1

SMARTAND MICRO GRID: MARKET

AND ECONOMICANALYSIS.
ASSESSING OPPORTUNITIES FOR LOCCIONI COMPANY
Master Dissertation
Master Candidate: Giovanni Cialdino
Supervisor: Prof. Lino Cinquini
Academic Year: 2012/2013
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Table of contents
Table of contents..................................................................................2
List of abbreviations............................................................................5
Acknowledgment..................................................................................7
Introduction........................................................................................... 8
Part I: Technologies and market background......................... 11
1. Electric Grid and Electricity Market.......................................... 12
1.3 EU energy markets...................................................................... 14
1.4 Organization of the Energy Market in Italy.............................. 15
1.5 Geographical organization of Electricity Market..................... 16
1.6 Key element of the Italian Electric Market............................... 18
1.7 General functioning of electricity markets in Italy...................19
1.8 MGP............................................................................................... 20
1.9 MA.................................................................................................. 24
1.10 MSD............................................................................................. 25
1.11 The Electricity bill in Italy.......................................................... 26
1.12 Conclusion.................................................................................. 27
2. Small scale energy production.................................................. 29
2.1 Photovoltaic...................................................................................29
2.2 Wind Energy................................................................................. 33
2.3 CHP................................................................................................ 36
2.4 Conclusions...................................................................................37
3. Energy Storage...............................................................................39
3.1 Advantages of Storage Systems............................................... 39
3.2 Storage Technologies................................................................. 42
3.3 Regulatory Environment............................................................. 45
3.4 Potential Storage Markets.......................................................... 51
3.5 Conclusion.....................................................................................55
Part II: Smart-Grids and Micro-Grids............................................ 57
4. Smart-grids......................................................................................58
4.1 Effects of renewables in the market price................................58
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4.2 Effect of Renewables on the grid.............................................. 63
4.3 Smart-grids....................................................................................65
4.4 Sensitizing Customers to Grid balance issues....................... 66
4.5 Conclusions...................................................................................68
5. Microgrids........................................................................................69
Fundamental components of micro-grid......................................... 69
5.1 Microgrid Benefits........................................................................ 75
5.2 Microgrid Costs drivers............................................................... 78
5.3 Potential customers..................................................................... 80
5.4 Possible introduction schema.................................................... 87
5.5 Conclusion.....................................................................................89
Part III: Smart and Micro grid business opportunities.......... 90
6. Loccioni: catching new opportunities..................................... 91
6.2 Market feelings, relevant interviews......................................... 92
7. Storage and Electricity costs..................................................... 95
7.1 Cost model.................................................................................... 95
7.2 Comparison with electricity costs.............................................. 97
8. Frequency Regulation................................................................ 101
8.1 An overview on Frequency Regulation.................................. 101
8.2 Primary Frequency Regulation Pricing.................................. 106
8.3 Decision making.........................................................................118
8.5 Conclusion.................................................................................. 125
9. Demand Response...................................................................... 127
9.1 ENBALA business model......................................................... 127
9.2 Demand Response in some EU countries............................ 128
9.3 Conclusions................................................................................ 132
10. Microgrid Business.................................................................. 133
10.2 Microgrid in USA......................................................................133
10.2 Microgrids in Italy.....................................................................135
10.3 Microgrid market in Turkey.................................................... 138
10.4 Conclusion................................................................................ 140
11. Small Islands and Simulations.............................................. 141
11.1 Italian islands............................................................................141
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11.2 Country Islands........................................................................ 143
11.3 LCOE......................................................................................... 145
11.4 Cape Verde case..................................................................... 146
11.5 Minor islands case...................................................................149
11.6 Industrial microgrid.................................................................. 150
11.7 Conclusion................................................................................ 151
Summary and Conclusion............................................................. 158
Summary............................................................................................158
Conclusions....................................................................................... 160
Bibliography...................................................................................... 163
Sitography......................................................................................... 164
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List of abbreviations
Abbreviation Meaning
AEEG Italian Electricity and Gas Authority
AU Unique Electricity Purchaser
CHP Combined Heat and Power
CONS Consorzi Storici
COOS Cooperative Storiche
CRF Capital Recovery Factor
DSO Distribution System Operator
EESS Electrochemical Energy Storage System
ESS Energy Storage System
FRNP Non-Programmable Renewable Energy Sources
GRTN National Transmission Grid Manager
GSE Italian Energy Market Manager
HV High Voltage
LCOE Levelized Cost of Energy
MA Market for Adjustment
MGP Day Ahead Market
MSD Market for Dispatching Service
MV Medium Voltage
NPRES Non-Programmable Renewable Energy Source
PRF Primary Frequency Regulation
PV Photovoltaic
RES Renewable Energy Sources
RIU Rete Inetrne di Utenza
SEU Sistemi Effcienti di Utenza
TSO Transmission System Operator
UK United Kingdom
USA United States of America
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To Shannina who tolerated me while doing this job
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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 the
personal life at expenses of the closest people. Therefore I want first of all to
thank my family and Shannina for their tolerance and their ability to listen to
me even when they are not fully interested.
Another important thank goes to prof. Cinquini who always replied timely to
my 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 possibility
to growth professionally and scientifically during the time I spent with them.
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Introduction
The 3
rd
of March 2020 European Commission adopted a 10 years strategy
for 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 been
setted for each country. Targets are different from country to country,
reflecting its national situations and circumstances. For example Italy has a
renewable energy target of 17% and an energy efficiency target of 27.8%.
Starting form 2011 countries such as Italy, Germany, Spain and Denmark
started a strong policy of promotion of renewables, increasing significantly
their share of production for non-forecastable renewables. However
European national grid were designed to have a mono-directional flow of
energy and a forecastable production. Differences between traditional and
renewable generators contributed to a significant increase in grid instability.
Grid with Traditional Energy
sources
Grid with Renewable Energy
Sources
Forecastable production Non Forecastable production
Mono-directional Energy Flow Bi-directional energy flow
Producer and Consumer Producer, Consumer and Prosumer
All protection systems in European grid were in fact designed for a
mono-directional flow of energy, while introduction of renewables and
distributed generation allows bi-directional flow of energy. Furthermore
since production become less and less forecastable it is more difficult to
perform grid balance and to match demand and supply. Another relevant
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problem is that often renewables generators are located in remote, poorly
connected areas with weak grid conditions, therefore energy that they
produce cannot always be dispatched. Grid instability has been increasing so
much that many of biggest blackout in human history happened in the very
last years. Smart-Grid are one of the possible solution to these problems.
Smart Grid challenge is about re-thinking traditional national grid
undertaking relevant investments toward the definition of a new, more
flexible one. However, these investments takes a long time to be
implemented therefore countries are not willing to invest money in this
direction since it is not certain whether better technologies will emerge in
the meanwhile. Solutions that most counties are considering concern
introduction of storage for grid support and and coupling electric grid with a
proper ICT infrastructure.
Microgrid, on the other hand deals with increasing the amount of energetic
independency for local communities and might give another relevant
contribution to reduce grid traffic and blackout risks. They are systems made
of production centers, consumption centers and smart energy control
systems. 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) and
mixed (which can be isolated or on-grid depending to the condition).
The goal of this work is to asses potential business opportunities for
business 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 law
on the topic and to spend a four month period within Loccioni in order to
understand which of their competences which could be leveraged in these
new markets. Interview with several stakeholders have been relevant to
asses main market applications. Assessment of market applications has been
followed by another relevant review of literature and legislation of several
countries 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 generation
systems and energy storage technologies and potential markets. Part II
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describe problems introduced by renewables and how smart and microgrids
could be a possible solutions to these problems. The third part of the work
describes potential applications in the sector and try to asses opportunities
for Loccioni company.
Giovanni Cialdino
Email: giovanni.cialdino@gmail.com
Mobile: +39-3939255523
QQ: 2221698217
Skype: giovanni_cialdino
Linkedin: it.linkedin.com/in/cialdino/
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Part I:
Technologies and market
background
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1. Electric Grid and Electricity Market
This chapter discusses some peculiarities of electricity market and analyze
with some detail how the free market of energy (Libero Mercato
dellEnergia) has been organized in Italy.
1.1 Special features of and electrical grid system
Electrical systems are rather complex and peculiar, in fact they work like a
system of Communicating Vessels: all the supplied energy is withdrawn
without being possible to understand where does the energy come from. A
simple communicating vessel system is shown in Figure 1.
Figure 1: Simple communicating vessel system
Furthermore and electrical system is subject to many technical and
economical limitations.
Technical limitations
Technical limitations concern peculiarity of electrical systems and are given
by:
Continuos balance of supply and demand of electricity. This
balance should be continuos and should take into account transmission
losses;
Control of Voltage and Frequency. These two parameters must be
kept within a very limited interval in order to guarantee that equipment can
work in safety conditions;
Respecting limits of all electrodes. It is necessary that the energy
flow in every electrode will not exceed its limits;
Technical limits are determined by the law of physics and the distribution
technology so that have to be respected over the long term.
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Economic limitations
Economic limitations are given by economic conditions and current
technological limits:
Variability and inelasticity of demand. Power request might have
significant variability within one day (short term, hourly based variability)
and within the year (long term, season based variability);
Absence of storage systems and dynamic limitations for timely
adaptations. Actually electric energy is not directly stored in significant
amount because of economic reasons. Indirect storage is usually achieved by
pumping water up and transforming into electrical energy when needed.
However this and other traditional production processes have rather long
adaptation time, so that it is not easy to instantaneously match demand using
these techniques.
Network externalities. When energy is supplied it immediately
reaches all electrodes. So that any divergence from equilibrium in one point
is immediately propagated all over the grid. Path of Energy cannot be traced
like in a communicating vessels system.
1.2 Management of Electrical Grid System
Such a complex system requires a central entity who is able to coordinate
production and consumption of energy taking care that all technical and
economical limitations are respected. This entity is usually called
Dispatcher (Dispacciatore) and its main goal is to be sure that frequency
and voltage lies within identified limits. In a monopolistic system the energy
dispatcher performs two main activities:
Defines immission and withdrawal programs. This activity is
usually referred as commitment and scheduling activity. The dispatcher
defines in advance (usually one day or one week) production programs of all
producers in such a way to satisfy demand at minimum cost. These
programs define production and consumption for each hour of the given day,
respecting all technical and economical limits. The dispatcher can allocate a
production reserve in order to face any unpredicted event.
Real time balancing of the system. The dispatcher will use the
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allocated reserve of energy in order to align at any moment demand and
supply. Usually intervention is triggered by some value becoming very close
to imposed limits.
In non-monopolistic market some market drivers are introduced but the
main 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 Elettrici
1
(GME) and Gestore della Rete di
Trasmissione Nazionale
2
(GRTN), called Terna S.p.A. .
1.3 EU energy markets
Following European directive 96/92/CE on the creation of a common energy
market, many EU countries moved energy market from its status of natural
monopoly into a free energy market. In this chapter we are going to describe
in detail Italian free energy market. Figure 2 shows some EU energy market
and their managing companies. Although in every country the goals of the
market manager is to promote competition and fairness, in regulating such a
strategic market two main direction have been adopted. Some markets like
Powernext in France and EEX in Germany are purely financial market
where price and amount of produced energy depends on financial data.
Other markets like Libero Mercato dellEnergia in Italy are financial and
physical market where price and amount of production are based on a
financial bidding but are regulated taking into account physical constrain of
the grid
3
.
1
Electricity markets manager
2
National grid manager
3
http://pti.regione.sicilia.it (cons. 08
th
August 2013)
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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 by
Italian parliament who appoint the Government and the Ministry of Industry
(Ministero per le Attivit Produttive). The Ministry controls some
institutions which operatively manage the national grid and the market.
These institutions are:
Autorit per lenergia elettrica ed il gas
4
(AEEG): whose mission is to
promote competition in the electricity and gas markets;
Aquirente Unico
5
(AU): whose mission is to guarantee supply of
electric energy to electric energy dealers (clienti vincolati in Italian);
Gestore dei Mercati Energetici
6
(GME): whose mission is to organize
and manage electricity market guaranteeing neutrality, transparency,
objectivity and competition among producers;
Gestore della Rete di Trasmissione Nazionale
7
(GRTN): whose
mission is to arrange transmission and delivering of electricity to final
4
Authority for electrical energy and gas
5
Only buyer
6
Energy markets manager
7
National grid manager
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users.
This complex organization is derived from the described complexity of the
electrical system.
1.5 Geographical organization of Electricity Market
Grid subdivision
In order to efficiently identify the supply and consumption program it is
relevant to estimate all technical limits of the electrical grid. Since the
national grid reaches almost every remote point of the country, this task is
rather complicated. GME uses a simplified model of the grid showing only
main connection between 6 geographical areas. Within each area similar
models 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 whose
connection capacity with the main grid is inferior to production
capacity (i.e. They cannot produce at full capacity).
Figure 3 give a visual representation of national grid subdivision and
transportation limits between main geographical zones.
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Figure 3: Italian geographical zone, virtual zone and limited production pole. In
the yellow arrow maximum transportation limits are indicated.
Offer points
Each geographical or virtual zone is made by different offer points. An offer
point represents the minimum unit to define production and withdrawal
programs either in electricity markets or in bilateral contracts.
Production programs offer points usually correspond to single production
units. These units are dispatched by GRTN who take into account their
capacity and their capability of adaptation (i.e. How fast each unit can
respond to GRTN request) and address request to each single unit. Only
production center smaller than 10 MVA can be aggregated as a single
production offer.
For withdrawal programs aggregation is possible. In particular aggregating
several withdrawal points with a production point is very useful to manage
unbalances. In order to aggregate withdrawal point it is necessary that those
18
points belong to the same dealer, are located in the same area, are
connected with the same voltage (in order to compute and allocate
transportation losses) and have the same VAT regime (i.e. VAT is the same
for all these uses)
Dispatching operators
For each offer point (either a production point or an aggregate of withdrawal
points) a Dispatching operator (Operatore di Dispacciamento) is identified
by GRTN. He is responsible of balancing the grid in the area (verifying that
immission and withdrawal programs are respected and being the executer of
GRTNs balancing policy). Dispatching operator is also responsible of fees
that 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 to
verification of technical constrains by GRNT who controls and guarantee
the safety and functioning of the grid system. Electricity can be purchased
through the energy markets or through bilateral contracts.
Energy markets
Differently from the previous Italian monopoly for energy, planning of
production for the next day is done by GME, who collects from energy
suppliers 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 by
customers (i.e. energy dealer company). Offers are selected with a minimum
cost criterion, ordering for a decreasing price all offers in order to have the
cheapest possible supply of energy. However, differently from financial
electricity market, the Italian is a physical one so that each economically
accepted offer should be approved by GRNT on the base of technical
constrains
8
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 to
purchase energy through a private contract and not through the market
organized by GME. Obliviously in this case the supplier and the dealer
freely choose the amount of purchased energy and the price. However the
GRTN must still verify that all technical limitations are not violated from the
perspective 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 concerning
bilateral contracts as virtual offers, i.e. as particular offers having zero
selling price and infinite purchasing price
9
. This kind of exchange is usually
referred to as market over the counter.
Dispatching service market
As discussed above, in order to guarantee continuos balance of the grid
GRTN can count on a reserve of energy production. This reserve is built on
daily base selecting offer in the market of dispatcher service which is
organized by GME. However, in this market GRTN select all offers and
contacts selected suppliers. Reserve might be activated in case of need.
Disciplining Unbalances
Discipline of unbalances promotes good behaviour form producer and
punish bad behavior. A behaviour is consider good if it respect the program
determined on the market
1.7 General functioning of electricity markets in Italy
GME organize three different markets in order to fix production and
withdrawal programs and to allow GRTN to balance the grid. In particular
these markets are:
9
In the next paragraph GME operation will be described in detail. However consider that here
GME role is to collect production and consumption program for the next day, not to match supply
and demand
20
Mercato del Giorno Prima
10
(MGP). It is finalized to exchanging
energy between producer and traders and determining production and
withdrawal programs for each hour of the following day. Transit
capacity is allocated for each couple of zones for each bilateral contacts
and market transaction through this market. Usually this market takes
place in the morning of the previous day. All energy operators can take
place to this market in relation to their offer points.
Mercato di Aggiustamento
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(MA). In this markets energy operators
can adjust their programs determined in MGP presenting new
purchasing and selling offers. All energy operators can take place to
this market in relation to their offer points.
Mercato per il servizio di dispacciamento
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(MSD). In this market
operators present offers concerning their availability to increase or
decrease the amount of energy introduced or withdrawn from the grid
at any hour of the next day. GRTN uses these offers in a programmatic
way (to adjust those programs violating grid technical limits and in real
time to guarantee grid balance. Only Dispatching operators can
participate to this market.
