3
Contents
Preface...4 Summary... 5 Framework.and.preconditions.for.the.report...8 The.energy.system.stands.at.a.crossroads...9 1.1 Denmark’s climate and energy targets will change the conditions for the power system ...9 1.2 Changes to the power system necessitate a decision regarding its future design ...9 Fact.sheet:.What.is.Smart.Grid?...12 2..Smart.Grid.is.the.most.effective.way.to.accommodate increases.in.electricity.consumption...15 2.1 Conversion of the energy system requires large investments ...15 2.2 Smart Grid is the most effective and inexpensive method for upgrading the power system ...15 2.3 Socioeconomic costs of establishing a Smart Grid... ...15 2.4 Socioeconomic costs of a continued traditional expansion strategy ...17 2.5 The economics of Smart Grid are sound even when preconditions differ ...18 Fact.sheet:.Economic.calculations... 19 3..Smart.Grid.offers.new.possibilities.for.the.consumers... 22 3.1 Electric vehicles and plug-in hybrid vehicles become greener and more flexible ... 22 3.2 Smart Grid can provide a complete overview of energy consumption ... 22 3.3 New energy-related services will create entirely new opportunities ... 22 4..Smart.Grid.is.a.mutual.task... 23 4.1 Realisering the Smart Grid potential requires a contribution from the entire sector ... 23 4.2 An efficient market will lead to a common effort and realise Smart Grid potential ... 23 5..Two.necessary.political.preconditions... 25 5.1 Future-proofing financial regulation in the electricity sector should create incentives ... 25 5.2 Smart Grid development and demonstration activities can accelerate development ... 25 6..The.way.ahead...26 6.1 Phase 1 – Facilitating phase ...26 6.2 Phase 2 – Establishment phase ...26 6.3 Phase 3 – Commercialisation phase ... 274
In the coming years, electricity consumption and production in Denmark is set to change significantly. Electricity generation will be increasingly derived from renewable energy sources, while consumers will change their oil-fired burners for electric heat pumps and start to replace their petrol-powered vehicles with electric vehicles and plug-in hybrid vehi-cles. Consequently, the power system should be developed, but what is the most effective way to do this? Energinet.dk and the Danish Energy Association have analysed the issue of grid develop-ment to meet the new requirements in this joint report. The conclusion of the economic analysis in the report asserts that an intelligent power sys-tem – a Smart Grid – is the most effective strategy for developing the power system. Sensitivity calculations conducted in the analysis show that this conclusion is robust, irre-spective of whether there are fewer or more electric vehicles and plug-in hybrid vehicles in relation to the basic conditions for the analysis. All in all, the conclusion of the calculations is clear: If we desire a society which is independ- ent of fossil fuels and which utilises huge amounts of wind power for transport and heat- ing, then Smart Grid represents the most effective strategy for developing the power sys-tem to meet future requirements. Although it will be many years before we see the complete roll out of Smart Grid, the stra-tegic foundation should be created now. A foundation which we hope this report will help pave the way for. Enjoy reading. Peder Ø. Andreasen Lars Aagaard President and CEO Director Energinet.dk Danish Energy AssociationPreface
5
Electricity consumption and generation in Denmark is set to change significantly in the coming years. Electricity customers will demand new services as they replace oil-fired burners with electric heat pumps and traditional petrol-powered vehicles with electric vehicles and plug-in hybrid vehicles. The electricity sector should be ready to pro- vide these services with the same high lev-el of delivery quality as today. This should occur in a situation where electricity gener- ation is increasingly derived from renewa-ble energy. Denmark has ambitious political climate and energy targets to reduce CO2 emissions, integrate more renewable energy, especially wind power, into electricity generation and improve energy efficiency. Overall, these tar- gets create a need for reinforcing and ex-panding the power system. But how? Energinet.dk and the Danish Energy As-sociation have analysed this in the report 'Smart Grid in Denmark' with the objec-tive of describing and analysing the specific challenges facing the power system in the coming 15 to 25 years. Moreover, the report describes how and to what extent Smart Grid solutions can prepare the power sys-tem for handling these challenges. Energinet.dk and the Danish Energy Associ-ation have analysed the part of Smart Grid that enables an effective interaction be-tween wind power generation, heat pumps in private households, electric vehicles and plug-in hybrid vehicles. The project assumes in its analyses that the Danish electricity sector in 2025 is able to handle the following: • that wind turbine capacity is expanded to cover approximately 50 per cent of annu-al Danish electricity consumption • that the number of electric and plug-in vehicles totals 600,000, and • that there are 300,000 individual heat pumps. The analyses in the report show that the power system will manage increases and changes in electricity consumption and more fluctuating generation most efficient- ly through a Smart Grid that creates a dy- namic interaction between the power sys-tem and the consumers through metering, controlling and automation in the power grid and in private households. The conclu-sion also applies if there are fewer electric vehicles and plug-in hybrid vehicles than as-sumed above. However, as Smart Grid is a new and very different method for developing the power system than traditional reinforcement, a de-cision needs to be taken to ensure that all players are pulling in the same direction to avoid investments in and expenditures on equipment and systems that would not be used optimally. This requires increased co- operation between the players in the sec-tor as well as strong political commitment to establish fundamental regulatory condi-tions for this development.Traditional expansion
versus Smart Grid
Traditionally, the power sector has adapt- ed and reinforced the power grid by lay-ing more and thicker cables in the ground, erecting more substations and securing ac-cess to sufficient generation capacity. The consumers have been primarily 'passive' with predictable and regular consumption patterns. Traditionally, in an intelligent power system – a Smart Grid – completely new perspec-tives will emerge. The consumers will be able to interact with the power system and gen-eration through automated and intelligent control of their electrical appliances, thereby acting as resources for the power system. The overall calculations show that a future power system using Smart Grid can be es-tablished at a social net cost (present value) in the range of DKK 1.6 billion. However, this requires social investments of around DKK 9.8 billion – an investment which will pro-vide derivative benefits of around DKK 8.2 billion in the form of lower electricity gen-eration costs, a more effective production of ancillary services and increased electrici-ty savings. On the other hand, a traditional reinforce-ment strategy requires social investments of approximately DKK 7.7 billion at present value but creates no increment in bene-fits. Consequently, the economic benefit of choosing the Smart Grid strategy is esti-mated at approximately DKK 6.1 billion. The distribution network should be expand- ed concurrently with the customers' de-mand for electricity for electric vehicles, plug-in hybrid vehicles and heat pumps. However, the need for reinforcement is DKK 1.6 billion less if the new consumption is op-timised flexibly and intelligently with the assistance of Smart Grid functionalities. Specifically, Smart Grid reduces the need for reinforcements of the distribution network from DKK 5.7 billion to DKK 4.1 billion.
