2 analyzed energy generation from renewables and market trendsfor solar and wind generators. CHP has also been analyzed.Chapter 3 focused on the Energy Storage potential benefit and, with a focuson electrochemical storage, several technologies have been compared. Thechapter also provided a brief Summary of Italian and German legislation(the two countries are so far the leaders in Europe for ElectrochemicalStorage regulation).
Part II
The second part of the work introduced the concept of Smart-Grids andMicro-Grids.
155
Chapter 4 described problems related with greater renewables diffusions andintroduced Smart-Grids as a possible solution.Chapter 5 presented Microgrids’ main component, discussed main costdrivers and advantages. Particular importance was given to powerIndependence and Power quality. Reduction in Cost will soon become anadvantage in Italy (as discussed in the last chapter).
Part III
The third part of the work tried to identify and understand some businesspotential in the field introduced during the previous two parts. Developmentof this part was achieved through a strict cooperation with Loccioni,innovative Italian companies leading some niche of automotive and homeappliances industry and with a strong willingness to become leader in microand smart grid industry.
Chapter 6 provided a profile Loccioni company and its future plans.Chapter 7 described a simple financial simulation tool for EESS to give acost per kWh of energy in output during Storage useful life.Chapter 8 described Primary Frequency regulation and provided aframework to classify possible market according to legislation and businessopportunitiesChapter 9 introduced the topic of demand response, providing examplesform USA. German and British market were briefly analyzed while somehypothesis were made about possible evolution in Italy.Chapter 10 analyzed business for industrial microgrid. After providing anAmerican example, it focused on Italian legislation. Opportunities inInternal Demand Response business were found for some companies(classified as RIU under Italian legislation).Analysis of Turkish market provided a scenario of interesting opportunitiesfor renewable even though net metering schema disincentive Adoption ofStorage solutions for microgrids. Industrial area in Turkey might presentanother potential market for internal demand response services.
156
Chapter 11 analyzed the topic of microgrid in small islands and providedresult of some simulations to assess their financial convenience. Results ofsimulations is that microgrids might have economic convenience for privatecustomers in country island and utilities in remote communities. A system ofgovernment subsidies, however, slows down innovation in many Italianislands. An estimation of the amount of subsides was provided.
Conclusions
In conclusion of this work there is a schema summarizing all the mostinteresting business opportunities which have been identified and the path toreach them. Cooperation with Loccioni company has been essential toidentify business potential in the smart and micro grid sector. All theidentified business opportunities are consistent with Loccioni’s capabilities,technology and willingness to play an important role in the future Europeanmicro and smart grid market.Potential relevant applications have been identified through interview toLoccioni management and to relevant stakeholder, including Italian EnergyAuthority (AEEG), Terna (Italian TSO), RSE, ENEL, A2A, Politecnico diMilano, EirGrid (Irish TSO), TEIAS (Turkish TSO), TenneT (German TSO).After identifying a potential opportunity, legislation for several countries hasbeen analyzed. Since financial estimation relies very much on countrylegislation and regulation., rather than providing detailed computation andsimulation, which would vary from case to case, the work has been orientedin providing frameworks of analysis under which several businessopportunities in the smart and micro grid sector have been identified.In the Smart Grid sector the most relevant identified application has beenPrimary Frequency Regulation and its performance through EESS.Depending on the country, producers of energy or utilities might findconvenient or safer to use EESS for Primary Frequency Regulation servicesrather than traditional technologies. Therefore a framework of countryanalysis has been provided. The framework provides two different analysisstrategies for counties having mandatory and voluntary regime. In each case
157
understanding or local regulation is a pre-requisite. In the voluntary case,service price has been considered to be the main variable, while in themandatory case analysis is focused on the opportunity cost, and,therefore,focused on the national energy price and presence of renewablesproviding Primary frequency regulation services.The second opportunity in the smart grid sector, Demand Response, has adeveloped market in USA, while some countries in Europe are starting toconsider introduction of these services. Italian market might present relevantnormative innovation ane need to be monitored.In the Micro-Grid sector most relevant identified opportunities are microgriddevelopment for companies in countries with poor grid conditions, andcompanies in country islands suffering from high electricity prices. In theformer application, benefits are mainly due to higher power quality andreduction of risk of damage in equipment while in this latter applicationeconomic return can be relevant. Other potential customer interested onmicrogrids could be utilities in small islands belonging to Europeancountries, since their generation cost is also very high. However governmentincentives have the effect of subsidizing inefficient production and removingeconomic motivation to innovate. Introduction of stricter subsides’regulations might open a relevant market in Europe. Along with theseopportunities Italian RIU and Turkish industrial areas might present a goodenvironment for market implementation of energy management system andinternal Demand Response.The thesis provided a framework to operate in the European Smart andMicro Grid market. In order to move from framework to execution, moredetailed information about each country and each application need to begathered and case specific technical and financial simulation need to beperformed.