1.8 MGP
MGP is the market to define price and amount of exchanged energy for each
hour of the next day. GME organize the market and communicates results to
GNRT which verify that all technical limits are respected in order to insure
grid sustainability and to determine national demand of energy. The
counterpart for each market operation is GME: all operators present their
purchasing 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 day
11
Market for Adjustments
12
Market for dispatching services
21
withdrawal points) can present three different kind of offer: simple, multiple
and predefined. Simple offers are given by a couple amount of energy, unit
price [MWh; /MWh]. Multiple offers are composed of maximum 4 couples
amount of energy, unit price. Predefined are single or multiple offers that
can be presented by electricity operators and used by GME if no other offers
are presented for a given hour of a given day. Selling offers can be presented
only in immission points while purchasing offers can be presented in
withdrawal points. Some points, called mixed offer points, can present
purchasing offers and selling offers. A common application of mixed offers
is given by water storage plant which pump up water when electricity is
cheaper (purchasing electricity) and sell water when electricity has high
price (immission of electricity in the grid) making profit while contributing
to having a flatter price for electricity. Figure 4 shows the shape of a single
offer (the flat one) and of a multiple offer in the plane amount of energy X
unit price.
Figure 4: Representation of single and multiple offer
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Preliminary stage
Before MGP takes place GRTN communicates to GME some preliminary
informations which GME makes available to the whole market. In particular
GRTN 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 price
14
and communicates all these data to
the great public.
Offers
Electricity market operators might present their offers, which can be
accepted or rejected by GME on the base of legal and financial guarantee.
Afterwards GME start the algorithm to solve the market in a way that
maximize the value of transactions.
In particular:
All selling offers are ordered for increasing price in the aggregated
supply curve and all purchasing offers are ordered for decreasing price in an
aggregated demand curve. Intersection of two curves determines the
equilibrium price, the equilibrium amount of exchanged energy, immission
and withdrawal programs for each offer point.
Figure 5: Supply and Demand Equilibrium point
If energy flow does not violate any technical limit there is only
one equilibrium price P*. Sales offer with a cheaper price and purchasing
14
Its the price applied to purchasing offers without price indication
Equilibrium
Quantity
Equilibrium Price
23
offer with a more expansive price are accepted.
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 new
couple amount, unit price are identified for each market. At the end of the
process two local prices are identified. If some technical limits are not
respected the algorithm is repeated.
After the market is solved, GME uses the same price for all
consumers. This price is called Prezzo Unico Nazionale
15
(PUN) and is
given by the average of local price weighted for consumption. PUN is
applied only for withdrawal of energy in geographical zones (inside Italy).
For energy production and purchasing in virtual zones (outside Italian
borders) local prices are used.
Bilateral contracts
Data concerning bilateral contracts are communicated from GRTN to GME
as special offers with zero selling price and undefined purchasing price.
These offers have the same treatment of all the others since they also occupy
transmission lines and contribute to determine PUN.
Figure 6 shows how GME and GRTN deal with market offers and bilateral
contracts.
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 for
free to bilateral contracts and to the most competitive market offers. If one
transit 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 to
P
y
-P
x
(the price difference between the purchasing zone and the selling zone).
In the case of bilateral contracts producer and purchaser will pay P
y
-P
x
for
flows contributing to increase transit from area x to area y and will receive
P
y
-P
x
for flows contributing to decrease these transits. Transit right is firstly
allocated to bilateral contracts and later to the most competitive offers in the
market. In the case of market offer transit right is already included in the
price difference among the two zone so they do not have to pay GME any
transit right any more.
1.9 MA
Market for adjustment is necessary because GME treat every hour in an
independent way so that some producers might receive unfeasible requests.
For example 300MW facility with 2 hours turning on time might receive a
full capacity production request for the whole day except that from 10:00
AM to 11:00 AM. In this case the facility could not satisfy the request
because it cannot turn off for 1 hour, so it might offer cheap energy in that
hour time. During MA both sale and withdrawal offer can be done in both
immission, withdrawal and mixed points. In fact now that energy programs
are basically made reduce in consumption can be considered as sale of
energy.
Figure 7 show in a very simplified way how MA can balance production and
withdrawal offers.
Working of MA is totally similar to the working of MGP. The only
difference is that a non-arbitrage fee is applied to all accepted offers. Lets
25
assume P
Z-MA
to the hourly price determined for the zone z during MA. In
this assumption the non arbitrage fee per unit of energy will be given by
P
Z-MA
- P
PUN
. In case of purchase of energy this fee will be paid to GME if
the difference is negative otherwise it is received from GME. On the other
hand, for production of energy this fee is received from GME is the
difference 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 takes
place in the previous day but acceptation of offers happens in two times. The
first one happens immediately after their presentation and it is used to solve
any residual unbalance of energy flow and respect all technical limits. The
second one happens in the delivering day and it represent the reserve that
GRTN uses for real time balance. GRTN is the only seller and buyer in this
market and only dispatcher operators named by GRTN can take place into it.
Electricity dealers and producers must offer all their available power but
they can decide the price. In this markets only simple offers are admitted.
26
Sale offers can regard an increase in production or a decrease in
consumption while purchasing offers can regard a decrease in production or
an increase in consumption.
Also in this case a non arbitrage fee is applied with the same modality
described in MA.
1.11 The Electricity bill in Italy
The described structure and functioning of electricity markets has immediate
reflection on the electricity bill received by Italian companies. It present
several entries:
ENERGIA FORNITA (Supplied Energy) [/kWh]: it is the only voice
which can be bargained on the Italian free market of energy choosing
the supplier and the pricing method (fixed price, dual time pricing,
energy market based pricing...). This entry is proportional to
consumption and includes also network losses. Price is directly or
indirectly linked to the price of the energy exchange in the energy
market.
DISPACCIAMENTO (Provision)[ ] e [ /kWh]: It is mainly
proportional to the consumption but there is also a small monthly fee.
Components are chosen by Autorit per lEnergia Elettrica ed il Gas
(AEEG) (Italian authority for Electric Energy and Gas) and can vary on
monthly and yearly base.
USO DELLE RETI (Grid Usage) [ ] e [ /kWh]: It is basically
proportional to consumption plus small monthly fee. Also in this case
tariffs are chosen by AEEG on yearly and 3 months base.
QUOTA POTENZA (Power Share) [ /kW]: it is computed
multiplying for a given price the monthly power required in the 15
minutes of highest usage. The value of the given price is fixed annually
by AEEG
IMPOSTE (Tax) [ /kWh]: are proportional to consumption and are
fixed by AEEG.
27
Figure 8 shows how different costs are allocated in a medium company in
Italy
16
. The figure gives a general idea but scenario might change from
company to company.
Most of the cost are proportional to consumption, therefore hypnotizing a
flat cost of energy, i.e. a cost of energy which is directly proportional to the
amount of energy consumed, Quota di Potenza gives the only exception.
This entry is related to the peak of consumption. Therefore even if two
companies consume the same amount of energy, the company which absorb
more power
17
will be heavily penalized. The reason for penalizing users
who absorb peaks is that for the GRTN is more difficult to balance energy
flow and respect all grid technical limits while it would be easier with a flat
demand curve since the grid should be designed and maintain to sustain
peaks.
Figure 8: Different shares of each electricity cost for a middle size company in
Italy.
1.12 Conclusion
The Chapter presented a brief overview about monopolistic and liberalized
electric market. To have a more detailed analysis Italian case as been
analyzed. However, electric market main structure is similar in many
16
these data are confidential the name of the company will not be disclosed
17
Power is energy per unit of time. Two companies might consume the same amount of energy, but
one might have a flat absorption profile while the other one might present peaks. In this scenario the
second one is penalized,
28
European countries. At the end of the chapter a broad introduction to main
components of electric bill have been presented. Even though structure of a
bill is similar around Europe, grid tariffs have much different weight from
country to country
29
2. Small scale energy production
This chapter analyzes some small scale production technologies and discuss
their diffusion in some countries of interest (mainly in Italy). These
technologies usually use renewable sources or traditional sources in very
high 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 incentives
introduced by some key countries like Germany and Italy. The goal of these
incentives was to develop local capability in the photovoltaic industry, to
have more energy production in Italy and Germany (countries where
electricity is among the most expensive in the word) and to have decrease in
renewables prices reaching fast the scale and moving down the learning
curve for companies in the industry. Strong incentives have been working
and price decreased rather fast because of pressure from Chinese
competitors. However starting from late 2012 in Italy and Germany
incentives have been either removed or strongly decreased and Italian and
German photovoltaic market started to slow down. However prices
continued to drop in order to make solar panel more attractive to customers
who are going to purchase them without government help
18
. Figure 9 shows
price 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 with
Germany and Italy being the worlds leaders. Figure 10 shows how
cumulated power is divided in the world scenario while Figure 11 present
the same data at European level.
However world scenario is changing. Table 1 shows that in 2012 China
overtook Italy for amount of new installed photovoltaic becoming the 2
nd
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 biggest
market in the world while EU will still retain an important position thanks to
some 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 EU
Table 1: Installed and cumulative power in 2012 for different countries in the
world
Country 2012
Installed Power
2011
Installed Power
2012
Cumulated Power
Germany 7 600 7 400 32 278
China 3 500 2 000 7 000
Italy 3 480 9 370 16 280
USA 3 200 1 700 7 583
Japan 2 000 1 100 6 914
France 1 200 1 510 4 200
United Kingdom 1 100 700 1 975
India 1 000 150 1 461
Greece 912 350 1 536
Australia 800 700 2 200
Bulgaria 670 145 815
Belgium 655 850 2 672
Canada 200 300 763
Thailand 210 150 360
Korea 209 N/A 963
Israel 60 N/A 250
Total Europe 16 803 21 000 69 400
Total World 33 700 27 700 101 000
32
Future trends in Italy
With shrinking of government incentives Italian photovoltaic market will
considerably shrink. Evolution of the market is directly linked to reaching
grid-parity, i.e. the condition in which cost of energy produced by
photovoltaic systems is the same as the cost of energy purchased from the
national grid, and some non-monetary incentives like simplifying some
bureaucratic procedures, allowing group purchases in order to make users
buy for cheaper prices and introducing the possibility to directly sell energy.
In particular Italy recently introduced these kind of incentives in a very
limited form, they are called Gruppi di Acquisto Fotovoltaici (GAF)e
Sistemi 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 be
able to bargain better conditions.
SEU represents the possibility for a producer to directly sell energy from
renewables to a single consumer through a private grid. Obviously this
might be an enabling regulation since it reduces risk of photovoltaic
invertors through electricity purchasing contracts subscribed by users.
Contracts of these kinds might help GRTN to regulate flow on national grid
and to respect technical limits. Most important limitation concerns: the
single consumer limit (who does not enable to apply this model to residential
blocks) location of the plant, unicity of connection to the grid (who does not
allow producer and consumer to have separate connection to the grid and
thus to not be liable only for their individual share of risk). Main advantage
given by SEU is that in this case the final customer is not charged the
variable part of the grid usage fee for that portion of energy which is locally
produced. In Figure 8 we saw that this share can be around half of the cost o
energy, 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 the
most mature of renewable sources. Even though overall efficiency is rather
low, around 15%, it is so far the most widely spread of all renewables since
cost of production from wind is almost equal to cost of production from
traditional sources, i.e. it can operate in grid-parity conditions
20
. However
this strongly depends on the positioning of Aerogenerators and of wind
conditions of the place. European cost of per unit of power is around
1.3M/MW. In Italy this cost is 20% higher (1.6M/MW) because of long
and time consuming bureaucracy. In fact while authorizations take four
years in Italy, they take two years in Germany or France so that installed
generators have out-of-date technology. It has been estimated that 1.9GW of
extra power might now be present in Italy.
Market trends
Wind energy has been a very promising and fast growing market in the
world even though in this case leadership has been lying in China and USA
as shown in Figure 12.
In the last years Brazil is becoming the most interesting Wind market, even
though not the biggest, since in this country cost of production from wind is
lower than cost of production from gas, even considering that Brazil in rich
in 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 of
capacity of new energy installment in the last two years have been wind
based. At the same time, national law has been incentivizing local
development 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 Italy
where wind speed is higher than in the North and would allow efficient
production 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 is
around two years, the double if compared to France or Germany) does not
allow producer to install up to date technology so that 1,9 GW of extra
installed power could be present with a faster bureaucracy. In fact when a
company is allowed to install authorized aerogenerators, those
aerogenerators are already out of date in the other EU countries
21
.
Another obstacle facing development of wind energy in Italy is that wind
abundant places are historically in less connected area so that GRTN (Terna
S.p.A.) often has to disconnect the plant in order to respect grids technical
limits, 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 and
also market evolution has been deeply different. Even though there is no
international classification for mini-generators we are going to call a mini
generation 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 still
a growing market in many countries. One big advantage of these systems is
that 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 of
aerogenerators induce a strong increase in costs. For plants below 10KW the
cost is around 5000/kW therefore it is much less expensive than
photovoltaic. Introduction of a standard tariff reimbursement of around
300/MWh make investment in mini-wind generators rather profitable in
Italy. Without entering details of incentives in Italy
22
, Figure 13 shows the
IRR of a 20kW generation site in Italy with 2012 and 2013 incentives. The
newer incentive are more convenient in case of smaller amount of working
hours (less windy places).
Since most of mini-wind generators potential has not been exploited in Italy
a rapid growth could be foretasted even though it could be slowed down by
excessively complicated authorization procedures. In particularly Sicily
might have a very high growth potential given by the low presence of
mini-wind generation with very favorable conditions wich brough the island
to by the leader of big size wind generators.
Figure 14 and Figure 15 give and idea of diffusion of big wind generators
and 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 of
energy it is often incentivized by governments because of jumps in
efficiency it allows. CHP consists in producing energy from traditional or
renewable sources (mainly biogas, natural gas or GPL) and reuse heat
produced in the process (generally wasted) as a source of industrial heat or
in order to facilitate other electricity generation processes. CHP has
becoming a popular source of energy since the minimum efficient scale of a
small gas power plant has been reducing electricity production from small
plants have similar efficiency conversion rate to big plants. Figure 16 show
working 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 is
convenient for companies in need of heat for industrial processes. Payback
is 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 in
the amount of CHP systems has been registered in those industries requiring
heat for industrial processes. CHP has been particularly interesting in USA
because of the relatively cheap methane prices.
2.4 Conclusions
This chapter discussed main generation system used in small scale
production with a special focus on market trends. Part II will discuss
problems introduced by this sources of energy in the national grid. Smart
grid 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, UK
23
23
http://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 there
is excess production and to use energy later on when it is needed. Storage
systems are complex systems made of several components. Furthermore
different technologies can be used to store electricity. This Chapter will
focus 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 in
certain conditions and release energy in other conditions. Depending on the
technology that is adopted and on the management of the system we can
identify Power Applications (where the most interesting data is how much
power can be supplied by the system at any moment) and Energy
Application (where the most interesting information is how much energy can
be supplied by the system at constant power).
24
ESS might theoretically help to balance and stabilize modern grids. With
respect to a generic ESS, mechanical, electrochemical or pumped hydro, the
system could provide operations of: time shift, renewables integration, time
deferral of investments, security of electrical systems, grid services and
power quality.
Time Shift
Time shift applications are related to arbitrage on electricity price, i.e. the
possibility of acquiring energy when it is cheaper and immit energy to the
national grid when it is more expensive. In such a way speculation could be
possible for the owner of the ESS and price mitigation could be a side
benefit for grid users. In particular arbitrage might be done using only
storage, 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 to
maximize the amount of self-consumed energy. This last application might
be 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 exploit
their potential. In particular wind generators are usually installed in remote
area poorly connected to the main grid. Therefore, as we discussed in
chapter 2, their potential cannot sometimes be fully used in order to avoid
grid congestion. A Storage system might be able to store some energy when
too much energy is produced and the grid is not able to support the
immission in order to introduce energy on the grid when less energy is
produced.
Furthermore ESS might increase predictability of energy immission if they
can store a greater amount of extra-generated energy and immit some energy
when meteorological are worst than expected. In this way the market for
allocation of energy (MGP in Italy) can work in a more efficient way and the
effect of extra-generated energy might be shift to final user in the form of
cheaper electricity price.
A last possible element of greater integration between Renewables and
traditional national grid might be represented by the possibility to partially
substitute thermical sources of electricity in order to face renewables
unpredictability. In fact gas and oil generators are rather slow and a fast
response is very expensive. On the other side electronic storage system are
usually very fast in response and they could be used to smooth traditional
generators response.
Deferral of relevant investments
ESS can be used to support transmission line when relevant investment is
needed 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 this
barely happens. An increase in consumption in an area might require
upgrade of the line in order to avoid accidents and blackouts. An ESS might
differ this investment in the future supplying the extra-energy when it is
required and accumulating energy when the line is not fully used. At the
same time a smoother charge profile for the grid might increase its useful
life further deferring investment in grid update.
Security of electrical systems
ESS can improve security of electrical system by providing a black start in
case of black out. In fact many big generators need electricity in order to
start electricity production. ESS might solve this problem supplying
generators with stored electricity allowing the restarting of the grid after a
generalized black-out. For this reason in the future energy storage might be
includes in national grid defence plan by governments.