Conclusion of the report
The economic analysis in the report con- cludes that Smart Grid is the most effec- tive strategy for developing the power sys-tem and preparing it to meet the challenges ahead. A number of preconditions relating to the expected future development of electrici-ty generation and consumption in Denmark are set out in the project. There is a degree of uncertainty associated with these pre-conditions as it is difficult to predict the pace of the development. This obvious-ly gives rise to some uncertainty about the calculations. Of course, a significant change to the preconditions will alter the size of the calculated investments and benefits. However, the calculations are estimated to be all in all so robust that the conclusion
is clear: If we desire a society with a wide-Summary
6
spread use of electricity for transport and heating as well as a high level of wind pow-er generation, Smart Grid will be the most effective solution. Sensitivity calculations conducted in the analysis show that this conclusion is ro- bust, irrespective of whether there are few- er or more electric vehicles and plug-in hy-brid vehicles in relation to the fundamental preconditions for the analysis. In particular, a Smart Grid is a very effective solution if, in the long term, the use of electric vehicles and plug-in hybrid vehicles becomes even more widespread.Advantages for the
consumers
The establishment of a Smart Grid will in- crease the digitisation of Danish house- holds. More metering, controlling and com-munication electronics will be present in households, which will afford the consum-ers an overview of their consumption and the possibility to achieve automatically con- trolled and intelligent electricity consump-tion, thereby saving energy and money. An additional benefit of equipping house-holds will be the possibility for consumers to purchase a number of related services. For example, it is conceivable that consum-ers could receive an SMS if their heat pump should happen to break down while they are away on winter holiday. They could if de- sired automatically shut off standby con-sumption in their home while they are away, and they could at any given time con-trol the temperature in the house via their smart telephone or PC. Moreover, it is to be expected that more of such new and innovative products will be-come available in the future. Products that will avail of the new infrastructure, as we have seen with mobile telephony and the Internet. Moreover, Smart Grid will ensure that own-ers of electric vehicles and plug-in hybrid vehicles will have their energy consump- tion for transport covered in a very individu- al and intelligent way because it will be pos-sible to charge the battery in the vehicle at varying prices depending on charging speed and charging time. At the same time, it will be possible for consumers to reduce their electricity bills through intelligent consumption and au- tomated energy-efficient solutions by let- ting their electrical appliances function au-tomatically at predetermined comfort levels to the benefit of both themselves and the power system.The realisation of Smart Grid
requires a contribution from
the entire sector
Customer demand for such new services will make the power system more compre- hensive and far more dynamic than it is to-day. To meet this demand, the power system needs to be further integrated across the existing interfaces in the future. A single transparent price that dynamical-ly reflects the costs in the value chain of the entire power system should be developed so that the customers can gain the full bene-fit of making their consumption flexible and intelligent. In addition, systems and prod-ucts should be developed to make it easy for the customers to offer their flexible con-sumption as regulating power and system reserves and benefit from this. This means that the transmission system operator (TSO) and distribution network companies (network companies) will have to undertake new tasks. The TSO should continue to develop the market for balanc- ing and ancillary services. Furthermore, net-work companies should create a real-time view of the load on the distribution network that can form part of the overall dynam-ic electricity price and thereby motivate the consumers to use electricity in a way that minimises the costs of grid reinforcement. To ensure an effective development of Smart Grid on market-based conditions, it is crucial that both framework conditions and specific solutions are developed with a strict focus on securing low complexity and low costs.
Two necessary political
preconditions
The electricity industry shall and will play an active role in ensuring a common and coor- dinated development of an intelligent pow- er system in Denmark. However, this re-quires that the political preconditions also promote a proactive behaviour amongst all players. There are two necessary preconditions, which are crucial to supporting this proac-tive behaviour. The financial regulation of the network companies should ensure that they are in- centivised to actively participate in the de-velopment of a Smart Grid and that they make the necessary, long-term investments to create an intelligent power system. Un-der the current regulation, these expenses do not result in an increase of the revenue caps of the network companies. Furthermore, increased demonstration ef-forts are required, partly to further develop and adapt the necessary Smart Grid tech- nologies and partly to ensure the neces- sary standardisation within the field. Con-sequently, society should continue to grant financial support to conduct focused and coordinated development and demonstra- tion activities which encourage the ad- vancement of those technologies and so-lutions that will form the building blocks for the intelligent power system of the fu-ture. These efforts are decisive if Denmark is to achieve a market leading position within the Smart Grid value chain.The way ahead
7
see the complete Smart Grid roll-out, the foundation should be laid now. A number of network companies are either engaged in or planning to roll out automated meter-ing systems (AMR) to private households. Moreover, the replacement of oil-fired burn-ers with electric heat pumps is already in progress partly due to the payment of pub-lic subsidies to customers substituting oil burners for heat pumps. Although the ma- jor challenge in relation to electric and plug- in vehicles is still some years away, exten-sive work is carried out today to develop concepts and charging stations and to plan the expansion of the entire charging infra-structure. Therefore, efforts should be directed to- wards identifying the need for and ensur- ing the necessary standardisation and func-tionality requirements, thus preparing these elements to the widest possible extent to function immediately in a Smart Grid con-cept. The way towards an intelligent power grid can be described briefly in three phases: Facilitating in the short term, establishment in the medium term and commercialisation in the long term.Facilitating phase
(2010-2012)
From 2010 to 2012, society will experience an increasingly widespread use of electric heat pumps and the first proper launch of electric and plug-in hybrid vehicles by com-mercial players. By the end of this period, the electricity sec-tor should have ensured that the relevant players both inside and outside of the elec-tricity sector are mobilised and involved in considering the power system of the fu- ture. Also during this period, a wealth of ex-perience should have been gained through development and demonstration projects which can form the basis for frameworks and standards.Establishment phase
(2012-2020)
From around 2010 to 2020, changes on the demand side will begin to take shape as the use of heat pumps will have become signifi-cantly more widespread and consumers will have begun to purchase electric and plug-in hybrid vehicles on a larger scale. By the end of this period, this development will have brought about a power system in which the fundamental Smart Grid infra-structure has been established. At the same time, the system should be so mature that commercial solutions supporting intelligent demand response start to find more wide-spread use.Commercialisation phase
(2020-)
This phase is expected to occur after 2020. By that time, electric heat pumps will be the most widespread source of heating outside areas supplied with district heating and natural gas. At the same time, electric and plug-in hybrid vehicles will be recognisable and commonplace on the streets. This situation makes it possible to balance the power system via Smart Grid function- ality in the form of intelligent and automat- ed control of the consumers’ flexible appli-ances while Smart Grid services should be further developed so that consumers have a wide range of products to choose between.8
