1. www.ecn.nl Electricity distribution and embedded renewable energy generators Martin Scheepers ECN Policy Studies Florence School of Regulation, Workshop, November 24, 2006

2. 2 Contents 1.Distributed generation: RES & CHP 2.Impact DG on the DSO business 2.1Integration of DG in electricity distribution networks 2.2Reinforcement costs, energy losses and replacement of distribution assets 2.3Remuneration of DSO costs 2.4DSO revenues and incentives 2.5DG providing ancillary services 3.What is the optimal amount of DG?

3. 3 RES & CHP in EU-25 scenarios Source: PRIMES 1. Distributed generation: RES & CHP

4. 4 Distributed Generation (DG) Combined Heat and Power (CHP) Renewable Energy Sources (RES) Large-scale generation Large district heating* Large industrial CHP* Large hydro** Offshore wind Co-firing biomass in coal power plants Geothermal energy Distributed Generation (DG) Medium district heating Medium industrial CHP Commercial CHP Micro CHP Medium and small hydro Onshore wind Tidal energy Biomass and waste incineration/gasification Solar energy (PV) * typical > 50 MW e ** typical > 10 MW e 1. Distributed generation: RES & CHP

5. 5 Current DG share in total generation capacity Source: DG-GRID/Risoe 1. Distributed generation: RES & CHP

6. 6 Integration of DG in electricity distribution networks Planning  DG should be considered by DSOs when planning the development of the distribution network (Article 14/7 of the EU Electricity Directive) Operation  DG could also be involved in the economic efficient operation of the network by using active network management* resulting in lower costs * Also including demand side management  DG could provide ancillary services to DSOs 2. Impact of DG on the DSO business

7. 7 Impact DG on Business Model DSO DG reinforcements replacing distribution assets DG ancillary services energy losses DG connection costs Source: Dispower/ECN 2. Impact of DG on the DSO business

8. 8 Reinforcement costs related to DG Rural network  Type of DG: ‑ Intermittent: wind, small-hydro ‑ Non-intermittent: CHP  Problems to solve: voltage rise Urban network  Type of DG: ‑ Intermittent: PV ‑ Non-intermittent: CHP, micro-CHP  Problems to solve: fault level increase 2. Impact of DG on the DSO business

9. 9 Analyses of effect of large DG penetration on reinforcement costs Approach  Quantitative analyses of impact of high DG/RES penetration on electricity networks in UK and Finland Parameters varied:  Rural and urban networks  Different DG penetration levels  DG concentration, i.e. the amount of DG connected to specific network areas and levels  Non-intermittent production and intermittent production Alternatives considered:  Status quo, i.e. “passive” network management  Innovative, i.e. “active” network management 2. Impact of DG on the DSO business

10. 10 Ranges of incremental reinforcement costs rural network (UK case) Top → DG high concentrated; bottom → DG low concentrated Source: DG-GRID/Imperial College 2. Impact of DG on the DSO business

11. 11 Ranges of incremental reinforcement costs urban network (UK case) Top → DG high concentrated; bottom → DG low concentrated Source: DG-GRID/Imperial College 2. Impact of DG on the DSO business

12. 12 Average annual energy losses (UK case) Losses LV-network not included Source: DG-GRID/Imperial College 2. Impact of DG on the DSO business

13. 13 Replacement of distribution network assets DG penetration Replacement value of DG (for the UK) DG with low density in the network DG with high density in the network 2.5 GW108 €/kW110 €/kW 5 GW110 €/kW112 €/kW 7.5 GW113 €/kW97 €/kW 10 GW113 €/kW44 €/kW Source: DG-GRID/Imperial College 2. Impact of DG on the DSO business

14. 14 Impact on OPEX and CAPEX Reinforcement costs  At low DG penetration levels reinforcement costs are zero, but they will increase progressively with higher DG penetration.  Also “DG-density” causes cost increases. Energy losses  DG may initially reduce energy losses, but with higher DG penetration losses will increase. Replacement value of DG  DG can replace distribution assets because the net (peak) load of the network will decrease with increasing DG penetration. The replacement value decreases in case of high DG penetration in combination with high “DG-density” Active network management  Reinforcement costs can be reduced with “active network management” (incl. implementation costs like ICT). However, in some high DG-penetration cases costs will be higher than passive network management.  Operational costs (i.e. energy losses, curtailment compensation, labour costs) will increase. This results in higher total costs in some cases. Type of DG  The type of DG (non-intermittent and intermittent) influences network capacity and losses.  Effects are different for rural and urban networks, also because of the different types of DG connected. 2. Impact of DG on the DSO business

15. 15 Remuneration of DSO costs Source: Dispower/ECN 2. Impact of DG on the DSO business To guarantee non-discriminatory network access DG connection charges should be based shallow costs (direct costs of the connection). DG UoS charges ‑ should be cost reflective ‑ preferably differentiated by location and time of use ‑ Might be positive (if network costs are increased due to DG operation) or negative (if the savings are greater than the costs

16. 16 DSO revenues and incentives Revenues  DSOs revenues are determined by incentive regulation  DG can have a negative effect on the DSOs revenues  DSOs revenues should be calculated taking into account the incremental effect on CAPEX and OPEX of different DG penetration levels, e.g. ‑ Allowance for DG in regulated asset base (RAB) ‑ DSO benchmarking considering DG as cost driver ‑ Tariff adjustment factor (ex post) ‑ Allowance for a direct revenue driver -e.g. TAR t = TAR t-1 (1 + CPI – X) + € A/ kW DG + € B/ MWh DG Incentives  Negative effects on revenues should at least be neutralised  (Temporarily) positive incentives could be used to promote DG integration 2. Impact of DG on the DSO business

17. 17 DG providing ancillary services Ancillary services  DSOs should be able to purchase ancillary services from DG operators ‑ e.g. voltage and reactive power support, energy losses, congestion management, etc. Islanded operation  DG reducing the impact of network outages on customer supply interruptions (i.e. improving quality of service)  Requires active network management, local balancing, etc. DG-DSO arrangements  DG-DSO service contracts  DG regulated payments 2. Impact of DG on the DSO business

18. 18 Costs reductions expected with increasing RES 3. What is the optimal amount of DG?

19. 19 What is the optimal amount of DG? 3. What is the optimal amount of DG? Source: ECN

20. 20 More information: http://www.dg-grid.org http://www.electricitymarkets.info/distributedgeneration/index.html Thank you