Grid Services
ESS might provide useful grid services and provide efficient regulation of
frequency and voltage in the line. In fact these regulations are easier to be
performed by a ESS than by a traditional plant.
Another useful ESS service might be synthetic inertia, i.e. the ability of ESS
to 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 than
traditional ones.
Power quality
ESS installed in crucial point of low and medium voltage transmission line
might be used to increase power quality providing a more stable voltage and
frequency. Furthermore in some application they might continue to supply
some areas when users are disconnected from the main grid in order to avoid
inverse flow and protect feeders.
42
3.2 Storage Technologies
Storage systems are made of several components, not only of energy
accumulator. 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 system
Government and companies are heavily investing in energy storage
technologies so that today several accumulator options are available from
the most traditional one to the most innovative.
In particular accumulator technologies can be classified into:
Electrochemical, mechanicals, electrical, chemical and thermal. Figure 18
shows a classification of accumulator technologies. The next paragraph
present 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 energy
and the other way around. The general functioning principle is that a
RED-OX reaction happens in two separate electrodes and electron
movements is used to generate current. Reverse reaction happens when
external electric field is applied to the battery. Most commonly used
technologies 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
Storage
Systems
Electro
Chemical
Mechanica
l
Electric Chemical Thermal
Aqueous
Electrolyte
High
Temperatu
re
Lithium
Electrolyte
Circulatio
n
Pumped
Hydro
CAES
Fly Wheel
SMES
Super
Capacitor
Hydrogen
Syngas
Molten
Salt
Heat
44
Table 3: Specifications of some batteries
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45
3.3 Regulatory Environment
Regulation concerning storage systems are in the embryonal phase in many
European countries. In EU Italy and Germany are the only countries who
provided some regulatory framework with Italy (starting from 2011) having
the most advanced regulation concerning Transmission and Distribution
systems and Germany having regulation concerning prosumer (starting from
2013). This paragraph will provide a general overview of Italian regulatory
framework. Although it is the most advanced in EU there are still many
problems and many storage applications are not regulated at all.
Big impact of renewables in Italy lead the Government and the authority for
electrical energy to introduce legislation concerning storage as a mean to
stabilize the national grid and have a more predictable supply of energy
from renewables. Several kinds of normative acts have been taken in Italy
addressing in a direct or indirect way the topic of electrochemical energy
storage, in particular these acts concerns: guidelines, incentives and related
acts.
Guidelines
Guidelines so far concern on the Transmission system operator (Terna S.p.A)
and Distribution system operators (like ENEL, ACEA, A2A, ...). This fact
stresses the point that the government and the authority want to focus their
attention at grid level and not at prosumer level. Considering that Italian
Government and electric authority perceive storage as an interesting but not
still economically sustainable technology, their orientation is very
reasonable. However at the same time prosumers who want to invest in
storage find themselves in a gray area, not being sure whether they are able
or not to use certain technologies. Italian guidelines on storage where given
in rapid succession since 2011 and are:
D.lgs 3
rd
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 better
functioning of renewables. At the same time AEEG should provide a
reward on the base of efficacy and rapidity of execution of the plan.
D.lgs 1
st
June 2011 n. 93: This decree identifies how Transmission grid
operator and distributor operator should provide services. In particular
the Transmission grid Operator need to present every year a 10 year
development plan. Both kinds of grid operators are enabled to
implement and manage diffused electrochemical storage systems.
ARG/elt/199/2011, 29
th
December 2011: This AEEG resolution focuses
attention on investment to empower distribution grid and in particular
on those investment to better integrate renewables generation. It also
provides incentives to Terna (Italian transmission grid operator) for the
implementation of electrochemical storage system if it is planned in the
ten years plan, removable, guarantee immission of energy from
renewables, complements dynamic grid control, it is finalized
regulating frequency and in absorbing energy which cannot be
absorbed in a more economical way.
Incentives
Several incentives oriented toward transmission and distribution operators
have 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% for
transmission operator and 8.6% for distribution operator. Incentives can
be increased of an extra 2% if requirement presented in AEEG
288/2012/R/eel are respected (transmission operators) and if other
requirements (to be given) are respected for distributor operators.
AEEG 288/2012/R/eel: this resolution allows the transmission operator
to claim an extra 2% ROI is the application maximize immission in the
national grid of energy produced by renewables (energy intensive),
increasing absorption from renewables of at least 50% and if the
investment present a relatively high merit factor (benefit/costs)
AEEG 43/2013/R/eel: this resolution introduced the extra 2% incentives
also 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 intentiveincentivized projects from 3 to 6 at the condition that
they can allow prediction of energy production from renewables and
frequency regulation. Terna started 6 project signing a contract with the
Japanese NGK for the supply of lithium storage systems for a total of
79 MW and 470 MWh.
Related acts:
Together with direct regulation and incentives there are some indirect acts
influencing 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 di
Terna) and wind (Regole tecniche di connessione A.17 Codice di rete
di Terna)
Connection of active and passive users in Medium and low voltage
lines (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 CEI
0-16:2012)
Introduction of unplugging option of diffused generation for the
Transmission operator (A.72 Codice di Rete)
Decree giving AEEG the power to define how responsible of
photovoltaic production can use storage system integrated with inverter
in order to improve management of produced energy and to store part
of production (D.min 5
th
July 2012, V Conto Energia). However the
31
st
of May 2013 AEEG still did not present any resolution. ANIE
(association of electrical and electronic companies) presented a request
on the topic
48
Summary of Italian regulatory environment
The 2013 Smart grid report by the energy and strategy group of
Politecnico di Milano present the table shown in Table 4 as a summary of
what kind of storage operations are actually regulated in Italy. A green cell
(marked with DR) indicate that there is a clear regulation concerning the
activity, a yellow cell (marked with IR) indicates that there is an indirect
regulation while a red cell (marked with NR) indicates that no regulation
has been provided. It can be noted that many potential activities are still not
regulated. The table also shows that the Government and the Authorities
have been focusing attention on Transmission and Distribution Operators
more 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
F
R
N
P
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s
Energy price arbitrage (EESS) NRR NRR
Energy price arbitrage
(EESS+FRNP)
NRR NRR NRR
Increase energy self-consumption
from FRNP
IR 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 programs
IR IR IR
Regulation Interface profile
HV/MV
DR
Postponement / Reduction
Grid investments
DR DR
Participation to black start functions NR DR NR
Integration with defence systems NR DR NR
P
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Congestion resolution in the
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Synthetic Inertia NR DR NR NR NR
Primary Frequency Regulation NR NR NR
Secondary and Tertiary Frequency
Regulation
NR
N
R
D
R
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 as
concern storage electrochemical regulation although Italian regulatory
framework presents several problems. Germany stated to regulate
electrochemical storage in May 2013 introducing incentives for prosumer
(user which are not still regulated in Italy). Incentive system has been
introduced in Germany the 1
st
of May 2013 and concern photovoltaic
systems coupled with a electrochemical accumulator. Kreditanstalt fur
Wiederaufbau (KfW) (bank of landers and federal government allowed
incentives) providing loans with very low interest rate finalized to
implementation of photovoltaic system with storage. German ministry for
environment provide incentives to KfW up to 30% of the financed system
and only after the system is properly working a partial refound can be
required. The total financing is 50 mln to be equally divided in 2013 and
2014 and is open to everyone except state-owned companies and partial or
global 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 grids working.
In 2013 with the Storage Act USA also started a regulation of Storage
system. 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 grids reliability) can detract from tax
20% of investment for storage able to provide at least 1MW per 1h.
Maximum dimension of financed project should be 200 mln $ and the
Total amount allocated by US government is 1500 mln $
Grid connected Storage in commercial or industrial users (to perform
peak shaving operations or to increase self-consumption of locally
produced energy) can detract from tax 30% of investment for storage
51
able to provide at least 4kW for 5h. Maximum dimension of financed
project is 3.3 mln $
Grid connected Storage in residential users (to perform peak shaving
operations or to increase self-consumption of locally produced energy)
can detract from tax 30% of investment for storage able to provide at
least 500W for 4h.
3.4 Potential Storage Markets
Potential investment
Energy market involve several operators. This paragraph summarizes a
report from Energy and Strategy Group from Politecnico di Milano
reporting potential application of storage system for several actors and IRR
for those investment. Some of these investment could be done in Italy
according to actual law while for other application regulation are not still
clear. Analyzed actors are FRNP (Producer of not programmable renewables
like photovoltaic or wind), Transmission system operator, Distribution
system operator, microgrid and prosumer. Table 4 shows possible
application of storage system and regulatory environment in Italy.
Table 5summarize the analysis made by Energy and Strategy Group at
Politecnico di Milano. Highlighted application are those which at the
moment are not supported by clear regulations. In order to evaluate
investments some assumption on IRR were made. In particular a 8% IRR
has been considered acceptable for FRNP, TSO and DSO, a 6% IRR for
microgrid 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. It
is interesting to note that all green IRR correspond to highlighted
applications (and therefore not still regulated) and only one yellow IRR
Correspond to not highlighted applications regarding an increase of
self-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. The
report assumes that in the near future FRNP will be asked to provide some
kinds of grid services and to immit energy in a more predictable way. Under
this assumption market for electrochemical storage in Italy from 2014 to
2020 is of 7GWh and 10 bln investments with TSO and DSO contributing
only to 12% and prosumers, microgrids and FRNP (respectively 39%, 28%,
22%) representing the most appealing part of the market. If law requiring
extra regulation will be applied also to existing FRNP market will reach the
size of 23 bln in 2020. In particular storage systems (which nowadays are
not still competitive) might eliminate missed production from renewables
for 20mln /year and Transmission losses for 70 mln /year. At the same
time they could partially reduce development cost decrease cost related to
inefficiency in energy market. These costs are estimated to be around 4150
mln /year (see the report for further informations).
However boom of storage market can take place only if price for storage
will decrease significantly. According to the Energy and Strategy Group,
who made all the previous estimations, significant reductions on storage
technologies price will happen within 2020.
Another interesting condition is an evolution of the regulatory framework
considering Dispatching Law which will allow DSO to invest on storage
systems to provide grid services an increase power quality and an
obligation/option for FRNP to provide some grid services. The last point has
already been introduced by principle by Italian Authority but never clearly
applied. Italian equivalent of IEC, CEI, with the technical norm CEI
0-16:2012 make some movement in this direction.
Storage Market in Italy
Storage market in Italy is still in the embryonal phase. AEEG is stimulating
TSO and DSO to undertake some pilot projects. However a rapid
evolution of the regulatory framework is necessary in order to unlock a
potential big market. Incentives
53
To DSO and microgrid might this big market start and foster reaching of
efficient scales and lower prices.
3.5 Conclusion
The Chapter gave a brief introduction to electrochemical energy storage
systems and to their potential technical benefits. Economics benefits have
still not been discussed in this chapter. A brief overview of Italian and
German regulation about EESS has been presented with a summary of a
report about Italian regulated applications and market size made by
Politecnico di Milano.
54
Table 5: Economical analysis from Energy and Strategy group at Politecnico
di Milano. Highlighted application are still not supported by clear regulation in Italy
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55
Part II:
Smart-Grids and
Micro-Grids
56
4. Smart-grids
Part I provided some basic elements for our discussion. The objective of part
II is to introduce the concept of smart grids and microgrid in a intuitive way.
Renewable energy production cannot be reliably fore-casted. Many
countries have been promoting renewables giving to renewable energy a
dispatching priority and no grid balance responsibilities. This means that
companies producing from renewables can just inject into the grid all the
produced electricity without scheduling (because it is not possible to
schedule) 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 by
Demand and supply equilibrium). Secondly, since renewables producers do
not provide balancing service, grid balancing capabilities has been
decreasing with the increase of renewables shares. Thirdly sometime energy
produced by renewables is greater than the grid technical limit in the area
and cannot be used.
Smart grid concept relies on using the existing grid in a smarter and more
efficient way in order to offset all these problems.
This chapter will provide a detailed discussion of problems related to
renewables 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 Germany
had a rather fast spread of renewables. Figure 19 shows evolution of wind
and photovoltaic power in Italy from 2005 to 2006. In 2013 these two
sources 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 from
renewables before 2020, problems related with managing the instability
introduced 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 the
introduction of energy sources which cannot be planned in national grids
according to the modalities described in Chapter 1. This is a big challenge
for the national grid manager who interacts with the government in order to
provide incentives for renewables. The problem is even more tricky in
countries which are poor of alternative resources, like Italy. On one side
renewables could be a partial solution to cover energy deficit and decrease
the price of energy (in the next future) while on the other side the grid
should be able to support immission which are not coordinated. Another
problem is given by the fact that production from renewables does not
happen in the desired amount and at the desired time, but it usually needs
the presence of a stochastic renewable source (sun or wind). Therefore there
might be times in which all produced energy cannot be consumed and times
in which there is an high demand for energy but there is not enough
production from renewables.
Report made on the 18
th
of June 2013 by AEEG to Italian Senate shows the
situation Italy, one of the most critical market for renewables sources
because of its position and the lack of other source of energy. Figure 20
shows proportions of different sources for Italian energy over time. It can be
seen that from 2002 to 2012 amount of renewables almost doubled. In
particular Figure 21 shows that installed solar energy capacity jumped from
almost 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 the
highest in Europe and in the world (see Figure 23), introduction of
renewables and photovoltaic in particular allowed an inversion of the trend
in energy prices as shown in Figure 22.
Some interesting information regarding the effect of renewables can be
found in the Report mentioned at the beginning of the paragraph. Figure 24
shows demand and energy prices in two working days in May 2006 and
2013. 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 photovoltaic
production is the highest. On the other side energy is more expensive than in
2006 in those moments when renewables effect is the lowest: in the night
and 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 installed
power [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, Spain
and Germany
Figure 24: Comparison of Energy demand and prices for two working days in May
2006 and May 2013
61
4.2 Effect of Renewables on the grid
Chapter 1 introduced the Balancing and Dispatching Market and discussed
about importance of instantaneous grid balance. Renewables might create
several technical problems related with planning the proper amount of
energy in the Previous day Market (MGP in Italy) and in the Dispatching
service Market (MSD in Italy) and to guarantee a high level of security in
the national grid.
A measure of the level of criticality is given by the flow inversion. Flow
inversion happens when electricity flows from the lower voltage line to the
higher voltage line (i.e. in the opposite way from how it was designed). The
widespread diffusion of renewables has generated an increase or inverse
flow phenomena. This is given by the fact that energy generated in lower
voltage lines cannot be consumed locally and moves through higher voltage
lines. Data provided by Enel Distribuzione (Italian Distribution System
Operator) shows how this phenomenon has been increasing in recent years.
A comparison between Figure 25 and Figure 26 indicates how the
phenomenon has been increasing with diffusion of renewables.
Figure 25: proportion of transformer operating in reverse flow in 2010, 2011 and
2012
During holiday days (when electricity consumption is lower) the medium
Market voltage line can globally operate in reverse flow operation in a way
that 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 radiation
and 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 the
low or medium voltage lines creating problems for the whole lines. In fact
the feeder voltage gives the voltage setting point in proximity of the
transformer. A reverse flow of energy might increase this setting point and
create overvoltage problems for the whole grid. Furthermore if frequency
and voltage levels were much disturbed by a generating unit, the protection
system might unplug that unit from the grid starting a chain effect which
will unplug all renewables. A scenario where considerable amount of energy
is supplied by renewables might present significant blackout dangers
25
.
Renewables might therefore present various economical and technical
problems for the national grid.
25
For further reference Protection of Power Systems with Distributed
Generation: State of the Art, Martin Geidl, 2005
63
4.3 Smart-grids
Problems introduced by renewables represent a big challenge to national
grids. Furthermore todays European grid have been designed after World
War II with a fit and forget approach. This means that grid have been
designed to tolerate more than the peak of demand in each zone. However
continuous increase of demand creates several challenge since Transmission
lines might not be able to supply the proper amount of energy,
On possible solution is to replace parts of the grid with newer and more
capable ones. However this approach is costly and takes long time. On the
other hand continuous spread of Distributed generation and self
consumption started another significant trend in which, even though demand
increase, the amount of energy withdrawn from the grid might decrease. In
this scenario is difficult for GNRT (in Italy Terna S.p.A.) to decide whether
grid should undertake significant update process or not. One possible
outcome is, in fact, that when more capable grid will be ready there will no
need of such capacity any more.
Smart-Grid represent another possible approach to the problem. Smart Grid
approach is to couple the actual grid with a ICT system and to use the
existing 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 Demand
Maximize local consumption
The first smart grid goal can be achieved by controlling generating unit,
local storage and consumption units. Such a system is called Microgrid and
will be the focus of the next chapter.
Storage introduction
Storage system have been analyzed in the previous chapter. ESS can support
the grid in renewable integration and in balancing functions
Demand Control
64
The technological frontline for Smart-Grids is, however, demand control.