In recent years, the Danish Energy Associa- tion and Energinet.dk have worked deter-minedly on investigating the opportunities and challenges facing the power system, given the ambitious political climate and energy targets. In the first half of 2010, a joint project was initiated with a view to analysing the prospects of Denmark tak-ing advantage of the opportunity to make the Danish power system more environ-mentally friendly and efficient by setting up intelligent demand response in Danish households. The platform for this intelligent electricity consumption is created concur-rently with increased consumer investment in electric heat pumps and – in the near fu-ture – electric and plug-in hybrid vehicles. The objective of the project has been to de-scribe and analyse the specific challenges facing the power system in the coming 15 to 25 years and to describe in which ways and to what extent Smart Grid solutions can ad- dress these challenges. The project will pro-vide an overview of the possibilities that these potential solutions create for the con- sumers and of the investments that the so-lutions require. This overview is central to creating the basis for a forward-looking and long-lasting investment plan for regulated companies and market players in the elec-tricity industry. Moreover, the project should describe which framework conditions it would be advanta- geous to adjust to ensure an effective out-come; similarly, the project should seek to show how such an effective outcome could be achieved in Denmark in both the short and the long term. The work is carried out by a number of working groups consisting of personnel from Energinet.dk, the Danish Energy Asso- ciation and member companies of the Dan-ish Energy Association. This report is based on the analyses and conclusions of these groups, whose work is described in detail in a number of appendix reports.Framework and preconditions
for the report
9
Realising Denmark’s ambitious climate and energy-policy targets to reduce CO2 emis- sions, increase its share of renewable ener-gy, especially in electricity generation, and to improve energy efficiency means that electricity will play an even more central and sustainable role in the power system of the future than it has to date. This chapter describes the implications of this new role for the power system. The con-clusion is that this development will result in increased investments, which in princi-ple could follow two paths. One of the paths can be characterised as a traditional expan-sion strategy in which the power system is reinforced and the electricity consumers are maintained as 'passive' consumers. Alterna- tively, the other path would lead to the es-tablishment of an intelligent power system – a Smart Grid that creates a dynamic inter-action between the power system and the consumers through metering, controlling and automation. With a view to avoiding double investments, it would be most expedient to begin adapt-ing to a Smart Grid strategy already now if this path is assessed to be the most effec-tive in the long term. As such, the economy of the Smart Grid strategy would be under-mined if large-scale expansions based on a traditional strategy were carried out.1.1 Denmark’s
clima-te and energy targets
will change the
conditi-ons for the power system
Denmark has set an ambitious political tar-get for the next ten years to reduce CO2 emissions in non-ETS sectors by 20 per cent, to increase the share of renewable energy in electricity generation to 30 per cent, to in-crease the share of renewable energy in the transport sector to 10 per cent and to im- prove energy efficiency. The targets repre-sent a significant step on the path towards achieving the long-term political objective of making Denmark independent of fossil fuels. The way ahead is to adapt the Danish energy system and significantly change the power system, both in relation to the way electricity is generated and how it is used by the consumers. Electricity that is increasing- ly generated with the assistance of renew-able energy can favourably replace fossil fuels in the heat and transport sectors. Con-sequently, electricity will play an even more central and sustainable role in the energy system of the future than it has to date. On the supply side, there will be a signif- icant expansion of Danish wind genera-tion capacity so that in 2025 wind turbines are expected to generate up to 50 per cent of annual Danish electricity consumption. In addition, a focus on renewable energy and zero-energy houses will increase the number of households engaging in local en- ergy generation by means of photovolta-ic cells, domestic wind turbines, etc., in the coming years. On the demand side, electricity will be in-creasingly utilised in the heat and transport sectors through the increased use of electric heat pumps as well as electric and plug-in hybrid vehicles. In both these sectors, elec-tricity can easily make consumption more climate-friendly and efficient. The heat sec- tor uses approximately 20 per cent of Dan-ish energy consumption for heating homes, of which 60 per cent is generated from fos-sil fuels. Electric-powered ground-to-water heat pumps can generate the same volume of heat as today with 50-70 per cent lower energy consumption1. The transport sector uses another approximately 20 per cent of Danish energy consumption on road trans- port, of which almost 100 per cent is sup- plied by fossil fuels. The motor in an elec-tric vehicle is more energy efficient than a petrol or diesel engine as it can be driv-en the same distance on 50-75 per cent less 1 'Efficient use of wind power-based electricity in Denmark', Energinet.dk, 2009 energy2. Consequently, by investing in heat pumps as well as electric and plug-in hybrid vehicles consumers will be contributing sig-nificantly to: • improving energy efficiency • reducing CO2 emissions by substituting fossil fuels for renewable energy based electricity • realising the target of 10 per cent renewa-ble energy in the transport sector • minimising the dependency on imported oil and natural gas.
1.2 Changes to the power
sy-stem necessitate a decision
regarding its future design
The current power system is based on a number of fundamental assumptions about generation and consumption. Firstly, the balance between consumption and gener- ation is ensured basically by letting gener-ation follow consumption, but through the active use of our international interconnec-tions, however. Secondly, the power system is a one-way system in that electricity is al- most exclusively transmitted from the pow- er system to the consumer. Thirdly, it is al-ways essential to keep some central power stations operating in order to establish and maintain the electrotechnical system sta-bility. As the power system undergoes considera-ble changes on the supply side in the future as described above, power system develop-ment must be aimed at finding new ways to ensure:
• Effective utilisation of wind power
gener-ation. Electricity generation from wind turbines cannot be determined to fixed times. If wind power capacity is expand-ed substantially, considerable amounts of electricity will be generated during windy periods which can be utilised advanta- 2 “Technology assessment of alternative propellants in the transport sector”, COWI, 2007. The efficien- cy is based on mechanical output relative to in-put energy.
1. The energy system
stands at a crossroads
10
geously through intelligent demand re-sponse.
• Access to ancillary services3 from new
sources. As wind power becomes the prin-cipal source of electricity generation, it would be expedient to ensure that con-sumers are given better possibilities to contribute to the supply of ancillary ser-vices to the power system so that the power system can function at times when there is no longer a commercial ba-sis for operating central power stations. At the same time, changes on the demand side will mean that new thinking is required in the distribution network to ensure: • Effective expansion of the transfer capac-ity in the distribution network4 . The intro- duction of electric and plug-in hybrid ve-3 Ancillary services are the generation capacity for reserves and regulating power, inertia and short-circuit capacity. 4 Energinet.dk has previously concluded that intel-ligent demand response is not an alternative to transmission grid expansion as the need for ex-panding it is to a higher degree dimensioned by the development of the generation mix used in the power system and trading in the cross-border elec- tricity market. Therefore, the need for transmis-sion grid expansion has not been analysed further in this project. hicles as well as heat pumps will mean that the power grid of the future should transfer more electricity than it is current-ly designed to do. Therefore, it should be reinforced as efficiently as possible. • Continued maintenance of a stable volt-age in the distribution network. Many of the electrical appliances require a stable voltage in the distribution network to function correctly. An increased number of electricity-generation facilities at do- mestic level together with new and wide-ly fluctuating consumer patterns will lead to increased variation in the voltage in the local distribution networks and result in a more unstable voltage, causing in-convenience to the consumers. Traditionally, the electricity sector has adapted the power system to changes in the outside world by laying more and thick- er cables in the ground, erecting more sub-stations and securing access to sufficient generation capacity. The consumers have been primarily 'passive' with predictable and regular consumption patterns. The elec- tricity sector can still follow this tradition- al strategy, yet new technologies offer an al-ternative possibility. This new possibility is to commence the establishment of an intel-ligent power system – a Smart Grid – which creates entirely new perspectives for elec-tricity consumers to interact with the power system and electricity generation. This can occur through automated and intelligent control of the consumers’ appliances which enables them to function as resources for the power system. As Smart Grid is a new way of developing the power system which differs significant-ly from traditional expansion strategies, a decision should be made in favour of one or the other strategy. This decision should en-sure that all players are pulling in the same direction, thus preventing investments in and expenditure on equipment and systems which would not be used optimally.
