An economic framework for the remuneration of smart grid actors Prof. Paulo Manuel De Oliveira-De...

An economic framework An economic framework for the remuneration offor the remuneration of

smart grid actorssmart grid actors

Prof. Paulo Manuel De Oliveira-De JesusSimon Bolivar University, Venezuela

Coimbra, November 19, 2014

UNIVERSIDAD SIMON BOLIVARUNIVERSIDAD SIMON BOLIVAR

http:\\prof.usb.ve\pdeoliveira

An economic framework for An economic framework for the remuneration of smart grid actorsthe remuneration of smart grid actors

1.- SMART GRID: Looking for a Definition

An economic framework for the remuneration ofAn economic framework for the remuneration ofsmart grid actorssmart grid actors

2.- Who are the Actors?

3.- The Remuneration Frameworks

4.- Newtork Avoided CostEvaluation


SMART GRID: Looking for a Definition



IEEE Power & Energy: September, 2005

Since Electric Supply Industry (ESI) began your path in the mid of XIX century, Electrical engineers have tried to introduce“intelligence” in generation, transmissionand distribution of electric energy.

Inventions as AVR, AGC, OPF, etcshow how intelligence is added to ESI.

When was the first time that You heard About the smart grid ?

Since 2004 ESI is submeregedin profound changes. A new paradigmcalled “smart grid”

THE SMART GRID PARADIGM


18841952

1986

2010

IS THE SMART GRID A RELEVANT TREND?


“The smart grid is the integration of an electric grid, a communications network, software and hardware to monitor, control, and manage the creation, distribution, storage and consumption of energy. The smart grid of the future will be distributed, it will be interactive, it will be self-healing, and it will communicate with every device.”

Andres Carvallo Austin Energy 2004

2.- SMART GRID: LOOKING FOR A DEFINITION


“enables the integration of utility infrastructure, with buildings, homes, electric vehicles, distributed generation,energy storage, and smart devices to increase grid reliability, energy efficiency, renewable energy use, and customer satisfaction, while reducing capital and operating costs.”

Andres Carvallo, 2004

2.- SMART GRID: LOOKING FOR A DEFINITION


Energy Infrastructure

Intelligent Infrastructure

Source: EPRI IntelligridArchitecture

SMART GRID is the convergence of three very well established industries:-The Electricity Industry-The Telecommunications Industry-The Information Technology Industry

A Short definition:


1.- Foundation: Smart grid deployments depend upon standards and best practices .2.- Power Quality and Reliability: Distributed generation can improve system reliability and address power quality3.- Energy Efficiency: Smart grid sensing can be used to provide information to consumers and operators for a more effective use of energy4.- Operational Efficiency: Automated systems can bring greater value to system operations. 5.- Clean Technology: The need to reduce or reverse environmentalimpact is driving of variable renewable resources

6.- Economy or Capacity. Distributed Generation and Demand Response can help shave peaks to AVOID, DEFER OR REDUCE investment in generation, transmission, and distribution

From Ligthner (2010): An Orderly Transition to a TransformedElectricity System, IEEE TRANSACTIONS ON SMART GRID, Vol 1 No. 1, June 2010

The Smart Grid Functions according USA's DOE:


Why Smart Grid: Environmental Causes

Environmental impact due toCarbon-based economyconstitutes a fundamental driving force to develop smart grid and ensure sustainability.

New technological advances allows distributed generation, mainly renewable, be competitive respect to traditional generation.

Then, Smart Grid should integrate, optimize, monitor and control all distributed generation in order to mitigate climate changes.This means the end of economy of scale in centralized power generation?


Why Smart Grid? Economical and Reliability Causes

2003 BLACKOUT: 55Milion people affected

August 14, 2003, August 13, 2003,

The need for optimization of energy systems began after the 1973 oil embargo.As a result, DEREGULATION has been applied in many countries worldwide focusing on the maximization of the use of electricity infraestructure.Market forces send strong incentives for generators but poor incentives to network operatorsHOWEVER RELIABILITY HAS BEEN A MAJOR ISSUE Great blackouts happened in EU and USA in 2003 due to lack of monitoring and control in electricity networksThe SG paradigm is the way to improve the monitoring and control of power systems



Who are the Smart GridActors and Stakeholders?


ENERGY FLOWS IN ONLY ONE DIRECTION

CentralizedGeneration

PowerTransmission

Power DistributionUtility

Load Demand

Energy Information

INFORMATION FLOWS ONLY BETWEEN UTILITIES AND LOADS

TRADITIONAL POWER SYSTEMS


ENERGY AND INFORMATION WILL FLOW IN MANY DIRECTIONS

DistributedGeneration

Transportation and Electric Vehicles

CentralizedGeneration

PowerTransmission

Power DistributionUtility

Load Demand

Energy Information

SMART GRID PARADIGM


Trasmission &Distribution

Utilities

InelasticDemand

Energy Regulators

EnergyTechnologyProviders

CentralizedGenerators

Traditional Actors: The Flow of the Money

Fossil EnergyProviders:

Carbon, Oil, Gas

€

€

€

€

Regulation definesEconomic Framework:

€



Utilities

ElasticDemands

Energy Regulators

EnergyTechnologyProviders


Smart Grid Actors: The Flow of the Money


Carbon, Oil, Gas

€

€

€

€

DistributedGenerators

Telecom/ITTechnologyProviders

€ € € €

€

€ €

€

€€€€

€

€



The Remuneration Frameworks


Where are THE AVOIDED Costs?