Demand control consist in shaping demand curve using instantaneous
price instead of equilibrium price, For Example, in order to have a flat
demand curve utilities might instantaneous increase electricity price for
customers. Advances home appliances might read price signal and
postpone or anticipate some actions. Some simple demand response program
have already been introduced in USA for bigger consumers this program
will 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 been
implemented in several counties to sensitize customers to grid balance issues
using 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 and
its management involve several actors from the Government to the consumer.
In order to guarantee a proper grid load, and since night consumption is
much lower than day consumption, in some countries different electricity
pricing were introduced for the day and the night in order to shift
consumption to the night hours. This approach, known as double time
tariff, is the easiest and less effective way to balance grid usage and has been
in usage for several years. Although the solution is not innovative and its
efficacy is rather limited, it tries to approach the basic problem of balancing
the grid and sensitize customers through a price motivation.
Curtailments programs
A more recent solution, a further stap toward greater grid balance, has been
the 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 pay
loads to curtail demand, instead of paying for additional capacity from
generators. Loads that participate in these programs can expect to be called
upon four to six times per year with each curtailment event lasting
approximately four hours. The owners of the loads are contractually
obligated to bring the electricity usage for the contracted load to a halt. Load
owners receive a capacity payment for responding, but, in the event they
cannot meet their commitment, there is a penalty.
Grid Balance
Grid Balance relies on a technology developed by Oak Ridge National
Laboratory and licensed to ENBALA. In a relevant paper Examination of
the potential for Industrial Loads to provide ancillary services Oak
Laboratory examined the ability of users to supply ancillary serviced to the
grid by modulating their loads. ENBALA actually implements this
technology in US and Canada with a rather innovative business model.
This program, acts to match, in real-time, the supply and demand of
electricity on the power system. Total system demand changes continuously,
requiring the grid operator to initiate frequent, rapid changes (every four
seconds) in generation or load to correct small imbalances of supply and
demand. The demand-side loads that comprise ENBALA s network
increase or decrease their electricity consumption in exchange for a new
revenue stream. All events are automated, in real-time, and are transparent to
operating processes. There are no penalties if a companys loads are not
available to respond.
From the user point of view, ENBALA affords building automation
investments in order to control some customer processes which are not
relevant for the customer itself. For not relevant they mean that the process
might be postponed or anticipated without compromising the customer
operational processes. In this way ENBALA can optimize utilities need
reconfiguring part of the demand. Utilities can have significant saving since
they can follow consumption profiles declared in the previous day market
and 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 who
retains a sort of veto right for each operation proposed by ENBALA. The
previous paragraph showed which are processes retain higher flexibility.
4.5 Conclusions
Introduction or renewables present several changeling problems for
traditional grids. Development of smart grids represent a way to avoid
relevant and risky investment. The basic idea behind smart grids is to use the
present grid in the most possible efficient way.
67
5. Microgrids
This chapter focus on microgrid and presents a general discussion on the
topic. Microgrid have been introduced in the previous chapter as a system
whose diffusion might avoid problems to the national grid. However
microgrids might present significant advantages also to private companies
adopting them.
A microgrid is usually defined as a partially Independent portion of the
grid containing the main grid key elements: production, consumption,
storage and control. Microgrids are in general used to give partial or total
autonomy to some companies or areas trying to control consumption and
generation in order to maximize some function (like energy produced from
renewables or more commonly reduction of costs). Main voices of
electricity bill in Italy have been discussed at the end of Chapter 1. It is
suggested to the reader to review that brief paragraph in order to better
understand how a microgrid can minimize cost function. In general Energy
can be purchased according to several pricing models. Among the most
popular 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 market
based price in order to efficiently manage different price of energy during
time and optimize consumption according to market conditions.
Fundamental components of micro-grid
Amicro-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 briefly
discussed. In particular discussion of the automatized control system will
show potential of the a smart microgrid.
Automatized control system
The first stage of implementation of a smart grid is to map all main
consumption centers and to introduce a control system able to anticipate or
to postpone the beginning of some processes in order to minimize the total
cost of energy. In fact some energy-hungry processes can be anticipated or
postponed without compromising users processes. Figure 27 shows a
typical profile for the power consumption of an industrial process.
The consumed energy is given by the area below the curve. Even in the
simple case of flat energy price (tariffa mono-oraria), if all processes were
started 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 is
more convenient to postpone or anticipate some processes which are not
crucial for the industrial process. Typical examples are given by charging air
compressor, starting air conditioning half an hour ahead or later and so on.
This would be the easiest and most obvious application of a smart energy
management system, however it is rather complicated to implement since
the company pays for the 15 minutes of higher consumption and it is
therefore important to have a very reliable energy management system with
almost no failures.
A market based price of energy might provide more advantages allowing the
company to perform some processes when there is excess of self-produced
energy from renewables, i.e. with zero marginal cost, or when energy is very
cheap
26
. Therefore there is potential to reduce and better manage companies
or system energy consumption. However, in order to perform this task in a
very reliable way it is important to introduce energy generators and storage
69
systems. Convenience of the system strongly depends on the internal
energetic flexibility of the user, however carefully designed business
models might provide interesting economic result as will be discussed in
next chapters.
Figure 27: Typical power consumption profile of industrial processes. The
difference between peak power usage and steady state power usage might be
very big in some processes.
Energy generator
Many companies took the opportunity to install generation capacity when
European governments provided very good incentives. So today companies
are able to generate part of the energy they consume, even though this is
usually not enough to cover all their needs. Capability to generate energy in
a distributed way is relevant for companies and for the country as a whole,
especially for countries like Italy lacking other resources, but might generate
some problems as we have discussed in the previous Chapter. Increase of
self-consumption would be the best and easier answer to decrease line
congestion. Microgrids, coupled with predictive algorithms, might help to
70
achieve this goal using automatized control system to move in time some
consumption and storage system to decide how much should be stored and
how much should be immitted to the line. Again proper business models
would be relevant to align prosumers, microgrids and Distributors interests.
Storage systems
An energy storage system (ESS) is a device able to storage and supply users
with stored electricity. Electrochemical energy storage systems (EESS) have
been analyzed in Chapter 3 which also provided an overview of possible
applications among prosumers, microgrids, TSO and DSO.
In smart grid and renewable energy applications, where energy efficiency
and reliable power supplies are critical, an energy storage system is an
essential device and the interest for these devices is increasing. The
production of renewable energy sources such as solar and wind power
largely depends on the weather. The efficiency of the power supplied by
these renewable energy sources can be maximized when paired with an
energy storage system. Efficient renewable energy storage can store a large
amount 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 later
use during cloudy or windless conditions. At the same time the Storage
system can store energy when local demand is low and release energy when
demand is high. The total effect (on renewables and demand assistance) is
that the user consumption profile will look flatter.
Figure 28 gives an idea of how a storage system would work in the case in
which the user produce enough energy renewable sources to supply himself
but should face the unavailability of solar energy during the night. In this
oversimplified case the storage system would accumulate energy during the
time of peak production in order to release energy afterwards when the
production is very low.
71
Figure 28: Basic functioning of an energy storage system
27
In order to achieve this goal it is necessary to develop a proper IT
infrastructure close to the Energy storage system so that it could be
controlled on a predictive base regulating consumption required by the user
with the fore-casted future production. However an energy storage system
can be used to achieve other challenging goals linked to the use of energy
from renewable sources. For example it might be used to regulate the
frequency of produced electricity and to provide peak time response. The
range of usage for Samsung Electricity Storage Systems (one of the main
producer in the world ) is shown in Table 6. However Chapter 3 showed
how some applications do not still have a clear regulatory framework in
Italy.
Consumption Center
Consumption center is not really a component of a smart grid but it is given
by all the energy consumption sites which exist in a company usually even
before the introduction of the microgrid. The kind of processes which are
used are usually not easily modifiable by the smart grid provider and the
only variable is, in general, the timing of processes. Consumption might be
regulated through automatic controllers as discussed in the previous section
27
www.samsung.com (cons. 10
th
August 2013)
72
on the topic. Internal energetic flexibility, i.e. the possibility of moving
some consumption in time without interfering with the main processes,
might be rather high in some industries. This is one of the key aspect in
implementation of successful smart microgrids.
Table 6: Usage of Samsung EESS
28
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 20
th
August 2013)
Power Storage Energy Storage Energy Storage
Frequency
Regulation
Peak Shifting Load Leveling
Community
EESS
Residential
EESS
P
u
r
p
o
s
e
- 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
P
o
w
e
r
MW+ MW+ MW++ 10-25 kW 3-10kW
D
i
s
c
h
a
r
g
e
t
i
m
e
~ 30 min 1 ~ 2 hours 4 ~ 7 hours 1 ~ 3 hours 1 ~ 3 hours
D
r
i
v
e
r
s
-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 and
Transmission grid operators, contributing in the reduction of grid congestion.
This paragraph will briefly introduce all these kind of benefits. A proper
business model should manage to align all the interests in order to foster a
market which is expected to need some time before gaining an actual
speed-up. Before analyzing global benefits, benefit introduced by the sole
application of building automation system will be discussed since it is the
only component which as not been discussed in previous chapters.
Building automation benefits
Saving on Electricity bill achieved with relevant building automation
systems can go from 5% to 15%
29
for commercial building. Similar figures
can be obtained in industrial setting although the variability is higher since,
depending on the company and on the industry, some processes might be run
later 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 building
automation, not considering its introduction into a microgrid. Introduction of
the building automation system into a microgrid might determine further
benefits.
Company benefits
Cost reduction
The 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 smart
usage of automatized control system, local generators and storage system in
order to absorb energy from the grid when it is cheaper or to avoid
absorption when energy is more expensive. However, realistic analysis
should take into the economic cost of these activities. Financial computation
will be done in Part III.
Greater Independency from national network
A 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 paper
http://www.can2go.com/documents/wp_can2go_energyefficiency.pdf (cons 18 July 2013)
74
system and local generation might allow some hours of autonomy to the
industrial plant.
Sale of Energy
Since the marginal cost of producing energy from solar panels is very
low, when production from solar is particularly high market price of energy
might be low (as discussed in the previous chapter). In some liberalized
market microgrid might help the consumer to sell solar when there is a
peak of demand in order to increase the revenue.
Greater Power Quality
Microgrid can increase power quality regulating with greater precision
the frequency and level of voltage. This can be very useful for some
companies operating in robotics sector whose machinery are very sensitive
to the frequency and level of supplied voltage. Higher power quality might
also be useful to companies operating in countries where extremely poor
grid conditions treat plant safety. Another option for microgrid could be to
provide regulation services to Distribution companies. However at the
moment in Italy and other countries there is no clear regulation on the topic
meaning that the microgrid cannot supply the Distribution grid with
rewarded regulation services.
Society Benefits (Externalities)
Renewable sources and Pollution
Microgrid allow a more efficient usage of renewable sources making
them more competitive and increasing their efficacy. In doing so microgrids
indirectly promote more environmentally friendly source of energy giving a
significant contribution to reduce pollution and CO
2
emissions
Increase countries energy independency
Some countries, like Italy, are heavily dependent on foreign energy. So
it is important and strategic to reduce dependency on import having a source
of self production. For countries lacking of more traditional resources but
with convenient geographical position, evolution to smart microgrid can
give a significant help in order to reach higher level of energetic
independency, for example increasing significantly the amount of energy
produced from sun and wind.
75
Electricity distribution and Transmission companies
Postponement of grid investment
Adoption of microgrids could be a very good news for electricity
transmission operators (TSOs) . In fact a grid should be designed in order to
sustain the peak demand. With the increase of the amount of demanded
energy it is important also to redesign significant portion of te grid in order
to sustain higher peaks. As discussed above main microgrid goals are peak
shaving and load shifting to provide a rather flat consumption profile for
microgrid users. This is not in contrast with the goal of consuming
electricity when it is cheaper since electricity is cheaper when demand is
low and supply is high. Diffusion of flatter local consumption profile will
help the goal of achieving a globally flat consumption. Therefore
autotomized control, local generation and energy storage system will help to
make 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 strongly
depends on the users of the microgrid, on its need and on its internal energy
flexibility
The most important cost components of a microgrid are given by Energy
storage system and Building automation system, assuming that users
already have some source of energy production, otherwise these investment
should also be added. However these costs can be easily found in reports
like Solar energy report and Renewables energy report from Energy
and Strategy Group of Politecnico di Milano.
Building automation
The cost of implementing building automation is rather relevant and
non-standardized. In fact building automation system strongly depend on the
user of the microgrid and should be heavily customized, with the cost of
control 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 per
kWh for a standard microgrid application
30
. Prices However, as discussed
in 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 renewables
greater than 15%) in order to control immission of energy from
renewables and to provide better grid management
Higher drop in prices will be linked to introduction of electric cars
linked to increase in oil prices and spread of electric vehicles
For example a McKinsey report
31
give an actual price of almost 600$ per
KWh for the lithium cell
32
and says that with increasing of oil cost hybrid
cars will soon become a sustainable business and the scale will drive down
cost of production of Lithium cells which should reach 250$/KWh in 2020.
Avisual representation is given on Figure 29.
Different technologies are emerging in the battery scenario. Stanford
University and EOS Energy Storage are working on Zn based batteries
which might have cheaper costs much before the mass introduction of
electric cars. In particular EOS has a target price of 160$/kWh to be reached
within 2014, much cheaper than Lithium-based technologies even though
presenting lower features. The project is very promising since big companies
are partnering with EOS for development of Zn-Air batteries
33
.
30
http://energystoragejournal.com/with-batteries-grid-storage-opportunites/
31
http://www.mckinsey.com/insights/energy_resources_materials/battery_technology_charges_ahead
32
This cost does not refer to the finite product but to the raw cell
33
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 user
of the microgrid. In fact understanding which processes should be part of the
building automation systems and which not and the degree of control of
storage depends on the company activities, on the expected production of
energy (topic which is strongly related with weather forecast) and on the
users energetic flexibility. Therefore a general and theoretical estimation of
these costs is not often feasible.
5.3 Potential customers
As we have been discussed microgrid solve problems of energy
independency, high cost of energy in the market, power quality and
continuity. For these reasons some areas or users having stronger motivation
to 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 its
area;
Users whose consumption is greater than the minimum efficient scale
of production.
This paragraph discusses these cases.
Renewables integration
In many European countries production from renewables has been
constantly increasing because of favorable government polices (in particular
in Germany, Denmark, Italy and Spain). Chapter 4 discussed negative
effects that a high percentage of non predictable renewables (like solar and
wind energy) might generate to the system. Microgrid can help to regulate
random production and consumption in order to match demand and supply
in a particular area so that less energy is transmitted through the
Transmission system increasing self consumption, and in some cases,
consumption from neighborhood.
Integrating more renewables present obvious advantage for the energy
producer, who could sell higher share of its energy, while TSO will have
less problems in managing grid and for the collectivity, not having to sustain
big investments to upgrade local grid.
Area requiring grid update
Some areas might have a high increase of electricity demand, for example
because of new industrialization, and the local grid might become unable to
sustain peaks. A microgrid covering the area might defer in time big
investments for grid update. In the easiest application a storage system will
be installed to execute peak shaving operations. However, most advanced
solutions might require a mapping of greater consumption centers and a
management of their internal flexibility in order to match availability of
energy and local consumption. In this way the utility might keep stricter to
planned consumption, not needing last minutes adjustments. Customers
might benefit of a greater control of their consumption and might get
benefits form contributing to utilitys cost reduction.
79
Areas unconnected to the main grid
In many countries there are remote areas that are weakly connected or
totally unconnected to the grid. These areas are usually geographically far
away from main cities or close to changeling geographical barriers. In some
cases municipalities of these remote areas might be interested in developing
a microgrid, totally independent form the main one, and managing their own
small electrical system. In fact, given their small scale, usually cost of
production in these locations is very high therefore a combination of
renewables and storage system might be competitive. In Canada (huge
country with rather small population) many villages are far away from the
main cities. An interesting case study is the implementation of a microgrid
in the town of Bella Coola
34
, in the British Columbia, whose location is
shown in Figure 30 and in Figure 31. Bella Coola, with its population of
2000 people is one of the 50 communities in the British Columbia not
connected to the power grid. Before 2010, the community used the close by
river fall as a main source of electricity. However in this way it was
impossible to cover peak demand of energy which was satisfied by an
extremely expensive and polluting diesel engine. In 2010 GE and Powertech,
a controlled company of the local utility, BC power hydro, implemented a
micro-grid whose functioning is shown in Figure 32. Excess Energy
developed by hydro plant is used to create H
2
storage which is turned into
energy when needed. The micro-smart grid allows a better integration of
renewables which now can be efficiently used in Bella Coola.
Similar solutions are going to be adopted to supply higher quality electricity
in remote areas in India
35
.