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Figure 1. In the future, wind turbines will generate considerable amounts of electricity that can be utilised with advantage in Denmark via intelligent demand response, which will create times when there is no commercial basis for operating central power stations. Figure 2. Increased electricity consumption will necessitate thicker cables in many parts of the power grid, which will also generate greater variation in the voltage in the power lines on the individual suburban streets when consumption fluctuates greatly. Upon.substantial.expansion.of.the.wind.power.capacity,.considerable.amounts.of.electricity.will.be.generated.during.very.windy. periods.which.can.be.utilised.advantageously.through.intelligent.demand.response.. MWh per hour projected to 2025 based on 2010 consumption and wind generation An.analysis.of.148.selected.radials.in.the.low-voltage.grid.shows.that.many.power.lines.in.the.future.should.transfer.more.elec-tricity.than.they.are.built.to.handle.today.. MWh per hour projected to 2025 based on 2010 consumption and wind generation Estimated generation and consumption in 2025 Hours in the second quarter, 2025 Analysed 0.4 kV radials 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 350 300 250 200 150 100 50 0 Load rate in per cent12
The Smart Grid concept has become widespread in recent years and the concept is used in various contexts with widely differing defini-tions. This project analyses the part of Smart Grid that enables an effective interaction between wind power generation, heat pumps in private households as well as electric vehicles and plug-in hybrid vehicles. Both the Danish Energy Association and Energinet.dk work with Smart Grid in other contexts, using broader definitions. There are numerous descriptions and definitions of what a Smart Grid is. An excellent definition proposed by 'European Technolo-gy Platform' states that Smart Grid is 'electricity networks that can intelligently integrate the behaviour and actions of all users con-nected to it – generators, consumers and those that do both – inor-der to efficiently deliver sustainable, economic and secure electricity supplies.'1 1 Source: Smart Grid definition, www.smartgrids.eu International studies have identified a number of specific advantag-es for consumers, the environment and society of introducing Smart Grid into a power system. These advantages primarily relate to2,3 • Improved system stability resulting in higher security of delivery • More options to create power balance in a less expensive and more efficient way • Faster remedy of faults in the power grid • Reduced need for investments in the power grid • General energy savings and lower electricity prices for consumers who use electric vehicles, plug-in hybrid vehicles and heat pumps intelligently • Increased integration of renewable energy through the flexibil-ity offered by electric vehicles, plug-in hybrid vehicles and heat pumps, where minor time lags in consumption will not reduce consumer comfort. 2 Source: ” What’s So Smart about the Smart Grid?”, Booz&CO 2008 3 Source: “ European Technology Platform Smart Grids”, European Commission, 2006 Figure 3. A Danish Smart Grid builds on the existing infrastructure and creates new possibilities for interaction with the consumers. Smart.Grid
Fact sheet:
What is Smart Grid?
Power grid Communication Markets Service provider Customer Distribution Transmission Generation Operation and monitoring
13
In this project, Smart Grid is analysed as the way to develop a power system capable of creating intelligent demand response us- ing those elements that are necessary to ef- ficiently integrate more wind turbine pow-er, more micro generators at domestic level, electric heat pumps as well as electric and plug-in hybrid vehicles. The analyses have shown that such a Smart Grid can offer consumers the possibility to actively • supply system stabilising services to the power system • reduce the need for reinforcing the distri-bution network • consume electricity when it is cheap • achieve overall energy savings. Such a system can generate economic ben-efits for both society and the consumers without a resulting loss of comfort. The sys- tem is conceptually summarised in the fol-lowing illustration. A more detailed version of the described Smart Grid and its elements is illustrated in Figure 4 below with the numbered areas described in the text after the figure. ...Fact sheet:
14
...Systems.for.interdisciplinary.coordination.and.data.exchange. between.the.players.in.the.power.system Smart Grid requires close coordination across the interfaces of the power system, and it will therefore be necessary to establish IT sys-tems capable of receiving and processing data about the status of the power system – for most of the parties involved – online. These IT systems should make it possible to fulfil the wishes and needs of the consumers without overloading the power system and thus re-ward the consumers for their flexibility. ...Equipment.for.measuring.the.condition.of.the.distribution. network Measuring the condition of the distribution network is a prerequisite for ensuring that the distribution network does not overload. Con-sequently, measuring equipment should be installed at nodes in the distribution network, particularly in those areas that are at risk of such overloading. This measuring equipment should be able to send real-time information about the condition of and load in the grid. ...Equipment.for.flexible.control.and.settlement.of.the.consump-tion.of.consumers.investing.in.a.heat.pump.or.an.electric.vehicle Flexible consumption control is managed by one or more electron- ic units in the consumer’s home which can control the consump-tion of the flexible, electrical appliances in the house. Such control can simultaneously maximise the consumer’s comfort and ensure effective interaction with the needs of the power system expressed through price signals. Flexible settlement is performed with the as-sistance of data from a remote-reading electricity meter4 . The elec-tronic unit seeks to ensure that optimising electricity consump- 4 It is assumed in the project that all private consumers owning heat pumps and/or electric vehicles will have an electricity meter capable of recording and saving the consumer’s electricity consumption each hour. This assumption re-flects the fact that a large number of network companies today have or are planning to roll out meters which can meet these requirements, and that sev-eral of the network companies will install new AMR systems for customers with a demand response potential when the 'old' electricity meters are due to be replaced. For some consumers it will also become relevant to change their existing electricity meters when they acquire a consumption device that can be used for demand response purposes, such as an electric vehicle or an elec-tric heat pump. tion intelligently entails the least possible difficulty for the consum- er. Although the electricity meter is an important element in the es-tablishment of an intelligent power system, it could not create the desired ambitious conversion to demand response and an intelli-gent power system alone. It is necessary to support the electricity meter data with a contractual relationship between consumer and electricity supplier that rewards the consumer for acting flexibly, eg settlement according to the hourly rates on the wholesale market. ...Facilities.for.ensuring.system.stability. In a future of more wind power, there can be periods when there will be no economic rationale for having power stations in opera- tion. System stabilising services such as inertia and short-circuit ca-pacity, which are normally provided by power stations, should be ensured at all times. No decision has been taken in the project re- garding the most effective method for ensuring system stabili-ty; however, based on calculations it is assumed that it could be achieved by installing synchronous compensators and SVCs. In order to link the Smart Grid elements together effectively, a well- functioning division of work should be ensured between the regu-lated players in the industry and the competition-based enterprises. At the same time, a market model should be created which facili-tates well-functioning interaction between the players. The conversion to an energy system that helps Denmark to come closer to achieving its climate and energy-policy targets will require significant investments throughout the energy system and espe-cially in the power system. The analyses show that the power system can manage increases and changes in electricity consumption and more fluctuating pow- er generation most efficiently by establishing a Smart Grid that cre- ates a dynamic interaction between the power system and the con-sumers through metering, controlling and automation in the power grid and in private households.3
4
1
2
Figure 4. Illustration of the elements of a Danish Smart Grid.Fact sheet:
Power grid Communication Communication at home Automatic on/off Real-time readings Power stations PV cells Wind farm Grid company Facilities for ensur-ing system stability Integratedprice signal pumpHeat
Electric vehicle TSO Other relevant players Commercial market players Elec-tricity meter Household appliances Electricity consump-tion control system Charging station
15
2.1 Conversion of the
energy system requires
large investments
