How can we unlock the value of smart grids?
Utilities, ICT companies, and many others have been investing in hundreds of smart grid pilot projects the last few years. PowerMatching City is regarded as the first living lab of an integrated approach of smart grids. One of the experiences is that consumers prefer to use their own energy first before sharing or trading it with their neighbours. However, this might not be the most economic solution. Is this an issue? No, not per se. Apparently, these consumers prefer other values above the best economic value.
Although, most companies will mainly look at the business case. So, how can we best unlock the value of smart grids? From my point of view, there are two key words related to the economic value of smart grids—flexibility and information. They bring additional value compared to the business-as-usual scenario apart from saving costs in grid expansion and new power plants that run for a limited number of hours. One needs consumers—whether these are residentials or energy managers of offices or factories—to create value out of flexibility and information. Additionally, one needs close cooperation with others as well. But the main thing one needs is another way of structuring the energy market.
In today’s blog I will address the value of flexibility, while focusing on the value of information in a separate blog post.
Envision an area with enough PV solar panels to produce four times the amount of electricity needed in this area during sunny afternoons. In an open market this would result in very cheap energy with many consumers willing to buy. However, the grid probably is not able to accumulate all the electricity produced at that time causing congestion or worse, e.g., overloading of a substation. Increasing the price for using this grid would be a logical response—but selling PV solar would then become unattractive. This is where the value of flexible load comes in.
A consumer from PowerMatching City would first like to use the electricity from it’s own PV solar panels, e.g., by heating the water in his or her boiler, or charging his or her electric vehicle (EV) at home. So, the consumer is making use of his flexible load. Other consumers may have a less flexible load, and are willing to sell their surplus to others within their community. If these others are within their physical neighbourhood they don’t have to deal with the substation constraint—but that requires enough demand or flexible load within this area. Alternatively, one could store the surplus as another way of creating value because he or she can make use of cheap electricity at a later moment in time; nor does the surplus of energy to be curtailed or sold for almost zero prices. Thus, flexibility has value. The value of flexibility is also present in the case of energy shortage, i.e., postponed demand during situations that prevent buying electricity when it is expensive.
The next question is: Is the value big enough to benefit from the investments needed to unlock the potential flexibility at the consumer’s side? Internal calculations at DNV GL show that this is not the case for Europe yet, but already beneficial in commercial buildings in the US. For the European situation the ICT infrastructure is still too expensive related to the low number of occasions of surplus, or shortages, of electricity. The number of PV solar panels or other varying power may be high in some locations, but is still currently very limited in most locations. Although, I expect this will change in only a few years. The growth figures of renewable energy are in double digits for many years already, ICT costs are decreasing annually, and consumers are looking at other values than economics only. The lessons learned from these hundreds of smart grid pilot projects will be used in the next generation, larger scale projects in smart (energy) cities as the last step before commercial implementation.