34
For all information, figures and data concerning Bella Coola micro smart grid, see
http://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 Coolas 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 where
power quality is rather low. Low power quality is usually due to
not-adequate infrastructure so that investment in microgrids, and
introduction of storage systems in particular, might increase power quality
deferring grid investments and avoiding fines for not adequate power
quality.In cases where Distribution and transmission companies do not
undertake necessary investments to increase power quality, final users might
consider the introduction of micro grid to increase quality of their electric
supply. In particular this can be applied to companies where demanding
electricity features are required, like in robotics sector, or to companies
81
operating in countries with rather poor power supply. Serbian case studies
have proven the great increase in power quality introduced by a
micro-grid
37
.
Capitalizing internal energy flexibility
The previous chapter discussed about the possibility of automatize energy
consumption centers in order to have a centralized control. Many processes
can be moved in time without changing the nature and the efficiency of the
global process. In particular moving some energy-hungry processes might
significantly change the overall load in the Distribution grid. Some
companies might be willing to capitalize their flexibility moving
consumption according to the utilities will and ask for a share of the saved
costs. EnBala
38
introduced a relevant business model of Grid Balance.
Some processes might have a rather high internal flexibility. A study made
by Oak Ridge National Laboratory
39
analyze flexibility in several industrial
processes and identify the top 30 most flexible industries in USA, which
might provide an excess of 26 GW. Industries have been classified in
manufacturing, non-manufacturing and commercial. In particular the top
three 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=2028473
38
www.enbala.com
39
Examination of the potential for Industrial Loads to provide ancillary services by D. Letto and
R. George
82
Colleges/Universities/Schools at 22.70%
As this study show the amount of internal flexibility is higher than expected
in many sectors. Government can play an interesting role since (at least in
Italy) the first, fourth and sixth most flexible consumption centers (hospitals,
Universities and Municipal drinking Water) are owned by Government at
various levels.
Other potential Users
Government might be willing to promote microgrid introduction in order to
develop local capabilities and have a competitive national value chain when
prices will be lower and there will be a boom of the technology.
Other early adopters might be users willing to be insulated from the local
grid. Some American universities are moving in this direction in order to
avoid continuous blackout in the local grid. In particular cheap American
natural gas prices can make CHP system very competitive. Coupling CHP
with a microgrid investments, these campus can be insulated from the grid
and have cheaper price of energy. Payback for a CHP system in USA in
estimated between 6 and 7 years, a rather long time for companies but
sustainable for big universities. Furthermore, Campus Energetic autonomy
will decrease load in the local grid decreasing also possibility of black-out
for 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 and
utilities who might see microgrids as a away to erode their profits. This
paragraph analyze some possible microgrid introduction schema. Analysis
will not be very detailed, although, since the goal is to find some adopter
models which might be good in principle. In further chapters some of these
models models will be applied to a specific companies and more detailed
analysis will be provided. In particular the paragraph will provide an
introduction on:
Utility promoted microgrid
Consumer-promoted microgrid
VPP based microgrid
Goal Benefit for
User of the
microgrid
Renewables integration
FRNP producer
FRNP producer DSO
Collectivity
Areas requiring grid update
consumers in the area Municipality in
the area Utilities
Areas unconnected to main
grid
Community
Municipality in
the area
Power quality
DSO
DSO/consumer
consumer
Capitalizing flexibility
consumer
consumer
Utility
Government Collectivity Government
Need for autonomy
Adopter
Community Consumer
Community
84
Utility promoted microgrid
Microgrid might be promoted by utility companies (DSOs) in order to better
manage distribution grid loads and be more competitive in the electricity
market. In this scenario utility companies promote diffusion of smart meters
on a large scale (to monitor consumption), diffusion of building automation
(to allow remote control), storage systems (to balance electricity flow and
renewable integration in a single area). Such projects are rather challenging
and require big investments. They are usually undertaken in experimental
way (if the government incentivize). Actually in Italy there has been no
incentive in this direction, while some counties, like China, show a great
interest on the topic. However, electricity market structure in China is very
different since transmission and distribution are operated by state owned
companies under the control of the central government and province
governments. In particular China is starting a large scale introduction of
smart meters with the goal of implementing several microgrids in each area
coordinated by a smart-grid in each provine with a further coordination at a
national level. Centralized structure and direct government founding allows
a fast operation in China that plans to have leadership in micro and smart
grid sector within 2020.
Consumer-promoted microgrid
An interesting possible scenario for microgrids market is the diffusion of
customer promoted microgrids. In particular medium sized companies
might be willing to install microgrids to efficiently manage their energy
consumption and align it according to electricity market price. From another
point 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 the
single companies while in the other case is made with the partnership of the
distributor. Convenience of one or the other model depends on the
profit-sharing system which is implemented and on the willingness of
utilities to buy flexibility. However, in this case the action of a mediator
between 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 industrial
districts). In this case potential flexibility might be rather high especially if
companies in the same districts have different energy needs. Another
interesting potential application for microgrids might be to sell grid services
to DSOs. Grid services are services regarding frequency and voltage
regulation of the network.
VPP based microgrid
In the last potential scenario to be described, microgrids are used to serve
big institutional customers (universities, hospitals, etc..) large and medium
size 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 the
transmission network to transfer electricity from a microgrid to the other. In
many countries, according to local regulatory environment, this
intermediator should be enabled by government to trade electricity. The final
configuration of this microgrid environment would be similar to a Virtual
Power Plant, i.e. a system that relies upon software systems to remotely and
automatically dispatch and optimize generation, demand-side, or storage
resource in a single web-connected system
40
. From this point of view
advantages of a microgrid will be much greater, being able to bargain
greater flexibility with DSOs and to internally transfer energy in order to
achieve a balance. However there are problems related to energy transfer
fees operated by TSO and other legal problems which will be analyzed in
the next chapter.
5.5 Conclusion
The chapter provided a general and intuitive overview of microgrids: what
they are, what kind of problems they solve and which are cost drivers.
It also discussed broadly what kind of advantages microgrids can bring for
collectivity and some general introduction schema. Although, so far
40
http://www.navigantresearch.com/research/virtual-power-plants (cons. 25
th
August 2013)
86
discussion has been quite general. Starting form the next part, Smart and
Microgrid 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 opportunities
In the previous chapters a general overview on the topic of micro-grids,
smart-grids and storage systems has been given. However, this overview has
been theoretical and no detailed computation have been provided. This part
of the work provides a more detailed business anaysis with a focus on
Loccioni, international medium-size Italian company which decided to enter
the smart and micro- businessgrid and is looking for suitable and sustainable
projects.
6.1 Loccioni: Profile of the Company
Loccioni is a family company established in 1968 by Enrico Loccioni with
the aim of creating in his territory and delivering to the world an
entrepreneurial model for the work and knowledge development. [...] By
integrating ideas people, technologies [...] they [...] develop measure and
test solutions to improve the quality of products and processes for the
manufacturing and service industry.
41
The company embraced Open
Innovation paradigm and configure itself as an open knowledge company
and as a technological tailors shop, designing and manufacturing turn-key
tailor-made solutions for the automatic measurement and quality control of
our 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 particular
industry and mobility are the world leader in their sector supplying home
appliances companies and all the major automotive companies with cutting
edge of technology measuring and testing devices. The other divisions are
all much newer and represent a so far successful attempt of Loccioni group
to diversify its business,
In particular Energy Business Units deals with ESS, energy flow
management and energy efficiency businesses. Continuos research effort
and attention for the surrounding environment brought Loccioni to develop
41
http://www.loccioni.com
42
http://www.loccioni.com
89
the first energy-sustainable community in Italy, the Leaf Community, which
is 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 energy
management solutions and its capabilities of integrating Lithium-ion
batteries to perform Voltage Regulation (with one application of 56
kW/56kWh for Enel, a test facility contract with RSE, two 32kW/32kWh
applications for ENEL in LAquila and Teramo and co-operation in Grid4EU
project with a 1Mw/1MWh application for ENEL).
Furthermore, internal development of Smart Leaf allowed Loccioni to
acquire advanced capabilities in energy flow management systems,
integration of storage into Smart-Grid and predictive algorithm for
renewable generators management.
After two years of extensive research and investment the company wants to
capitalize its knowledge finding suitable applications, customers and
business models. Challenging goals have been set for production of energy,
energy flows management and storage systems, considering that the demand
of 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 storage
technology. Working as a system integrator Loccioni is very flexible in the
choice of the technology to integrate, reducing risk of betting on the wrong
technology. However, also for a system integrator technological choice is
rather relevant since it builds a source of competitive advantage in the short
and medium term. Starting from this consideration several interviews have
been done to people dealing with microgrid sector in Europe in order to
design 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 the
cost of R&D in the most efficient way.
Actually there are three main technologies for advanced micro and smart
grid applications: Lithium-ion, Sodium-Nickel (produced only by the
American GE and the Italian FIAMM), Sodium-Sulfur (produced only by
the Japanese NGK) and Lithium (produced with different sub-technologies
by several companies). In particular Lithium is actually produced by all big
names of electronic industry: Sharp, NEC (Japan), Samsung, LG (Korea),
SAFT (France-EU), BYD (China). Big investment on Lithium technology
suggest that at the end it will be the emerging one. The head of RD of an
Italian company leading the microgrid sector compares the actual batteries
race to the silicon race of nineteen-seventies where big investments made on
silicon indicated that it would be the emerging technology despite of the
good properties of alternative ones.
Markets feelings
Finding a market for new technologies is not an easy task and often feeling
are as important as data.
Therefore several interviews have been made in order to understand which
is the direction of ESS and microgrid systems. Interviews embrace a top
level consultant in the sector, researcher and relevant figures of one
European 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 Strategy
group in Politecnico di Milano and found interesting counter proof. The
most relevant service, also in this case, is primary frequency regulation.
Even though this service is still not paid in Italy, the law is changing
and the new settlement might bring several interesting opportunities.
Frequency regulation and low power quality will become more and
more relevant problems. According to a national European Research
center renewable effect will destabilize the grid which has not been
designed for bi-directional flow. In particular Figure 33 shows how 5 of
the 7 largest blackout in history happened between 2003 and 2013.
91
Grid Balance and Demand response programs, which have already
been tested in USA, might become more popular ways to provide
frequency regulation services avoiding expensive investments and
delivering value to the final customers.
Islands and Remote areas have a cost of electricity which might justify
Microgrid implementation. In fact these places often produce electricity
through expensive and polluting Diesel engines. For this reason a
relevant ENTSO member is considering to diversify its business into a
microgrid promoter for small islands and remote areas.
Low power quality issues and related costs might justify investments in
microgrids in several countries.
Next chapters will analyze business potential in each one of these four
directions.
Before analyzing each of these potential businesses, however, a storage
system cost model will be developed together with an ideal cost of storage
per unit of energy. This cost will be compared with electricity prices in
several European countries in order to have a road map of places where
investment can pay back earlier, i.e. countries where electricity is more
expensive.
Figure 33: Largest blackout in history
43
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 system
is to carefully estimate its costs. A model developed by Piyasak Poonpun
and Ward T. Jewell
44
as been applied with some modification. The main
modification regards the possibility of not using the entire cycle of the
battery, ranging its charge from 0% to 100%, but use partial cycle, for
example ranging the charge from 30% to 70%. According to many
producers, lifetime of the battery increases more than proportionally with
the reduction of the charge span.
This Chapter will briefly discuss the model and the result of some
simulations.
***
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;
H
0
: [h] duration of discharge cycle;
D: [days/year] annual operating days;
e: [%] efficiency of the storage system;
45
cs: [%] cycle span
46
;
44
Piyasak Poonpun,Ward T. Jewell, Fellow, Analysis of the Cost per Kilowatt Hour to Store
Electricity, IEEE TRANSACTIONS ON ENERGY CONVERSION, VOL. 23, NO. 2, JUNE 2008
45
Efficiency od a storage system indicates how much energy is given s output per unit of energy
input
46
Cycle Span indicates the percental difference in capacity between the moment in which the
battery start to supply energy and the moment in which it start to recharge. In practice usually
batteries are not used at 100% of their capacity. For example if a battery operates between 30% and
93
i
R:
[%] internal rate of return;
C: [#] maximum number of cycles in the operating
conditions;
y: [years] duration of the investment
F: [] future amount of replacement cost
The annual energy production (AEP, [kWh/year] ) is the given by:
AEP=P*n*H
0
*D
The annual operational maintenance cost (OMC, [$/y]) is given by:
OMC=OM
f
*P
Where OM
f
is the fixed operation maintenance cost ([$/ (year*kW) ])
Here it follows the computation for the initial investment cost (TCC, []):
TCC=PCS+SUC+BOP
Cost of Power Electronics (PCS, [])
PCS=PCSU*P
Where PCSU is the unit cost of power electronics ([/kW]);
Cost of Storage Units (SUC, [])
SUC=SUCU*P*H
0
/(e*cs)
Where SUCU is the unit cost of storage ([/kWh]);
Balance of the Plant (BOP, [])
BOP=BOPU*P*H
0
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+BOP
Knowing that the Capital Recovery Factor
47
(CRF, [%]) is
CRF=[i
R
*(1+i
R
)^y]/[(1+i
R
)^y-1],
The annualized cost of capital (AC, [/year]) will be:
AC=TCC*CRT
In order to properly evaluate the investment, we would consider the
replacement of the battery if its life time was shorter than the desired
duration of the investment.
70% its cycle span is 40%.
47
Acapital recovery factor is the ratio of a constant annuity to the present value of receiving that
annuity 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, (F
k
/(1+i
R
)^
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+i
R
)^
k*r
},
The annual battery replacement cost (ARC, [/year])is:
ARC=A*P*H
0
/(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 to
compute the cost of added electricity for some different technologies. Figure
34 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 the
system integrator.
This price is still rather high, and even though cost simulation was made for
1MW systems, it can be compared only to the household electricity price in
some European countries, where electricity is very expensive. In particular,
from data available in the website energy.eu, it can be realized that this price
is comparable with the household price in the European countries where
electricity is most expensive: Belgium, Cyprus, Denmark, Germany, Ireland,
Italy
48
. Even though unitary energy cost for small systems might be
relatively high, there are strong economies of scale for many cost
components 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 and
economies of scale. At the same time increase of demand will make the cost
of the raw material to rise up. The result of these two counteracting forces
should be a slow decrease of battery cost after 2013. Future increase of
electricity prices (linked to reduction of nuclear production) and future
possible grid stability problems introduced by diffusion of renewable might
create a big market opportunity for Lithium based batteries and storage
technology. Furthermore in many application storage is not used to supply
energy for the whole system but in small proportion to perform regulations
or load shifting. Batteries might therefore become competitive when
suppling 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 automotive
sector
97
Table 8: Average household electricity prices in EU countries the 14th September
Country Household
[/kWh]
Industry
[/kWh]
Austria 0.20 147 0.09 312
Belgium 0.22 566 0.09 714
Bulgaria 0.08 795 0.06 714
Croatia 0.11 325 0.08 145
Cyprus 0.27 249 0.19 483
Czech Rep. 0.15 071 0.09 758
Denmark 0.29 525 0.09 434
Estonia 0.11 066 0.07 729
Finland 0.15 718 0.07 162
France 0.14 466 0.07 761
Germany 0.26 527 0.11 567
Greece 0.14 073 0.09 202
Hungary 0.15 613 0.10 383
Ireland 0.22 518 0.10 583
Italy 0.23 140 0.16 746
Latvia 0.13 942 0.09 969
Lithuania 0.12 550 0.10 974
Luxembourg 0.16 736 0.07 524
Malta 0.16 986 0.16 016
Netherlands 0.19 323 0.08 852
Poland 0.14 618 0.08 522
Portugal 0.20 310 0.10 463
Romania 0.10 695 0.07 542
Slovakia 0.17 322 0.11 921
Slovenia 0.15 659 0.08 371
Spain 0.18 926 0.10 220
Sweden 0.20 361 0.07 197
U.K. 0.17 078 0.10 284
98
2013
8. Frequency Regulation
According to Several studies,
49
Electrical Storage systems (ESS) might
have a positive and high Internal rate of Return when used for Primary
Frequency Regulation purposes. This chapter analyses the topic of primary
frequency 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 of
frequency regulation in a traditional grid (i.e. Agrid without RES).
Lets 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 does
not store energy and does not loose energy, therefore:
49
Smart Grid Report by Politecnico di Milanos Energy and Strategy Group is one of the most
influential in this sense
99
where P
ej
represents the Power generated by generator j and P
Lj
represents
the power absorbed by load j.
In the assumption that all the electricity is generated by rotating machines,
where J
j
is the moment of inertia of the machine j and P
mj
is the power
generated by rotating machine j producing P
ej ,
we have that:
Considering J to be the average moment of Inertia of the system and to be
the average pulsation we have that in equilibrium the previous difference is
constant and equal to zero. In particular the system start to loose the
equilibrium status, its difference will increase or decrease and the power
difference, time derivative of the energy difference, will be different from
zero.
in particular since J is a constant of the system, only will change. From
basic physics we know that =2f, which means that frequency will change.