The future will bring great changes in both the generation and consumption of energy. Generation will change to become increas-ingly based on renewable energy, which will happen through an expansion of wind pow-er, for example. If Denmark is to become less dependent on fossil fuels, consumers should change their energy consumption consid- erably to use the new renewable energy ef-ficiently, eg through electric heat pumps as well as electric and plug-in hybrid vehicles. These changes will require significant in- vestments from both society and the con-sumers, which this project has not sought to quantify. Analyses in the project are based on the premise that wind turbine ca-pacity expands to cover around 50 per cent of Danish annual electricity consumption, that there will be a total of around 600,000 electric and plug-in hybrid vehicles as well as approximately 300,000 individual heat pumps in Denmark – all in 20255 . Howev- er, it is not critical to the analyses and con- clusions of the project that the aforemen-tioned development is achieved in this specific year. This development will result in a need for en-suring effective interaction between the new forms of fluctuating generation and the new forms of consumption. The power grid and its components are the central link between generation and consumption. Increased electricity consumption and more fluctuat-ing generation will require investments in the power grid to make both ends meet. The size of these investments depends part-ly on how effectively the power grid can be utilised and partly on the consumers’ abili-ty to act flexibly. The analysis does not include investments in transfer capacity in the transmission grid as this was closely analysed in the work un-dertaken by the Electricity Infrastructure Committee in 20086.2.2 Smart Grid is the most
effective and
inexpensi-ve method for
upgra-ding the power system
The economic analysis in the report con-cludes that Smart Grid is the most effective and inexpensive method for upgrading the power system so that it is prepared to meet the challenges ahead. Consequently, establishment of a Smart Grid will cost Denmark approximately DKK 9.8 billion in investments for metering, con-trol and automation at the consumers’ premisis and in the power grid. This invest- ment will yield benefits for Denmark total-ling approximately DKK 8.2 billion, so that the total cost will be around DKK 1.6 billion. The alternative to Smart Grid is a tradition- al expansion strategy, which requires a so-cioeconomic investment of approximately DKK 7.7 billion without yielding any benefits. Consequently, the advantage of pursuing the Smart Grid strategy is estimated to be around DKK 6.1 billion. These calculations7 are further specified in the following8.
2.3 Socioeconomic costs of
establishing a Smart Grid
Upgrading of the Danish power system to a Danish Smart Grid will require investments and will therefore generate increased costs. The analysis has identified the necessary in-vestments and costs, which amount to total socioeconomic costs of approximately DKK 9.8 billion. These costs comprises of the fol-lowing items: • Metering equipment in the distribution network which can provide a continuous overview of the load on the distribution network. This is a significant precondi- tion – in combination with the electrici- ty price on the wholesale market – for es-tablishing integrated price signals which the consumers can act upon both to their benefit and that of the power system. To this should be added costs necessary to enable consumers owning electric ve-hicles, plug-in hybrid vehicles and heat pumps to use hourly settlement, which is secured through the upgrading of their electronic electricity meter (approximate-ly DKK 2.1 billion) • Electronics in private households which can automatically communicate with the power system and based on this – with the consumer’s acceptance – can control electricity consumption in the household. (approximately DKK 1.6 billion) • Expansion and reinforcement of the dis-tribution network in areas where Smart Grid functionality alone cannot handle the overload (approximately DKK 4.1 bil-lion)
2. Smart Grid is the most effective
way to accommodate increases in
electricity consumption
8 The economic calculations describe the econom-ics of power generation. Unless otherwise stated, all amounts are the discounted present value of fu-ture cash flows based on an annual discount rate of 5 per cent. 6 See http://www.energinet.dk/da/menu/Planlægn-ing/Udbygning+af+elsystemet.ht 5 The number of electric vehicles is based on sce-nario A2 from the EFP project ‘Electricity for Road Transportation, Flexible Power Systems and Wind power’, and the number of heat pumps is esti- mated by analysing the potential for replacing ex-isting individual heating units, primarily oil-fired boilers and electric heating. 7 The calculations do not take into account the so- called net tax factor. The net tax factor is a calcu- lation concept that seeks to adjust for differenc-es between factor and consumer prices (for more information see the Danish Ministry of Finance’s guidelines for socioeconomic analysis). An applica-tion in this project would have only changed the absolute size of the figures and not their relative connection.16
• Investment in facilities to ensure system stability in a power system with signifi-cantly more wind power. (approximately DKK 1.7 billion) • Metering and control software at Energi- net.dk and the network companies that collects and processes data and ensures sufficient data communication between both regulated and commer- cial players in the power system (approxi-mately DKK 0.3 billion). The analyses have also investigated the benefits of a Smart Grid in a Danish context. Today, the Danish power system is very ro-bust with high security of supply, and thus there are no significant Smart Grid bene-fits to be gained from improving security of supply, even though this is often mentioned in other countries. However, the analyses show that the other areas of benefit con-tain a significant Danish potential that can provide socioeconomic benefits amounting to approximately DKK 8.2 billion distributed on the following areas: • Utilisation of the time-oriented flexibility of electric vehicles, plug-in hybrid vehicles and heat pumps can move their electrici-ty consumption to times when electricity is cheaper and thus reduce the socioeco-nomic costs of total electricity generation without reducing the perceived comfort of the consumers (approximately DKK 4.4 billion) • Costs of regulating power, reserves and ancillary services can be reduced by giv- ing more providers with lower costs ac-cess to the market (approximately DKK 2.4 billion) • Clarification of the consumers’ electrici- ty consumption and the possibility of im-plementing energy-saving solutions, eg through automatic standby function, can reduce total electricity consumption, which saves society the alternative costs that would otherwise have been incurred from implementing such energy-saving initiatives (approximately DKK 1.4 billion). Figure 5. Investments and benefits of establishing the power system of the future. Smart.Grid.has.additional.social.costs.of.approximately.DKK.1.6.billion. in.contrast.to.DKK.7.7.billion.in.a.traditional.grid.expansion.scheme. Socioeconomics in DKK billion Smart Grid Traditional expansionInvestments Benefits Total Investments Benefits Total
Smart.Grid.investment.in.detail
Present value in DKK billion Smart.Grid.investment.in.detailPresent value in DKK billion
Metering and control software Metering equipment in the grid and at consumers’ premises Control electronics at consumers’ premises Reinforcement of distribution network Facilities for ensuring system stability Savings in regulating power and reserves Savings in electricity generation Saved costs for energy-saving initiatives
17
Further benefits may be gained in the form of improved possibilities for locating faults in the power grid and thus reducing the du-ration of power cuts, a potential reduction in the number of production units for cov- ering peak-load demand and the develop-ment of know-how in Denmark which can ensure that Denmark’s leading position in the industry is translated into jobs and ex- ports. However, these benefits are not ap-praised in the work of the project, yet they represent a considerable upside to the con-clusions of the analysis. The overall calculations show that the fu-ture power system with Smart Grid can be established at a socioeconomic net cost of approximately DKK 1.6 billion, which is de-rived from DKK 9.8 billion in investments less DKK 8.2 billion in benefits. The benefits can be realised on condition that all Smart Grid potentials are commercialised.2.4 Socioeconomic costs
of a continued
traditio-nal expansion strategy
As an alternative to Smart Grid, future chal-lenges facing the power system would be managed using a traditional expansion strategy wich does not focus on generat-ing increased consumer involvement in the power system but merely on strengthening the power grid. If this strategy is selected to resolve the challenges, the socioeconomic costs of gen- erating electricity will increase by approxi- mately DKK 7.7 billion, thus constituting ap-proximately DKK 6.1 billion more than the net socioeconomic costs of a Smart Grid ex-pansion strategy. The largest portion of the costs (around DKK 5.7 billion) stems from the need to strengthen the distribution network. This need arises because especially electric ve-hicles, plug-in hybrid vehicles and in some cases heat pumps will draw energy from the distribution network late in the after-noon and at the start of the evening if their consumption is not optimised intelligent-ly. This increased consumption will coincide with the peak time when the distribution network is already today under most stress – the so-called 'evening peak'. A lesser part of the costs (around DKK 2.0 billion) results from the need to establish new electrical installations that can ensure the system stability of a Danish power sys- tem with a significantly expanded wind tur-bine capacity. In contrast to the establishment of an in- telligent power system, the traditional ex-pansion strategy and consumer behaviour
18
will not yield socioeconomic benefits in the form of reduced system and production costs and additional energy savings.