Carbon, Oil, Gas



Utilities

Fossil Enegy


T & DUtilities

EnergyFlow

A= Avoided COSTS onFossil Fuel Infrastructure and Consumption

B=Avoided COST onCentralized Generation

C=Avoided Network/GRID Costs

E=Added costs in: Widespread Distributed Generation + Smart Grid Infraestructure

InelasticDemand



Elastic andResponsiveDemands

D=Avoided Enviromental Costs

A+B+C+D-E > 0 ?


IF FUEL AND GENERATION AVOIDED COSTS ARE REALECONOMY OF SCALE MUST MODIFYSUPPLY AND DEMAND FUNCTIONS

THE MARKET MECHANISM


NETWORKS ARE REGULATED AS NATURAL MONOPOLIES AND REMUNERATEDBY MEANS OF USE OF THE SYSTEM (UoS) TARIFFS

UoS LOCATIONAL MARGINAL PRICING sends adequate economical signals for efficient generation location and operation.

UoS AVOIDED COST PRICING could be applied as a strong strategy for efficient grid expansion underthe transition Smart Gri Stage.

T & D NETWORKS



Newtork Avoided CostEvaluation

An illustrative Example


PROPOSAL:THE CONCEPT OF GRID AVOIDED COST:

If Distributed Generation and Demand Response are well specified, it is possible to shave peaks to AVOID, DEFER OR REDUCE investment in transmission and distribution systems


TO EVALUATE AVOIDED GRID COSTSA NETWORK EXPANSION PLANNING PROBLEM MUST BE SOLVED IN TWO STAGES:

1.- IN A TRADITIONAL FORM (WITHOUTTHE NEW SMART GRID ACTORS)

2.- CONSIDERING ALL NEW SMART GRID ACTORS

Distributed Generation and Demand Response can help shave peaks to AVOID, DEFER OR REDUCE investment in generation, transmission, and distribution


Multiple Objective NETWORK EXPANSION Problem:

Minimize Network Investment, Minimize Operational Cost Maximize Reliability Subject to: Network Constraints and Capacity Constraints


100 kWh

200 kWhNEW LOADS300kW

h

EXPANSION PLAN : NO SMART GRID


300kWh

Solution 1:Investment: 1000€OperationalCost: 100€



300kWh




300kWh

Solution 3:Investment: 2000€Losses: 60€



Investment

OperationalCosts

Solution 1

100€

1000€

40€

2000€

60€

1500€

Solution 2

Solution 3


EXPANSION PLAN :

100 kWh

300 kWhNEW LOADSIncl. PHEV250kWh

With SG: DG, PHEV and Storage

150 kWhDistributedGeneration

400 kWhLoads


250kWh


400 kWhLoads


EXPANSION PLAN : With SG: DG, PHEV and Storage


250kWh


400 kWhLoads




Investment

OperationalCosts

Solution 1

100€

1000€

40€

2000€

60€

1500€

Solution 2

Solution 3

15€

900€

25€

700€600€

Solution 1

Solution 2

Solution 3

Avoided Cost

Avoided Cost: 1400€


Conclusions:Conclusions:

1.- SmartGrid Paradigm is founded on the fact 1.- SmartGrid Paradigm is founded on the fact of all investments in control devices and of all investments in control devices and optimization systems will PRODUCE global optimization systems will PRODUCE global AVOIDED COSTSAVOIDED COSTS

2.- If AVOIDED Costs are Real, Economy of 2.- If AVOIDED Costs are Real, Economy of scale due scale due to widespread implementation of smart grids to widespread implementation of smart grids SHOULD be reflected on global energy market.SHOULD be reflected on global energy market.

3.- Remuneration of natural monopolies (as T 3.- Remuneration of natural monopolies (as T & D systems) should integrate avoided costing & D systems) should integrate avoided costing tariffs for Network Actors in order to ensure tariffs for Network Actors in order to ensure the correct deployment of Smart Grids under the correct deployment of Smart Grids under this transition stage.this transition stage.


Thank you very much for your attention:

My web page:http:\\prof.usb.ve\pdeoliveira

Further Reading:Jesus, P. Remuneration of Distributed Generation –A Holistic Approach, Ph. D Dissertation, Porto University.

An economic framework for the remuneration of smart grid actors Prof. Paulo Manuel De Oliveira-De...

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