However to assure the safety of loads operation, in particular of motors, it is
important for the electric system to have a stable and known frequency. In
Europe, Russia, China and India this frequency is 50Hz. The disequilibrium
happens every time that some new loads are plugged in or out form the
system or every time that a generator increase or decrease production. In
order to keep the frequency constant it is important to restore the
equilibrium between produced power and consumed power. This task is
2
1
2
m e
d
P P J
dt
e
| |
=
|
\ .
100
performed by frequency regulation services. There are three level of
frequency 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. With
minor differences the system is very similar in every country.
When power in the grid is not balanced, as discussed above, there is a
frequency drop. In order to be immediately able to re-establish power
balance each rotating machine should provide an half-band of 1.5% of its
nominal power output for primary frequency regulation services. If there is
an imbalance, like the one shown in Figure 37, each generator can increase
or decrease the output to rebalance the system. Primary frequency regulation
is automatically done by ever generator connected to the grid, therefore the
control action will be proportional to the frequency drop (Proportional
Control) to avoid that different generators can interfere with each-other.
Primary frequency control should operate at half capacity within 15 seconds
from the distributing event and be fully operating within 30 seconds.
A well known result in Control Theory is that Proportional control leaves a
marginal error, i.e. in the steady state frequency will be stable but different
from 50Hz. Therefore Secondary Frequency regulation is needed. The goal
101
of secondary frequency regulation is to restore the frequency of the system
at the nominal value (50Hz in Europe, Russia, China, India, . . .) and to
restore the primary frequency reserve. In order to avoid interference the
secondary frequency regulation is performed dividing the country into major
zone and having one coordination system for each zone. The single
coordination system can avoid interference therefore it is possible to have a
Proportional-Integral Control which lead to a zero error (as known from
Control Theory). Secondary frequency control should be operating after 30
seconds from the disturbance and for at least for 15 minutes.
After secondary frequency regulation intervened, tertiary frequency reserve
will restore the secondary reserve and the system is ready for a new
imbalance. Tertiary reserve consist in a stable increase in the power output
of 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 in
some second after disturbance. This limit is due to the fact that rotating
machines have high inertia and cannot easily change the power output. On
the other side machines inertia helps the system to preserve its frequency
since a frequency imbalance means that the rotating speed of generators is
changing. However it is intuitively that a faster response would be more
effective and rather beneficial for the system.
According to Italian law, but there might be significant differences in other
countries, generators with a nominal power output smaller than 10 MW and
electricity generators from renewable sources are exempted from primary
frequency 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 zero
marginal cost of energy and the future price of energy does not depend on
the fuel prices. However, in the case of solar there are no rotating
equipments and the sinusoidal wave is generated by an inverter. Wind farm
have a similar problem, since rotating machine is not directly coupled with
the grid but an inverter is generating a sinusoidal wave. Considering what
102
we have been saying before these machines have no inertia and cannot
easily respond to frequency variations. Furthermore many European
countries have been introducing policies to exempt renewable form
frequency regulation tasks. This lead to a decrease of power quality which is
not considered acceptable by European TSO. According to ENTSO study
50
relevant frequency deviations, already existing in 2010, see Figure 38, are
becoming more and more relevant with introduction of renewable. In
particular the beginning and the end of working day are characterized by
frequency problems as shown in Figure 38. These problems have been
incremented by introducing renewables which have no inertia and which
often are not required to provide grid services. In this way the traditional
generators, need to take care of frequency regulation for an higher number
of power generators while reducing production because of renewables
competition,
Electrochemical Storage systems might qualify to perform primary
frequency regulation, due to very fast response time (order of milliseconds)
(which might increase the efficacy of the regulation) and possibility of being
integrated 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 in
proposing EESS for primary frequency regulations in Europe are the country
with 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 country
is close to Europe and there is a fast increase in demand not followed by fast
enough increase in production.
Figure 39: Day Ahead Electricity price in main European markets
Ireland
Irish electricity prices are among the highest in Europe. However, Irish
regulation force all generators to provide Primary frequency regulation in
mandatory way providing an economic compensation which is defined by
regulation. In particular in the Ireland grid code primary operating reserve is
defined 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 after
an 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 reserve
is realizable if required). So it is not a utilization payment. However
EirGrid and SONI, the TSOs in Ireland and Northern Ireland, have recently
completed a review of ancillary services with regard to meeting the 2020
targets of 40% electricity generation from renewable sources and have
published a TSO Recommendations Paper in which it recommends a
payment increase to 14.27/MWh. The recommendations are currently
awaiting 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 economic
compensations. In these regimes, producers have to provide, somehow,
primary frequency regulation services independently of the economic
convenience.
Germany
In Germany primary frequency regulations services are provided on a
mandatory base by all generating units with a nominal power output greater
than 100 MW. Smaller generating units can also supply primary reserve on a
voluntary base. Primary reserve is a paid service and is rewarded with a
market mechanism. Balancing service market takes place in the website
https://www.regelleistung.net Contact with Tennets TSO confirmed us the
mechanism described on the website. Payment for Primary frequency
regulation services works with a tender mechanism. In particular there is a
weekly tender and winner have to provided the offered power for Frequency
regulation purposes for one week. The price is awarder regardless of the
amount of energy provided. Prices vary according to region, however
2900/(MW*week) can be considered a normal price, as can be seen from
Figure 1 showing the weekly tender for the period (23
rd
Sept. 2013-29
th
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 for
the service not the energy by itself.
Furthermore the German website for the Balancing market reports a
symmetric price per hour, i.e. no price spread between positive and
negative balance group deviation. Therefore in the best scenario a storage
system might be paid to charge itself, when frequency is to high, and
discharge itself when frequency is too low. In this scenario, which is the
most optimistic one, a storage system would be very competitive. However,
Renewable producers do not participate into the balancing market. Due to
the feed-in tariff support scheme there is not much long-lasting experience
with direct market participation of RES-E to the market in general. Until
early 2012 most RES-E has been marketed by the TSOs.
Understanding how many times per week a generator is called to provide
primary frequency regulation services is a key aspect to compute economic
return using the cost model for Storage systems. According to unofficial
information, primary frequency regulation service work around three
percent of the available time. According to this information Primary
frequency regulation would be paid on average around 575.39/MWh which
might justify Storage for primary frequency regulation usages, if Storage
had 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 countries
Nordic countries electric market are unified under NORDEL. In Nordic
countries there is no primary control, but secondary control must be
delivered within 5s (at 50% of nominal power) and totally delivered within
30 seconds. Frequency control need to be provided for 2-3 minutes and fully
activated when frequency drops of 0.1 Hz. Participation to frequency
regulation services is voluntary and demand can participate with Demand
response programs. Pricing mechanism is divided into a fixed contractual
price for yearly availability plus a market price for energy.
Although they operates under unified markets, nordic countries present
significant differences in renewables incentives. In Sweden electricity from
107
renewable energy sources is subject neither to a purchase obligation nor to a
dispatching priority regime. Curtailment occurs only very rarely in Sweden.
RES-E generators will be treated like every other market participant and are
financial responsible
In Denmark RES-E enjoys priority in use of the grid. When curtailment is
necessary, only off-shore wind parks may be curtailed and only after
non-renewable plants have been curtailed first. The operators of the wind
parks receive a compensation payment where the output of their parks has to
be reduced. All electricity producers have a balancing responsibility but
wind onshore generators receive a balancing reimbursement to compensate
for their balancing costs, which are fixed.
Many Nordic countries have been policy leaders for what concern
renewables support and it is interesting to analyze their electricity market in
order to understand possible evolution of the Italian one.
Great Britain
In Great Britain there are three kinds of primary frequency regulation:
Mandatory frequency regulation, Firm Frequence regulation and Frequency
Control by demand management
52
.
Mandatory Frequency Response (MFR) is an automatic change in
active power output in response to a frequency change. All generators
caught by the requirements of the Grid Code are required to have the
capability to provide Mandatory Frequency Response. The capability to
provide this Service is a condition of connection for generators
connecting to the GB Transmission System;
Firm Frequency Response (FFR) is the firm provision of either a
Dynamic or non-Dynamic Response to changes in the system
frequency. The key differences between FFR and Mandatory Frequency
Response are: under FFR services can be provided by parties outside of
the Balancing Mechanism and; a firm agreement regarding utilization
is made in advance of service provision;
Frequency Control Demand Management (FCDM) provides
52
http://www.nationalgrid.com/uk/Electricity/Balancing/services/balanceserv/intro/ (cons. 20
th
Sept.
2013)
108
frequency response through interruption of demand customers. The
electricity demand is automatically interrupted when the system
frequency transgresses the low frequency relay setting on site. The
demand customers who provide the service are prepared for their
demands to be interrupted for a 30 minute duration, where statistically
interruptions are likely to occur between approximately ten to thirty
times per annum. In particular in order to principate FCDP the unit
must be able to curtail at least 3MW of demand upon request. in GB it
is possible to aggregate small load in order to achieve these
requirements. Therefore the figure of aggregator is present in the
market.
Economic compensation for primary frequency regulation services is
provided through a market system. According to National Grid (British TSO)
2012 Report in 2012 average price for MFR was around 0.00426 /kWh
while for FFR and Demand Response it was 0.0413 /kWh
53
. Figure 41 and
Figure 42 from National Grid Report show price for these services in several
month in 2012.
RES-E generators under the renewable obligation scheme are treated like
every other market participant and are financial responsible for imbalance
cash-out prices
54
.
Figure 41: MFR pricing in 2012
53
Exchange rate 1.24 = 1 has been used
54
Source: AF-Mercados Report
109
Figure 42: FFR pricing in 2012
Turkey
In Turkey primary frequency regulation service is provided by any generator
with a capacity greater or equal to 50 MW reserving 2% of its output for the
purpose. Solar and wind production is exempted form the service. Price for
ancillary services is decided by a pricing fixing commission on a quarterly
base.
Table 9 shows commission pricing for some quarters in 2012 and 2013.
Turkish government is investing a lot on smart grid technology, so that
possible incentives need to be monitored. More detailed informations are
given in the paragraph regarding economic evaluation of investment in
EESS for primary frequency regulation.
Date Price [TL/MWh] Price [/MWh]
12/06/2013 0,12 0,044
06/12/2012
18,41 6,818
17/09/2012
29,13 10,77
06/06/2012
10,85 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 remunerated
service provided by all programmable generators with an output power
greater than 10 MW. NPRES are exempted from providing these services.
Recent growth of renewables introduced several instabilities so that Italian
TSO asked the regulating authority about the necessity to introduce
mandatory and not-remunerated primary frequency regulation regime also
for NPRES. Given the wide diffusion of photovoltaic in Italy, EESS seems
to be the most proper technology for explicating primary frequency
regulation services.
Italian regulatory agency, AEEG, started the normative review process with
DCO 354 which reported three possible scenarios
55
identified by
Politecnico di Milano. These scenarios are:
Central Dispatch from TSO;
Localized Dispatching from DSO;
Agreed exchange profile in each primary cabin.
Central Dispatch from TSO
In the first scenario Terna, Italian DSO, would offer primary frequency
regulation services for the whole country. This scenario would be realized in
55
For further information, M. Delfanti, V. Olivieri, POSSIBILI MODALIT INNOVATIVE DI
APPROVVIGIONAMENTO DELLE RISORSE PER IL SERVIZIO DI DISPACCIAMENTO DA
FONTI RINNOVABILI NON PROGRAMMABILI E GENERAZIONE DISTRIBUITA, Giugno
2013
Date Price [TL/MWh] Price [/MWh]
12/06/2013 0,12 0,044
06/12/2012
18,41 6,818
17/09/2012
29,13 10,77
06/06/2012
10,85 4,018
111
two stages. In the first stage, called fit and forget, the grid is designed to
sustain the maximum possible power and all generating units participate to
Dispatching Market organized by TSO.
Figure 43: Centralized Dispatch from TSO, fit and forget approach
56
The evolution of the fit and forget approach should be the smart grid
approach in which DSO should verify that all technical limits are respected
and give communication to TSO who might rearrange the Dispatching
Service Market. DSO should also be responsible for the balancing of the
local grid. However it does not need to arrange a market for these service,
since it might also use bilateral contracts.
Localized Dispatching from DSO
In the second scenario, each DSO is responsible for the dispatching services
of its own grid and TSO buys from DSO these dispatching services. On the
other hand DSO must organize another Dispatching Market to buy Ancillary
Services for the local grid. The main problem is that there is very limited
time to arrange this second dispatching market.
56
From official Authority website
112
Figure 44: Centralized Dispatch from TSO, smart grid approach
57
Figure 45: Localized Dispatching from DSO
58
Agreed exchange profile in each primary cabin
In the third scenario DSO is responsible for keeping a given balance or
unbalance profile for each area of competence. In order to keep this profile
DSO should arrange Dispatching services for its local grid. These services
can be purchased through a market organization or through bilateral
contracts, depending on the DSO policy.
57
From official Authority website
58
From official Authority website
113
Figure 46: Third scenario, keeping a given profile for each primary cabin
59
All the three scenarios might present interesting business opportunities. In
the first and second scenario each RES with an output power greater than 1
MW might be obliged to provide primary frequency regulation services.
These services might be provided using EESS to perform primary frequency
regulation. In the third scenario DSO might be interested in purchasing big
storage systems and demand response technologies to be able to keep the
agreed profile at each cabin.This could open another opportunity for system
integrators. However this scenario is catheterized by few buyers (1 main one,
ENEL, and many small ones) and a lot of sellers so market power is
unbalanced in DSO favor.
59
From official Authority website
114
8.3 Decision making
As discussed in the previous paragraph, in some countries primary
frequency regulation services are mandatory while in other countries they
are provided on a voluntary base under a market mechanism.
EESS might be a valuable solution to perform Primary Frequency
Regulation 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 performing
primary frequency regulation services in a country where generator are
requested do to so, Turkish case has been analyzed. Computation is very
similar for other countries but day ahead market price and incidence of fuel
needs to be adjusted on a national base.
In Turkey producer having a nominal power higher than 50 MW are obliged
to offer 2% of nominal power for primary frequency regulation purposes.
Rewards are decided by the pricing fixing commission every quarter and are
shown in
Table 9. Being a mandatory service, reward policy is not relevant in
determining how to perform primary frequency regulation, since the
company is forced to do so. However, the company need to decide whether
perform primary frequency regulation using energy Storage system or in a
traditional way, not producing at maximum output capacity, limiting its
Date Price [TL/MWh] Price [/MWh]
12/06/2013 0,12 0,044
06/12/2012
18,41 6,818
17/09/2012
29,13 10,77
06/06/2012
10,85 4,018
115
maximum productivity to 98% of nominal capacity. Therefore price of
energy and incidence of fuel cost in final price of energy are the most
relevant assumption.
The hypothetical case of a producer having a 100MW nominal power
facility has been analyzed. Assuming a day ahead market price of
49/MWh
60
, a sale on the market of all the extra generated electricity and a
battery cost of 1,400,000/MWh and a Storage duration of 4.7 years, the
decision whether using or not a battery for primary frequency regulation
purposes depends on the electricity generation technology and on the
percentage of fuel cost.
Assuming a fuel cost of
75% for gas power plant
45% for coal power plant
Negligible for hydro power plant
And 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 this
assumption it might be competitive to use ESS for primary frequency
regulation in Turkey in case of hydro power plant. Assumption on incidence
of fuel cost are relevant and need to be verified industry by industry. For
example if a gas plant was optimized to work on high regimes, incidence of
fuel cost on the last percentage of production could be estimated to be
around 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 years
was calculating considering that a storage system can do around 5000
cycle
61
in his useful life and it needs to do 3 cycles a day. The last data
needs, however, to be verified by the energy producer. Table 10 summarize
60
This was the market price for the for the 14rth of October 2013
61
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 for
primary frequency regulation, regulation is undergoing extensive review in
this direction.
Table 10 options for a power plant in Turkey
In Turkey, a producer might also decide to buy primary frequency regulation
services from another producer in the market. In this scenario another option
will be available. The producer might produce primary frequency regulation
energy, buy an energy storage system or buy a service form another producer.
117
Service price is established through private contract and the decision will
depend on the contract that the producer manage to have.
The assumption that the power plant could sell for the day ahead market
price all the produced electricity is realistic for hydro power plant, but not
always for traditional power plant, which in some days might not operate at
high regimes. In case of counties whose electricity consumption is fastly
increasing (demand is higher than consumption) it is reasonable to assume
that also traditional plant can sell all the extra produced electricity. A last
remark about hydro plat is that not always they can produce extra energy
without extra cost, in fact in some case water is not abundant enough or the
turbine might loose efficiency above some regimes.
Countries with firm frequency response
In counties where Companies can choose whether provide or not primary
frequency regulation, revenues from service compensation should be
considered with the unit cost of storage per kWh in its useful life. Germany
is one of these countries while Great Britain presents hybrid situation as
discussed above.