2.5 The economics of Smart
Grid are sound even if
preconditions differ
A number of preconditions relating to the expected future development of electric- ity generation and consumption in Den-mark were set out in the project. There is some uncertainty about the exact develop- ment, and this naturally leads to uncertain-ty about the preconditions for the project which of course will be reflected in the cal- culations. A significant change to the pre-conditions will naturally change the size of the calculated investments and benefits. However, the calculations are estimated to be all in all so robust that the conclusion is clear: If we desire a society with a wide-spread use of electricity for transport and heating, Smart Grid will be the most effec-tive and least expensive solution. Analyses in the project of the long-term im-plications of an electricity-oriented society clearly show that Smart Grid is in the long-term a better socioeconomic and technical solution than traditional power system ex-pansion. In particular, increased amounts of wind power or a greater number of con- sumer appliances with large and flexi-ble consumption could increase the value significantly. It has been specifically cal- culated in the project that from a socioe- conomic standpoint it is possible to save ad-ditional billions by implementing a Danish Smart Grid under the precondition that the number of electric vehicles and plug-in hy-brid vehicles increases significantly in the period after 2025.8 A long-term scenario has been calculated, in which half of the Danish vehicle fleet com-prises of electric and plug-in hybrid vehicles. With an already established Danish Smart Grid, the increase in the number of electric vehicles and plug-in hybrid vehicles could be integrated into it and all in all generate a socioeconomic net benefit in the power system of approximately DKK 1 billion. This benefit is achieved by carrying out minor in-vestments which ensure the integration of electric vehicles and plug-in hybrid vehicles 8 Calculations in the project assume an increase in the number of electric and plug-in hybrid vehi- cles from approximately 600,000 in 2025 to ap-proximately 1,1 million in 2030. This development is based on scenario A2 from the EFP project 'Electric-ity for Road Transportation, Flexible Power Systems and Wind power' into the power system while generating sig-nificant socioeconomic savings through cheaper electricity generation and energy savings for the owners of the new electric vehicles and plug-in hybrid vehicles. If the power system is expanded using a tra-ditional strategy, the increase in the number of electric vehicles and plug-in hybrid vehi-cles will generate additional socioeconomic costs of approximately DKK 2.2 billion. Using this methodology, the network companies will conduct local and individual reinforce-ments and expansion of their distribution network when areas with a risk of overload-ing are identified. Consequently, the need for investments will rise constantly and con-currently with new consumption. Similarly, the analyses show that the conclu-sion will be the same also if there are fewer electric vehicles and plug-in hybrid vehicles than stated above, for example. The net cost of 300,000 electric vehicles and plug-in hy-brid vehicles is DKK 6.2 billion in a traditional expansion scheme, whereas it is DKK 2.5 bil-lion in a Smart Grid expansion strategy. Figure 6. An intelligent power system will also be socioeconomically advantageous in the long term.In the long term, increased expansion of electric vehicles will further increase the value of Smart Grid
Socioeconomics in DKK billion when integrating an additional 500,000 electric vehicles from 2025 to 2030
Smart Grid
Traditional expansion
Invest- Benefits Total ments
Invest- Benefits Total ments
19
Economic calculations
The economic calculations in the project have been performed in the individual working groups. This overview provides a brief intro- duction to the calculations, which can be found in detail in the ap-pendix reports from the individual working groups. All calculations are performed on the basis of a socioeconomic11 consideration and are calculated as present values based on an annual discount rate of 5 per cent.Investments
Investments in upgrading the Danish power system to an intelli-gent power system will amount to approximately DKK 9.8 billion. Continuation of the current traditional grid expansion strategy will require investments in the range of DKK 7.7 billion. 11 The calculations do not take into account the net tax factor from the Danish Ministry of Finance. See note 8.Benefits
The investment required to create an intelligent power system in Denmark will potentially generate benefits in the range of DKK 8.2 billion. Continuation of the current traditional grid expansion strat-egy will be unable to generate benefits in the same way.The economics of Smart Grid are
sound even if preconditions differ
A number of preconditions relating to the expected future develop-ment of electricity generation and consumption in Denmark were set out in the project. There is some uncertainty about the exact de- velopment, and this naturally leads to uncertainty about the pre-conditions for the project which of course will be reflected in the calculations. A significant change to the preconditions will naturally Figure 7. Investments and costs of establishing the power system of the future in Denmark.