158
159
Bibliography
GME Vademecum, “Il Mercato Elettrico del GME: finalità,organizzazione e funzionamento”, 2012
Energy and Strategy Group - Politecnico di Milano, “Wind EnergyReport”, 2012
Energy and Strategy Group - Politecnico di Milano, “Solar EnergyReport”, 2012
Energy and Strategy Group - Politecnico di Milano, “Energy EfficiencyReport”, 2012
Energy and Strategy Group - Politecnico di Milano, “Smart GridReport”, 2013
18th of June 2013, AEEG, “Relazione Annuale al Senato dellaRepubblica”
Brealey, Myer, “Principles of Corporate Finance”, Mc Graw Hill, 2003 Katsuhiko Ogata, “Modern Control Engineering”, Prentice Hall, 2010 Charles A. Desoer, Ernest S. Kuh, “Basic Circuit Theory”, Mc Graw
Hill, 2009 People Republic of China, “China 12th five years plan (2011-2015)” Piyasak Poonpun,Ward T. Jewell, Fellow, “Analysis of the Cost per
Kilowatt Hour to Store Electricity” , IEEE transactions on energyconversion, Vol. 23, NO. 2, June 2008
160
Sitography
http://pti.regione.sicilia.it (Cons. July 2013 - November 2013) http://en.wikipedia.org (Cons. July 2013 - November 2013) http://it.wikipedia.org (Cons. July 2013 - November 2013) http://www.confindustria.it (Cons. July 2013 - November 2013) http://www.greentechmedia.com (Cons. July 2013 - November 2013) http://www.enbala.com (Cons. July 2013 - November 2013) http://www.loccioni.com (Cons. July 2013 - November 2013) http://www.samsung.com (Cons. July 2013 - November 2013) http://www.ge.com (Cons. July 2013 - November 2013) http://www.fiamm.com (Cons. July 2013 - November 2013) http://www.a123systems.com (Cons. July 2013 - November 2013) http://www.saftbatteries.com (Cons. July 2013 - November 2013) http://www.ngk.co.jp(Cons. July 2013 - November 2013) http://www.enel.it (Cons. July 2013 - November 2013) http://www.terna.it (Cons. July 2013 - November 2013) http://http://www.endesasmartgrids.com/ (Cons. July 2013 - November
2013) http://http://www.qualenergia.it (Cons. July 2013 - November 2013) http://http://ec.europa.eu/energy/gas_electricity/smartgrids/smartgrids_
en.htm (Cons. July 2013 - November 2013) http://www.regelleistung.net/ (Cons. July 2013 - November 2013) http://www.eirgrid.com/ (Cons. July 2013 - November 2013) http://teias.gov.tr/ (Cons. July 2013 - November 2013) http://www2.nationalgrid.com/ (Cons. July 2013 - November 2013) http://www.teias.gov.tr/ (Cons. July 2013 - November 2013) http://www.pjm.com/ (Cons. July 2013 - November 2013) https://dgpys.pmum.gov.tr/dgpys (Cons. July 2013 - November 2013)