Therefore if we want to evaluate an investment on storage in Germany to
perform primary frequency regulation services, we should consider a
revenue of
Revenue from primary frequency regulation services should be considered
against the cost of performing such a service with Electrochemical storage
or 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 annualized
capital cost would be of 80 000 /year, not considering interest rate.
However for batteries with a power energy ratio equals to 1 the annualized
capital cost would be 4 times higher, not justifying investment on storage.
Considering a 5% interest rate, the annualized capital cost of the storage
would 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 life
assumption and battery cost. 5200 cycles and 1400/MWh have been
assumed for each battery. However, when used in partial cycles batteries are
likely to last more and batteries with higher C ration might be more
expansive. This correction introduce convergency tendencies to analyzed
cases even though it is not likely that result will be very much influenced.
Interest rate Annualized
Capital Costs
Economic reward C ratio
0% 78 615 /year 150 800 /year 4
0% 314 416 /year 150 800 /year 1
5% 90 677 /year 150 800 /year 4
5% 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 financial
feasibility of using EESS for primary frequency regulation purposes in
countries with mandatory and voluntary regimes. In countries having
mandatory frequency regulation regime there might be interesting
opportunities for plants which can sell all the extra produced electricity and
having a low marginal production cost. As analyzed in the previous
paragraph, convenience relies, in fact, on the possibility to sell more energy
without incurring in relevant extra-cost. Therefore EESS convenience is
influenced by Day Ahead Market price of electricity. This prices are likely to
be higher in market heavily depending on oil and gas, where hydro-plants
usually do not play the main role.
Even in cases where there is economic convenience, diffusion of EESS for
primary frequency regulation, is still slowed down by missing regulations on
119
the topic in many countries. Countries which are more likely to adapt
regulation sooner are counties experiencing grid imbalances (because of fast
increase in demand, like Turkey, or because of significant shares of
renewables, like Italy and Germany), or counties which need to give a push
to renewables in short time.
In order to find a good potential market therefore should meet the following
criteria
Electricity day ahead market price price higher than 35 /MWh
62
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 the
service is on average requested three times a day. If the service was
requested more often the threshold price should be increased. This analysis
help to find the market with a technically proper environment. Country
regulation need to be analyzed to understand if there are market conditions
and proper legislation.
Maintaining a focus on Europe, wholesale electricity prices should be
compared.Quarterly Report on European Electricity Market
63
is a rich
source of information. Figure 47 Shows Wholesale electricity price for the
six 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-plant
in a traditional way, considering that the service is requested three times a day
63
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 isles
and 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
Germany
For these countries relevant indicators need to be analyzed. Interesting
parameters 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 the
country energy mix. In fact in some countries generator from these sources
might be required to perform primary frequency regulation. In order to
analyze future effort in renewables difference between 2011 renewables
shares and Europe 2020 target were considered.
Country MGP
Price
Increase in
demand
2008-2011
64
Renewable share
to be
implemented
65
%
hydro
66
%
Wind
67
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 for
potential market within Europe. Turkish case is also interesting and has been
deeply analyzed with great detail. It is important however to understand
local regulation and under which circumstances producers need to provide
primary frequency regulation services (in Germany for example producers
are not obliged, therefore evaluation should be performed in a different way,
while in Italy the market lacks of regulation and specifications to perform
primary 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. 17
th
Oct 2013)
65
Eurostat website (cons. 16
th
Oct 2013)
66
World Bank data http://data.worldbank.org/indicator/EG.ELC.HYRO.KH (cons. 17
th
Oct 2013)
67
Europa.eu website (cons. 16
th
Oct 2013)
122
technical point of view, describing some relevant markets and to providing a
framework of economic valuation. The conclusion was that in countries
where frequency regulation is a mandatory service, generator with zero
marginal cost might have, depending on the day ahead market price, interest
in electrochemical energy storage systems to perform primary frequency
regulation. On the base of this result a market scouting framework has been
provided.
123
9. Demand Response
A demand response service aims at balancing the grid with an action on the
load and not on the generators. In this way equilibrium between generated
power and consumed power can be achieved not by increasing production
but by reducing consumption. The most traditional example of demand
response is the one implemented in Great Britain, where loads are
unplugged in case of grid imbalance. In some American states and Canada,
however, advanced grid balance mechanism are adopted. Grid balance
consist in balancing the grid modulating the loads which are less important
from the process point of view. ENBALA represent so far the best example of
this technology.
9.1 ENBALAbusiness model
ENBALA business model as been discussed in previous chapter. Such a
business model is rather easy and powerful. ENBALA perform building
automation investment in the end user plants in order to control some
consumption centers. The final customers does not pay for this automation.
In case of grid imbalance, loads are modulated within some comfort
standards and utility compensation is divided between ENBALA and the
final customer. Technology has ben developed by Oak Ridge Laboratories
and licensed to ENBALA. Figure 48 shows a simplified schema of
ENBALA 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 the
other side no big large scale experiments have been done so far. One of the
reasons is that European companies have higher level of energy efficiency
than American ones, so that there are less margin for grid balance systems.
This paragraph presents a brief overview of demand response programs in
some European countries. Particular focus is given to Great Britain and
Germany. The former represent the most established market for Demand
Response, while the latter represent a market where demand response has
just been introduced and there might be more interesting business
opportunities
Great Britain
In Great Britain demand can participate to curtailment programs. These
represent a very simple version of grid balance mechanism in which some
load are switched off, without considering their inherent flexibility and
therefore compromising the whole process.
National grid website (Great Britain TSO) explains that
Frequency Control Demand Management (FCDM) provides frequency
response through interruption of demand customers. The electricity demand
is automatically interrupted when the system frequency transgresses the low
125
frequency relay setting on site. The demand customers who provide the
service are prepared for their demands to be interrupted for a 30 minute
duration, where statistically interruptions are likely to occur between
approximately ten to thirty times per annum.
In order to participate to demand response programs it is necessary to fulfill
the following requirements
68
:
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 Grids monitoring equipment.
Price per kWh of energy used for demand side frequency regulation is
determined through auction mechanism and it does not keep constant. To
have an idea, the average price of Demand side frequency regulation and
Firm Frequency regulation in June 2013 was 0.04945
69
much lower than
Electricity storage cost.
The fact that small loads can be aggregated by demand aggregators
represent a very interesting opportunity. In this case technologies to
aggregate the desired amount of electricity without interfering with the
processes and coordinating several loads might be developed. However, low
compensation for the service is a relevant barrier to this development
process.
Germany
The 20th December 2012 Germany introduced an ordinance on Interruptible
loads, called "Ordinance on Interruptible Load Agreements (AbLaV).
70
According to AbLaV interruptible loads are defined as large
consumption 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. 21
st
September 2013)
126
grid, nearly continuously consume a large volume of electricity and which
can, when called upon, reduce or interrupt their demand on short notice and
for a fixed minimum duration thanks to the nature of their production
process.
In accordance with the AbLaV, the German transmission system operators
issue a call for tenders each month for 1,500 MW of immediately
interruptible 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 breaking
capacity at his disposal and seeks to offer it on the market, needs to
successfully participate in the prequalification procedure of the TSO he is
connected to. This is a prerequisite for the subsequent framework agreement
with the relevant connecting TSO.
Requirement for participating the market are public and listed on
regelleistung 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 least
four times a week
continuously for at least four hours at any given time, once every
seven days
continuously for at least eight hours at any given time, once every
14 days
Activation:
SOL: automatically frequency-controlled within the second when
127
the level drops below a predefined grid frequency and remotely
controlled without delay by the transmission system operator
(immediately interruptible loads)
SNL: remotely controlled within 15 minutes by the transmission
system operator
SOL represent a very interesting case of demand response. Technically they
are a very challenging case since it is required to curtail at least 50 MW in
only 1 second. Furthermore, very few production plant can curtail 50 MW
without stopping the whole process.
Prices for this services have been so far very generous. In particular, as
shows the price in the October 2013 tender was 2500 /(MW*month) and
395 /MWh. In particular the latter price is more 3.4 times higher than the
industrial cost of electricity in Germany.
71
Confidential sources reported
that so far (15
th
September 2013) they have never be called to curtail
demand and that they are all from the same industry.
Such a new and challenging market might present relevant opportunities on
agregation and control of demand curtailment programs.
Italy
Italy does not have demand response programs. However, as described in
the previous chapter, Italy is undergoing an extensive reform of balancing
services. Among the three scenarios identified by Politecnico di Milano, the
third one describes a situation where each DSOs agree with Terna (Italian
TSO) on a given exchange profile and is forced to pay some kind of fine if
there is a variation above certain limits. As already said, big DSO, like
ENEL, might be interested in installing some Storage solution in order to
keep this profile. However high storage costs suggests that DSO might be
motivated to implement some demand response activities to achieve the
greatest part of the balance and leave storage for minor regulations.
Authoritys DCO 354 forecast that DSO might buy Distribution grid balance
services 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 21
st
Sept. 2013 115.67/MWh (source
energy.eu)
128
monopsonistic market, therefore the second option is the most realistic.
In this scenario, demand response services might be introduced in Italy. Big
DSO, like ENEL, might be interested in Demand Response services from
big loads in order to be able to cheaply control the grid thanks to the
contribution of few users. However some other utilities serving cities, like
A2A in Milano or some branches of Enel, might be interested in developing
a demand response able to control more commercial loads like chillers
and refrigerators. This technology might later on be applied also for
residential usages.
The described scenario opens a lot of opportunities for companies able to
provide the required technological solutions to utilities and, in a second
stage, to home appliances producers.
9.3 Conclusions
The Chapter described demand response programs in USA, UK and
Germany and presented a possible evolution of Italian scenario. Germany
seems to be a financially promising market but Demand Response
requirements are too selective. So far only companies belonging to one
industry have been participating in Demand Response services, however
companies from other industries might be interested and have not foud yet
the technology to perform primary frequency regulation without interrupting
the process. It is very relevant to monitor Italian market which might evolve
fast at the beginning of the year firstly for big loads and secondly for smaller
ones up to residential.
Technological development might be fostered by cooperation with
universities. Danish universities in particular seem to have deep knowledge
on Demand Response since wind mills, which have historical presence in
Denmark, are difficult to be integrated. Problems generated by wind mill
integration fostered development on Frequency regulation and Demand
Response technology positioning Denmark as the leader country for Smart
Grid.
129
10. Microgrid Business.
Previous chapter dealt with general and introductive microgrid concept and
introduction schema without giving any details on their implementation and
company strategy. This chapter will focus on possible business strategy in
some country of interest for Loccioni. In particular it will provide a detailed
analysis of Italian, German and Turkish market.
Actually in Europe there is no developed microgrid market because energy
self-production has been, in general, not competitive. However situation has
been evolving rather fast and interesting development are expected in many
countries.
10.2 Microgrid in USA
USA experienced already some microgrid development. In fact natural gas
CHP became competitive several years ago because of relatively low prices
of natural gas, as shown in Figure 49. In particular decrease of minimum
efficient scale and risk of blackout in isolated areas make CHP a very
interesting investment especially when the size of CHP plant might allow an
area 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 expensive
investment. While expensiveness is impeding large scale diffusion, some
institutions are willing to invest because of their need for independency
form the main grid (National security Agency) or in order to understand the
technology (companies who plan to enter the industry and university
campuses). Greentechmedia, famous online magazine on green technologies
and smart grids says
72
:
<<Microgrids are big-ticket items, but for those who can afford them, they
seem to be reasonable investments. The $71 million White Oak project is
72
http://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 the
roughly $60 million Cornell University project [PDF] is expected to be
consistent with the long-term rate of return of the endowment and in the
range of 8 percent to 10 percent. For a military base, of course, being
self-reliant is priceless>>
Figure 49: Natural gas prices in USA, Japan, UK
73
CHP prevalence
CHP allows users of the microgrid to produce energy for a price which is
cheaper than the supplier price and to reduce heating consumption at the
same time. Global efficiency can vary from 65% to 90% depending on the
technology and environmental conditions. This efficiency is much higher
than the traditional power plan one varying from 35% to 55%. In countries
where energy is cheaper, like USA payback time is around 6-7 years so that
so far only institutions who can use tax-dollars are building microgrids as a
long term investment and for creating capabilities. On the other side
Photovoltaic technology as not been greatly introduced in USA, with
exception of some states like California, so that actual microgrid
development strongly depends on CHP technology for as concern the source
73
http://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. In
particular microgrid manage to be competitive because self-produced energy
does not pay a relevant part of grid tariff in USA since this energy is
transmitted 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 therefore
microgrid market is basically blocked. Before 2008 self-produced and
self-consumed energy from any source did not pay grid tariff. Starting from
2008, decree 208/2008 (modified by decree 56/2010) introduced some
regulation on the topic. In particular this decree established that self
production system smaller than 20 MW powered by renewables having one
producer and one consumers and transmitting electricity through a private
line 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 the
previous 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, grid
maintenance costs (which are basically a fixed cost) will be spread on
remaining people who will have strong motivation to install
self-consumption system in a continuos loop. Despite this dilemma, strong
pressure from Solar industry association, led the Authority to publish two
DCO (consultation documents) on the 1
st
and the 13
th
of May. These
documents 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 Reti
Interne di Utenza (RIU), Cooperative storiche (COOS) and Consorzi Storici
(CONS) part of grid tariffs are applied only on energy exchanged with the
main 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 to
transmission and distribution services, so that saving on these costs might
lead to significant electricity savings.
Grid tariff discussed in Consultation document normally amount to 33% to
35% of electricity cost in a Medium size company. Therefore legislation
208/2008 and 56/2010 introduce significant incentive to self consumption
from renewables or from high efficiency CHP (which in Italy is compared to
renewables).
After some interviews with Italian Authority officers it has been reached the
conclusion that right now it would be possible to avoid to pay any grid tariff
for self consumed energy. However when the authority will finally pass the
decree all self-consumption configuration realized after 2008 and not
qualifiable like SEU will start to pay grid tariff on the energy consumed by
the final customer and not on the energy consumed in the grid connection
point. 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 already
totally listed and no new RIU can be created. RIU list can be found on
AEEG Website. RIU producers can have very cheaper energy price since
they do not pay grid tariff on self consumed energy. These producers might
be interested in implementing an internal demand response system in order
to maximize self consumption and earn the price difference (self consumed
energy is valued around 160/MWh while energy exchanged with the grid is
valued 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. Authority
DCOs in fact allows the possibility for the producer and the consumer of a
SEU to give a mandate to a third company to interface with DSO or energy
trader for the supply of customers energy and the sale of extra produced
energy. Companies like Loccioni might provide long term solutions to the
energy producer designing all electricity production centers, final customer
energy efficiency interventions and annual management of energy flows.
Since 70% of the produced electricity must be consumed by the final
customers (as required by law), customer loads need to be adapted in order
to maximize self consumption and consume higher amount of grid energy
when it is cheaper (this mechanism is close to the demand response).
Aggregating several microgrid around Italy, it would be possible to bargain
a better price with utilities and provide extra-savings to producer and final
customers. In the scenario the producer would basically be a financial
partner 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 energy
efficiency modification, it is important that the producer would finance them
if their rate of return is higher than the generation system. In fact, in order to
have exemption from grid tariff, the final customer need to consume at least
70% of the produced energy. Changes in energy consumption patterns might
invalidate the feasibility of the whole investment since selling all electricity
to GSE would be much less profitable.
General contractor would therefore operate as system integrator and energy
manager providing value to both the producer and the consumer and, when
several microgrids will eventually be implemented, the company would
even provide grid service using inherent flexibility.
Microgrid might also be ready to implement Energy Storage systems so that
when these systems will become cheaper, it could be possible to offer a
plug and play option to further maximize self consumption and regulate
internal 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, therefore
Turkish government decided to incentivize renewables in order to cover part
of the increasing electricity demand
74
.
Renewables policy in Turkey
In Turkey all consumers can produce and self-consume electricity from
renewables. If the production is inferior to 1 MWe no production license is
needed. The consul of ministries has the right to give authorization up to 5
MWe Excess energy can be sold to the closest DSO who will organize the
sales of energy with YEK (Renewable energy association). Direct sale to
another consumer is, however, not allowed in Turkey.
TEIAS (Government company which operates as TSO) provides insurance
in 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 discussion
in the parliament.
Net metering schema is recognized in Turkey. Every day local DSO
computes how much energy was produced and how much energy was
consumed by a person or organization and net metering is applied on the
daily flow of energy. For example if energy is rewarded 0.133$/kWh, the
daily production is 100kWh and the daily consumption is 60kWh at the end
of the day the producer will not be charged for energy consumption and will
receive a compensation of 0.133$/kWh*40kWh. Total Net Payments are
computed at the end of the month.
Each person and organization can own several production plants (<= 1MWe
or 5MWe) in the same distribution region. However a different contract with
DSO should be activated for each plant.