Fact sheet:
Grid reinforcements • Reinforcement of the distribution network (0.4 kV, 10 kVand 50 kV) to prevent overloading • Analyses of the distribution network of sev-en large grid companies extrapolated to country level
Facilities for ensuring
system stability • Installation of synchronous compensators and SVCs that can create the necessary inertia and short-circuit capacity • Analysis of the need for additional inertia and short-circuit capacity in a future with an increased wind power share
Software installed with
the TSO and DSOs • Software installed with the TSO and the grid companies that can aggregate and process all information collected in the distribution network and at the consumers’ premises
• Specific investment expectations from TSO and two grid companies
Metering equipment in
distribution network • Metering equipment in all 10 kV and 50 kV substations and in one third of all 0.4 kV substations • Results from ongoing projects at both En-erginet.dk and a grid company Intelligent solutions at the
end user’s premises • Electronics for automated control of heat pumps, domestic generation as well as demand response and generation at the customers’ premises
• Analyses of current pricing of similar tech-nology and historic price development for similar electronics
Upgrading of electronic
electricity meters • Upgrading of electronic electricity meters so that they can facilitate hourly settlement for consumers with electric and plug-in vehicles, heat pumps and electricity generation • Analyses based on actual experiences with electricity meters and expected price devel-opment Total Smart Grid Traditional expansion Primary.elements. Calculation.basis Socioeconomic.present.value.of.investments.and.costs DKK billion
20
change the size of the calculated investments and benefits. However, the calculations are estimated to be all in all so robust that the conclusion is clear: If we desire a society with a widespread use of electricity for transport and heating, Smart Grid will be the most effective and least expensive solution. Specific calculations performed in the project demonstrate that from a socioeconomic standpoint it is possible to save additional billions by implementing a Danish Smart Grid on the precondition that the number of electric vehicles and plug-in hybrid vehicles in-creases significantly after 2025. A long-term scenario has been calculated, in which half of the Dan-ish vehicle fleet comprises of electric and plug-in hybrid vehicles. With an already established Danish Smart Grid, the increase in the number of electric vehicles and plug-in hybrid vehicles could be in-Figure 8. Benefits from establishing the power system of the future in Denmark.Fact sheet:
Savings on reserves and regulating power • Reduce costs of supplying reserves and regulat- ing power by utilising the consumers’ decentral-ised resources • Detailed analyses of current costs for reserves and regulating power, includ-ing future requirements Savings on electricity generation • Reduce costs of generating power by moving de-mand response to times with a more efficient generation portfolio • SIVAEL simulation of future electric-ity consumption and the generation portfolio Savings on energy-saving initiatives • Reduce costs for alternative achievement of the energy saving-initiatives, which will be a derived result of an automated Smart Grid • Analysis of a report concerning ener-gy savings in other countries and the transfer of their results to Denmark Total Smart Grid Traditional expansion Primary.elements. Calculation.basis Socioeconomic.present.value.of.investments.and.costs DKK billion Argument. Implication. Consequence. for.Smart.Grid. potential. There will be fewer electric vehicles in Denmark or the expansion is de-layed There will be less need to invest in equipment for electric vehicle owners. On the other hand, there will also be fewer Smart Grid benefits in the form of reduced savings on grid reinforcements and a reduction in derived energy savings Potential re-duces Electric vehicles will have a highercharging effect Pressure on the transfer capacity of the distribution network will be higher and thus intelligent control of the units’ charging ef-fect aided by Smart Grid could provide increased benefits
Potential in-creases There will be more heat pumps in
Denmark Through more demand response, more heat pumps will via Smart Grid offer a greater possibility for reducing the socioeco- nomic cost of electricity generation. In addition, more house-holds will be able to achieve derived energy savings Potential in-creases There will be fewer heat pumps in Denmark, as there will be individual biomass plants instead Fewer heat pumps will mean that there are fewer benefits from demand response and fewer homes with the potential for de- rived energy savings. However, the cost of expanding the distri-bution network will also be reduced Potential re-duces
Heat pumps will have a large accu-mulation tank Heat pumps with a larger accumulation tank will via Smart Grid allow heating to become more time flexible. This should reduce the costs of grid reinforcements and similarly reduce the socio-economic costs of electricity generation
Potential in-creases
There will be more local electricity-generation facilities An increase in the number of local electricity-generation facilities will create greater variation in the voltage quality in the distribu-tion network. Using Smart Grid this variation could be managed without the need for additional equipment, which will increase the value of a Smart Grid Potential in-creases Figure 9. Consequences of changed preconditions.
21
tegrated into it and all in all generate a so- cioeconomic net benefit in the power sys-tem of around DKK 1 billion. This benefit is achieved by carrying out minor invest- ments which ensure the integration of elec-tric vehicles and plug-in hybrid vehicles into the power system while generating signifi- cant socioeconomic savings through cheap-er electricity generation and energy savings for the owners of the new electric vehi- cles and plug-in hybrid vehicles. If the pow-er system is expanded using a traditional strategy, the increase in the number of elec-tric vehicles and plug-in hybrid vehicles will generate additional socioeconomic costs of approximately DKK 2.2 billion. Similarly, the analyses show that the con-clusion will be the same also if there are fewer electric vehicles and plug-in hy- brid vehicles than stated above, for exam- ple. The net cost of 300,000 electric vehi-cles and plug-in hybrid vehicles is DKK 6.2 billion in a traditional expansion scheme, whereas it is DKK 2.5 billion in a Smart Grid expansion strategy.Conclusion
The project calculations show that the so-cioeconomic investment in converting the power system up to 2025 will be ap- proximately DKK 9.8 billion by establish-ing Smart Grid. This investment will realise a socioeconomic benefit of approximate- ly DKK 8.2 billion and thus result in total so-cioeconomic costs of approximately DKK 1.6 billion. The alternative to Smart Grid is a traditional expansion strategy, in which the socioeconomic investment will be in the range of DKK 7.7 billion, which in contrast to Smart Grid will not yield any social bene- fits. Consequently, the advantage of pursu-ing the Smart Grid strategy is estimated to be around DKK 6.1 billion. Figure 10. An intelligent power system will also be socioeconomically advantageous in the long term.Fact sheet:
Figure 11. Investments and benefits of establishing the power system of the future.In the long term, increased expansion of electric vehicles will further increase the value of Smart Grid
Socioeconomics in DKK billion when integrating an additional 500,000 electric vehicles from 2025 to 2030
Invest- Benefits Total ments
Invest- Benefits Total ments Smart Grid Traditional expansion Smart.Grid.has.additional.social.costs.of.approximately.DKK.1.6.billion. in.contrast.to.DKK.7.7.billion.in.a.traditional.grid.expansion.scheme. Socioeconomics in DKK billion Smart Grid Traditional expansion
Investments Benefits Total Investments Benefits Total
Smart.Grid.investment.in.detail Present value in DKK billion Smart.Grid.investment.in.detail Present value in DKK billion Savings in regulating power and reserves Savings in electricity generation Saved costs for energy-saving initiatives Total =8.2 Total =9.8 Metering and control software Metering equipment in the grid and at consumers’ premises Control electronics at consumers’ premises Reinforcement of distribution network Facilities for ensuring system stability
22
Smart Grid offers the consumers a wide range of advantages both in the short and long term. Apart from the possibility of re- ducing their electricity bill through intelli-gent consumption, which is included in the economic comparison in chapter 2, a Smart Grid power system also offers numerous other potential benefits for the consumers. In the medium term, these benefits will stem from a greater flexibility in the charg-ing of electric and plug-in hybrid vehicles and in the long term from new services re- lating partly to the consumers’ energy sup- ply and partly to other aspects of the con-sumers’ everyday lives.3.1 Electric vehicles and
plug-in hybrid vehicles become
greener and more flexible
Car owners today derive great pleasure from their vehicles, which afford them con-siderable freedom and flexibility thanks to sound Danish transport infrastructure in the form of roads and filling stations. This desire by car owners for flexibility is set to continue, and Smart Grid can help to fulfil this desire. This is possible because a Smart Grid ena- bles electric vehicle and plug-in hybrid vehi- cle owners to have their energy consump-tion covered in a very individual way that combines in the best possible way the de-sire for cheap transport with the desire for a high degree of flexibility to handle unfore-seen driving needs. Hence, electric vehicle and plug-in hybrid vehicle owners with stable and predicta-ble motoring needs will be able to choose to charge their electric vehicle and plug-in hybrid vehicle while it is standing in the garage or on a parking place, and when it is most financially efficient, which would be typically at times of low electricity con-sumption and/or high electricity generation from renewable sources. This affords elec- tric vehicle and plug-in hybrid vehicle own-ers the cheapest transport and will also contribute to increasing the share of green energy used in electric vehicles and plug-in hybrid vehicles. Conversely, electric vehicle and plug-in hy-brid vehicle owners with an unpredictable and considerable need for transport could achieve tremendous flexibility via a Smart Grid, as a Smart Grid will allow for the rap-id charging of the battery in electric vehicles and plug-in hybrid vehicles without over- loading the power grid. Typically such rap-id charging would be more expensive than conventional, financially optimal charging; on the other hand, the electric vehicle and plug-in hybrid vehicle owner would be able to go quickly from empty tank to full tank. These possibilities will not be available without Smart Grid as a power system de- veloped in a traditional manner will not of- fer the consumers the possibility of hav-ing the same control of their consumption. Moreover, rapid charging could scarcely take place in private homes without Smart Grid.
3.2 Smart Grid can provide a
complete overview of energy
consumption
The establishment of a Smart Grid will in-crease the digitisation of Danish homes, as more metering, control and communica- tion electronics will be installed in the hous- es, which will make it possible for the con-sumers to achieve automated control and intelligent electricity consumption. An addi-tional benefit of this equipment will be the possibility for the consumer to purchase a number of related services. For instance, it is conceivable that consum-ers could ask to receive an SMS if their heat pump, for example, should happen to break down while they are away on winter holiday so that they would have the possibility to call for service and thus prevent the house and the water pipes from freezing. The increased digitisation can also support services, which improve the consumer’s eve-ryday life. By communicating with the unit that controls the electricity consumption in the house, for example, such services could provide for the automatic shutting-off of electrical standby consumption in the home or the dynamic optimisation of the tempe-rature in the house through the electrical heat pump. Finally, it will be a natural extension to con- nect the increased digitisation to the oth-er sources of supply in the household, such as water and gas. The possibilities here are wide ranging and can comprise a service, for example, whereby the consumers can ac- cess information services relating to diver-gent water consumption which may be due to a burst pipe.3.3 New energy-related
services will create entirely
new opportunities
In the long term, it is expected that the elec-tronics in the home could give rise to a wide range of new services. Once the technical elements are in place, it is highly probable that commercial players will emerge that will develop new, innovative products and new markets, as has been the case with mo-bile telephony and the Internet, for instance. An example of this could be the coup- ling of Smart Grid electronics with offers of burglar alarm and home monitoring as such services could use the infrastructure that Smart Grid is based on. Besides the advantages that are directly eco-nomically quantifiable, several studies show that consumers are also often more emo- tionally motivated to want new technolo- gy as this can also provide a perceived val-ue. In this context, Smart Grid electronics will afford consumers the possibility to allo-cate some of their electricity consumption to times when there is a documented abun-dance of renewable energy in the power grid.3. Smart Grid offers new
23
Smart Grid is the most effective way to adapt the power system so that it can man-age a future of more wind power, more electric and plug-in hybrid vehicles and more heat pumps. For this adaption to oc- cur, all the players should invest in equip- ment and solutions for combining meter-ing, control and automation in the power grid and in private households with com-mercial products. If everyone should play a part in implementing these investments, a market needs to be created where cash flows can move freely so that all the players have financial incentives to participate in the adjustment. Moreover, it should be clar-ified which activities should be handled by regulated enterprises and which activities should be conducted on the free competi-tive market.4.1 Realising the Smart Grid
potential requires the efforts
of the entire sector
Analyses in the project have shown that the establishment of a Smart Grid will result in social costs of DKK 1.6 billion, whereas the alternative, ie traditional power system ex-pansion, will cost DKK 7.7 billion. Smart Grid is therefore the least expensive method for adapting the power system to future re-quirements and can save society alternative costs of DKK 6.1 billion. The establishment of an intelligent power system in Denmark requires efforts and in-vestments from all regulated players in the electricity sector as well as players acting purely on competition-based, commercial conditions both inside and outside of the in- dustry. Only when all these players contrib-ute can the total benefits of a Smart Grid be realised. This need is due to the fact that an efficient, market-based and consumer-oriented Smart Grid in Denmark will make the power system more comprehensive and far more dynamic than it is today. Conse- quently, there will be a need for significant-ly increased integration across the existing interfaces to secure a sufficient basis for in-volving the consumers in the system. Some of the new key tasks in the future will be: • Preparation of an integrated price mech-anism which for a given period reflects both the price of electricity on the spot market, potential prices for regulating power and ancillary services and a dy- namic pricing of the load on the distribu-tion network so that market players can apply this integrated price in the compet-itive markets • Implementation of a system ensuring a constant overview of decentralised re-sources available for supplying regulating power and reserves as well as of their lo-cation in the power grid. To render possible these new interdiscipli-nary functions, it will also be necessary to carry out changes within all the areas of re-sponsibility in the power system, with the TSO and network companies undertaking new tasks: • The TSO should continually develop the market for balancing and ancillary ser- vices to provide easy access for new sup-pliers of services as they are introduced • Network companies should create a real- time image of the load on the distribu- tion network, which can become the ba-sis for an integrated price formation that motivates the consumers to use electrici-ty in a way that minimises the additional costs of grid expansion • The TSO and the network companies should ensure communication etc., which is necessary to enable market players to bring the new markets effectively into play vis-à-vis the consumers. A number of network companies are either engaged in or planning to replace electrici- ty meters in private households, and the re-placement of oil-fired burners with electric heat pumps is already well in progress, pro-moted through various subsidy schemes, for example. Although the major challenge in relation to electric and plug-in vehicles is still some years away, extensive work is carried out today to develop concepts and charging stations and to plan the expansion of the entire charging infrastructure. A sig- nificant part of the foundation for the in-telligent power system of the future is thus being installed already now. Therefore, ef- forts should be directed towards identify-ing the need for and ensuring the necessary standardisation and functionality require-ments, thus preparing these elements to the widest possible extent to function im-mediately in a Smart Grid concept. This will promote an efficient implementation of the Smart Grid functionality with the owners of heat pumps, electric vehicles and plug-in hybrid vehicles.
4.2 An efficient market will
lead to a common effort and
realise Smart Grid potential
A precondition for ensuring a common ef-fort from the entire sector is the existence of financial incentives for all the players in-volved. This becomes particularly decisive in a situation of rising costs and new benefits across the regulated and purely commercial enterprises and the consumers, with some of them initially bearing the costs of invest-ment and others reaping the benefits. The market should be commercialised, thus ensuring the free movement of cash flows between players. Moreover, the proper divi- sion of work between regulated and compe-tition-based activities should be ensured. To ensure that such market commerciali-sation has the best possible conditions for success, the Smart Grid market should focus on ensuring low complexity and low costs already in the establishment phase. Market access barriers should be kept low so that new players can easily enter the market without having to make huge investments in equipment or IT systems to comply with unnecessarily strict and complicated market rules. At the same time, transaction costs