In conclusion, in Turkey Renewables are very much incentivized. However
net-metering schema does not facilitate internal demand response and
storage systems since companies might use national grid as a cost-free
storage
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 energy
they produce. It is allowed to generate electricity by reusing waste gas even
though from a legal point of view this is considered like CHP. Therefore
while renewables are very much incentivized, government want to stop
diffusion of CHP and more traditional sources of energy for small scale
production.
The main conclusion is that there is not big market for industrial microgrid
in Turkey while there will be a very big market for renewables generators,
especially for solar panels.
Industrial Areas
Under Turkish legislation, companies in industrial districts are free
consumers. They can self produce energy or they can buy and sell to
companies in the same district as they wish. Turkish Industrial district can
therefore 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 analyzed
Microgrid Regulatory Environment in Italy and Turkey, focusing on
potential business schema. Regulatory framework highlighted a potential for
internal demand response in some Italian industrial ares (classified as RIU
by Italian legislation). Turkey present no particular business for
developments of complete microgrid and Net metering schema disincentives
storage solutions for microgrid usages. However, Turkish industrial areas
might however be interested in Internal demand response technology,
137
11. Small Islands and Simulations
Previous chapters showed main cost drivers and benefit drivers for industrial
microgrids. This chapter focus on small islands problems and on the
estimation of present value, and rate of return in a semi-real case microgrid
investment. Particular focus is given to islands microgrid, using the same
model and methodology to estimate return in industrial cases.
11.1 Italian islands
According to interviews some islands in Sicily, Campania, Toscana and
Calabria produce electricity with very inefficient technology having
electricity production costs ranging from 240 to 1200 / MWh, while the
average Italian one is around 65 /MWh. The reason why so high electricity
prices are not perceived by final customers is that small islands cannot have
highly efficiency electricity generation techniques and that there is a
solidarity principle so that higher cost are divided among population of
mainland. This policy removes incentives to implement more efficient
systems based, for examples, on Storage and solar production. Example of
Italian central government reimbursement for minor islands electricity,
called Aliquote di integrazione tariffaria are provided in Table 12
75
.
Similar reimbursement principles are present in other Southern-European
countries.
75
www.autorita.energia.it (cons 14
th
October 2013)
138
Table 12 Final Aliquote di integrazione tariffaria for minor electric companies
SELIS Lampedusa S.p.A., SELIS Linosa S.p.A. e SMEDE
Pantelleria S.p.A. for years 1999-2008 ( value in c/kWh)
Year SELIS
Lampedusa
SELIS
Linosa
SMEDE
Pantelleria
1999 16.04 35.79 15.27
2000 23.66 45.02 23.81
2001 19.45 38.75 20.65
2002 16.03 30.07 18.45
2003 14.15 23.67 15.02
2004 18.65 23.45 16.43
2005 20.67 27.89 19.25
2006 21.32 23.61 21.46
2007 22.18 23.07 19.92
2008 27.42 27.41 24.39
139
11.2 Country Islands
A different situation might is presented in country islands. In fact these
countries cannot rely on mainland support therefore they will have the most
efficient price given their technological development. Study of country
islands electricity prices might give a good indication of the actual
production cost of electricity for small islands. However there are very few
independent small islands in EU, most of them being in the Caribbean and
Oceania. Figure 51 shows location of country islands all over the world.
Saint Lucia electric company prepares a very detailed yearly report on
Caribbean electricity prices
76
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, therefore
their electricity price is high and very much dependent on economic and
political 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=clNFUurhAcSA
hQeUnIHQDA&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 and
Figure 53. In particular these two figures report a domestic electricity price
of about 31.32c/kWh (below 60kWh) and 38.47c/kWh (above 60kWh).
Medium Voltage prices are also high if compared to Europe, ranging around
29.97 c/kWh.
The next paragraph will show that in these islands introduction of a
microgrid 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 of
equipment since their useful life is usually very long. Another difference is
that usually there are many stakeholders. Therefore it is important to
introduce a technique which assign a portion of the investment to each kWh
of produced energy so that it will be possible to understand the influence
of the system and be able to take decision regardless of the usually very long
payback period.
LCOE
77
(levelized cost of energy) is one of the utility industrys primary
metrics for the cost of electricity produced by a generator. It is calculated by
accounting for all of a system s expected lifetime costs (including
construction, financing, fuel, maintenance, taxes, insurance and incentives),
which are then divided by the systems lifetime expected power output
(kWh). All cost and benefit estimates are adjusted for inflation and
discounted to account for the time-value of money. Figure 54 shows LCOE
formula
78
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 various
generation options. A relatively low LCOE means that electricity is being
produced at a low cost, with higher likely returns for the investor. If the cost
for a renewable technology is the same as current purchasing costs, the
technology is said to have reached Grid Parity.
In order to evaluate LCOE for microgrids solutions a simulator has been
developed. This simulator is able to compute the Rate of return, the payback,
the discounted payback, the cash flow, the discounted cash flow and the Net
present value for Solar energy plant, micro-hydro energy plant, CHP, energy
efficiency substitution and Electrochemical Energy Storage system. The
simulator can take loan and taxation into account and also compute LCOE
for each solution. A visual basic macro is able to integrate the result of some
solutions and compute global financial indicators and global LCOE for the
whole system.
The goal of the simulation is to understand if there are situations in which
smart microgrid might be beneficial. In order to have a simple tool, Demand
Response effect has not been considered and the assumption of
not-modifying load has been done. This is consistent with a conservative
attitude toward the evaluation. Detail simulation tool, like Homer Energy
79
,
are present on the market and are able to take into account many detailed
data which suit the specific case. Basic assumptions of simulations can be
fount 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 electricity
in Cape Verde as been taken as inputs to the model while a 25% tax rate
reflects Cape Verde taxation policy.
Under this assumption it can be seen that there is market for microgrid in
small islands, since LCOE of microgrid is much lower that Cape Verde Cost
of electricity
80
. The simulation considered a 1MWp Solar plant associated
with a 200kW/200kWh Lithium-battery able to integrate the solar
production during the day performing peak shaving functions. The goal of
the system is not to give total autonomy to the final customer (or association
of customers) but to significantly decrease their daily consumption, The
solution pays back in 2.2 years considering a 80% loan. Result are shown in
Figure 55. Figure 56 shows LCOE for a 20 year life of the solution and
Figure 57 shows how that the 20 years LCOE is lower than the average price
of electricity. The very high Internal Rate of return (60%) should be linked
to the high cost of the electricity in the island.
Figure 55 Cash Flow for a 1MWh Solar system and a 200kWh battery in Cape
Verde
80
A4% inflation of electricity cost has been assumed since generators strongly rely on Diesel
engines
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

/
k
W
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

/
k
W
h
LCOE 20 anni Costo energia acquistata
Figure 57: 20 years LCOE for a 1MWh Solar system and a 200kWh battery in
Cape 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 islands
have even higher electricity production costs, so that it could be even more
convenient for these islands to install microgrid in order to serve the island
electricity needs. As we discussed in the previous chapter, actually
Governments helps does not incentivize efficient production of energy.
Proper push to local government and cooperation with the national one and
European program Horizon 2020 might create interesting opportunities for
microgrid in Small islands.
In particular Production cost in minor islands are comparable to end users
cost in Cape Verde so that the simulation might be consider realistic also in
this case. Small adjustment in tax and productivity rates are, however,
necessary. Results of simulation are shown in Table 16
81
.
Utilities in small Italian islands, in particular, would have very high Net
Present Value, Internal rate of Return and lower LCOE. The reason why
they do not undertake these investment is that expenses are so far
reimbursed by Government (in particular by CCSE under decision of the
Energy Authority). Reimbursement are paid spreading the cost to all Italian
consumers in proportion to their consumption, as part of grid tariffs (this is
the component called UC4). Further details can be found on the website of
Italian authority which explains that this component was introduced to
support inhabitant from minor islands and defend them from unsastainable
elctricity costs. In Italian:
La componente UC4 stata introdotta per garantire il servizio
universale (pari trattamento per i consumatori) che nelle isole minori,
senza collegamento con il sistema elettrico nazionale, presenta costi
mediamente pi alti di quelli sostenuti per lo stesso servizio nell'area
continentale (centrali pi piccole, a combustibile pi caro, gestione pi
onerosa). Per questo prevista (dall'articolo 7 della legge n. 10/91)
una esplicita componente a carico di tutti i clienti finali per garantire
un gettito che copra gli extracosti presenti nelle localit isolate.
82
81
Cost of production is Italian islands were computed summing reimbursements decided from
Italian energy Authority (which can be found on the website www.autorita.enegia.it) to average
National energy price (which can be found on the website www.gme.it). This methodology might
introduce 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. In
2013 the amount of this component varies for several kind of residential
usages with a median of 4c/kWh while the total household cost of energy is
23c/KWh.
In 2007 the tariff was the same for all Low Voltage Residential Usages, as
shown in Table 14, it is therefore easier to estimate the total amount of
subsidies. 2007 total consumption in Italy was around 317 500 million of
kWh and domestic consumption was around 67 000 million of kWh
83
.
Therefore in 2007 minor electric companies received 2.68 billion euros from
domestic user (45 per capita) plus a relevant amount form other users.
Considering data from Authority website an average of 0.02/kWh
84
could
be 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 is
estimated 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 consumers
and sensibly contributing to high electricity costs in Italy. Reform for a more
sustainable system are needed in this direction.
11.6 Industrial microgrid
Simulation have been done in order to understand if microgrid can suit
industrial usages. These simulations did not consider introduction of storage
since in this case storage cost per kWh is higher than the cost of electricity
from grid. Photovoltaic LCOE is still high but, under given electricity
inflation assumption, in few years it will be lower than cost of electricity for
industrial users. A big market for microgrid might soon start to be available
with Southern regions (Sicily, Calabria, Puglia) leading the innovation wave
83
http://www.terna.it/LinkClick.aspx?fileticket=WTd21Z%2fIl18%3d&tabid=418&mid=2501
84
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 appropriate
environmental conditions). Italy is a very promising country for renewables
and microgrids because of the good natural position and a very high
electricity cost. However, simulations are influenced by Solar panel costs
and battery cost. Drop in price is forecast in both Storage, because of
economies of scale linked to automotive sector, and Photovoltaic (because
of Chinese producers crisis and new economies of scale due to Chinese
decision to develop photovoltaic). Therefore in one or two years microgrids
might become very competitive.
Such high LCOE might, however, be already acceptable for multinational
companies operating in countries with poor grid conditions. There is an
interesting movement in this direction from many companies operating in
India, since costs of related to blackout risk are too high in many industries
85
.
Result of these simulations are shown on Table 16
11.7 Conclusion
Table 16 shows that microgrid solutions are already convenient for private
customers in island countries and for utilities in small islands. In the second
case, however, a complex government reimbursement system does not
incentivize local utilities to adopt more efficient production method.
Government intervention is expected in this direction. Furthermore Solar
systems are close to grid parity in the south of Italy, indicating that even
without incentives they will become soon an attractive investment if
electricity price will raise.
Solar and storage system, coupled with other renewables, might be a reliable
option (with a reasonable LCOE) for companies operating in countries with
severe 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 Italian
electricity bills for Low voltages domestic users
86
Photovoltaic
Nominal Power 1MW
p
Cost 1 300 /kW
p
Guaranteed productivity 10
th
year 90%
Annual loss 0.8%
Guaranteed productivity 25
th
year 80%
Cost of Capital 5%
Insurance Costs 14 000/year
Maintenance 39 000/year
Amortization rate 10%
Loan 80%
Cost of energy inflation 4.37%
Taxation in Italy 27.5%(IRES);
3.8%(IRAP)
Taxation in Cape Verde 25%
Storage
Nominal Power 200 kW
Nominal 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 Italian
electricity bills
87
87
http://www.autorita.energia.it/it/elettricita/auc.htm
Grid tariff for minor electrical
companies support influences national
prices
154
Summary and Conclusion
Summary
Part I
Part I analyzed electricity markets, production systems and Electrochemical
storage systems.
Chapter 1 gave a broad view on how electricity is purchased. Market
complexity relies on the facts that the grid cannot store energy therefore
demand and supply need to be in equilibrium at any moment. In order to
achieve such equilibrium market has been arranged in a complex
organization: the day ahed market, the balancing market and the dispatching
service market. Each market should cover all imbalances left by the previous
ones. Chapter 1 closed with an analysis of an electricity bill, which
introduced the concept of Power Share. In fact National Grid could work
better if consumption were flat and constant over time. In order to
incentivize big customers to have flat consumption utilities give penality to
consumption peaks.
Chapter 2 analyzed energy generation from renewables and market trends
for solar and wind generators. CHP has also been analyzed.
Chapter 3 focused on the Energy Storage potential benefit and, with a focus
on electrochemical storage, several technologies have been compared. The
chapter also provided a brief Summary of Italian and German legislation
(the two countries are so far the leaders in Europe for Electrochemical
Storage regulation).
Part II
The second part of the work introduced the concept of Smart-Grids and
Micro-Grids.
155
Chapter 4 described problems related with greater renewables diffusions and
introduced Smart-Grids as a possible solution.
Chapter 5 presented Microgrids main component, discussed main cost
drivers and advantages. Particular importance was given to power
Independence and Power quality. Reduction in Cost will soon become an
advantage in Italy (as discussed in the last chapter).
Part III
The third part of the work tried to identify and understand some business
potential in the field introduced during the previous two parts. Development
of this part was achieved through a strict cooperation with Loccioni,
innovative Italian companies leading some niche of automotive and home
appliances industry and with a strong willingness to become leader in micro
and 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 a
cost per kWh of energy in output during Storage useful life.
Chapter 8 described Primary Frequency regulation and provided a
framework to classify possible market according to legislation and business
opportunities
Chapter 9 introduced the topic of demand response, providing examples
form USA. German and British market were briefly analyzed while some
hypothesis were made about possible evolution in Italy.
Chapter 10 analyzed business for industrial microgrid. After providing an
American example, it focused on Italian legislation. Opportunities in
Internal Demand Response business were found for some companies
(classified as RIU under Italian legislation).
Analysis of Turkish market provided a scenario of interesting opportunities
for renewable even though net metering schema disincentive Adoption of
Storage solutions for microgrids. Industrial area in Turkey might present
another potential market for internal demand response services.
156
Chapter 11 analyzed the topic of microgrid in small islands and provided
result of some simulations to assess their financial convenience. Results of
simulations is that microgrids might have economic convenience for private
customers in country island and utilities in remote communities. A system of
government subsidies, however, slows down innovation in many Italian
islands. An estimation of the amount of subsides was provided.
Conclusions
In conclusion of this work there is a schema summarizing all the most
interesting business opportunities which have been identified and the path to
reach them. Cooperation with Loccioni company has been essential to
identify business potential in the smart and micro grid sector. All the
identified business opportunities are consistent with Loccionis capabilities,
technology and willingness to play an important role in the future European
micro and smart grid market.
Potential relevant applications have been identified through interview to
Loccioni management and to relevant stakeholder, including Italian Energy
Authority (AEEG), Terna (Italian TSO), RSE, ENEL, A2A, Politecnico di
Milano, EirGrid (Irish TSO), TEIAS (Turkish TSO), TenneT (German TSO).
After identifying a potential opportunity, legislation for several countries has
been analyzed. Since financial estimation relies very much on country
legislation and regulation., rather than providing detailed computation and
simulation, which would vary from case to case, the work has been oriented
in providing frameworks of analysis under which several business
opportunities in the smart and micro grid sector have been identified.
In the Smart Grid sector the most relevant identified application has been
Primary Frequency Regulation and its performance through EESS.
Depending on the country, producers of energy or utilities might find
convenient or safer to use EESS for Primary Frequency Regulation services
rather than traditional technologies. Therefore a framework of country
analysis has been provided. The framework provides two different analysis
strategies 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 the
mandatory case analysis is focused on the opportunity cost, and,
therefore,focused on the national energy price and presence of renewables
providing Primary frequency regulation services.
The second opportunity in the smart grid sector, Demand Response, has a
developed market in USA, while some countries in Europe are starting to
consider introduction of these services. Italian market might present relevant
normative innovation ane need to be monitored.
In the Micro-Grid sector most relevant identified opportunities are microgrid
development for companies in countries with poor grid conditions, and
companies in country islands suffering from high electricity prices. In the
former application, benefits are mainly due to higher power quality and
reduction of risk of damage in equipment while in this latter application
economic return can be relevant. Other potential customer interested on
microgrids could be utilities in small islands belonging to European
countries, since their generation cost is also very high. However government
incentives have the effect of subsidizing inefficient production and removing
economic motivation to innovate. Introduction of stricter subsides
regulations might open a relevant market in Europe. Along with these
opportunities Italian RIU and Turkish industrial areas might present a good
environment for market implementation of energy management system and
internal Demand Response.
The thesis provided a framework to operate in the European Smart and
Micro Grid market. In order to move from framework to execution, more
detailed information about each country and each application need to be
gathered and case specific technical and financial simulation need to be
performed.
158
159
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