June 2013
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Germany taking Distributed Power Seriously

It is the demand side and structure of the utility market that needs changing if Smart Grid is to be realised within the next 20 years.
Allan McHale
Allan McHale,
Director,
Memoori



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One of the main tasks in delivering a Smart Grid will be to install and bring together Smart Grid systems such as AMI and Automatic Distributed Response (ADR) with Distributed Energy and Smart Buildings to win Negawatts. This will go a long way to achieving the main aim of Smart grid, which has to be to accommodate the maximum amount of renewable power on the grid and reduce CO2 emissions.

Our report http://www.memoori.com/portfolio/the-smart-grid-business-2012-to-2017/ shows that the supply side is changing to meet the challenge and there are no major obstacles here that will hold up progress. The Smart Grid manufacturer, installer, supply business underwent massive consolidation in 2012; investment through Venture Capital amounted to $779 million after adjusting for senior debt finance transactions.

Power Plant

Power Plant
The structure is changing with a perceptible but slow move away from the dominance of the international majors to the medium and smaller specialist companies who are increasing their share of the business. In addition a significant number of new entrants from outside the industry (e.g. the IT & Communications business) are increasing competition and strengthening the business. However the industry is still too fragmented with hundreds of companies below minimum economic size and consolidation will continue for many years to come.

It is the demand side and structure of the utility market that needs changing if Smart Grid is to be realised within the next 20 years.

The present business model needs to be changed from its current central structure to a hybrid decentralised one that will allow all the stakeholders to contribute and benefit. All forms of Distributed Power, Micro-generation and Micro-grids need to be incorporated into the electrical supply system because they can generate from Variable Renewable Energy (VRE), help balance out supply and demand, deliver locally and make the system more flexible, reliable and efficient.

Even if this could be organised through the electrical utilities and they could acquire the skills and manage the new technology; they could not raise the $2,000 billion needed to build the world Smart Grid and in addition meet the massive cost of replacing their fossil fuelled generating stations that now have to be taken off line.

Our report suggests that a new business model for the development of Smart Grid in many countries, particularly the UK, could be based around capital investment coming from sovereign / state owned investors and pension funds; possibly from the Middle East and Asia. IT and Communication companies would supply and operate IT infrastructures and the billing and pricing mechanism but the day to day operation of balancing and operating Smart Grid would still be the responsibility of the utility companies.

There are other business models that could work but they all depend upon the electrical utility companies taking up the initiative and working with the full cooperation of all the stakeholders and particularly accepting that Distributed Power is a critical part of achieving a cost effective Smart Grid solution. This is not an easy decision for them to take for in many cases they still have excess generation capacity which they want to work. If they are to play the major role they must adapt to sharing the responsibilities and benefits of Smart Grid with all the stakeholders.

A good example of a utility company taking the initiative on Distributed Power is RWE. The virtual power plant operated by Siemens and RWE, which went online in October 2008 as a pilot project, has been expanded with the merging of approximately 20MW of electrical generating capacity planned for the first year of operation (2012); which is to be increased tenfold to about 200 MW by the year 2015.

Reliable Controls The objective is to integrate different distributed energy sources such as biomass plants, biogas block heating plants, wind turbines, and hydroelectric plants throughout the whole of Germany. In February 2012, RWE Energiedienstleistungen GmbH, began marketing the product “virtual power plant” on the EEX energy exchange in Leipzig. This is the first centralized direct marketing of electricity from a large number of EEG-compliant (Renewable Energy Sources Act) energy sources in Germany. At the same time RWE and Siemens are starting on the further expansion of the virtual power plant, for which purpose RWE Deutschland AG and Siemens Infrastructure & Cities have signed an outline agreement.

In addition by the close of 2012, RWE Deutschland had connected more than 250,000 plants to the distribution grid which feed in subsidized electricity pursuant to the Renewable Energies Act (EEG). They are continuing to drive forward the introduction and use of innovative grid technologies (smart grids) in order to guarantee secure integration of renewable energies and improve the opportunities for grid control.

One key aim of this coordinated utilization of distributed production plants – besides the economic advantages – is to make a contribution toward improving the market integration of distributed generation systems from many hundreds of stakeholders. They enable the provision of system services in the transmission network, e.g. of control power in the so-called minute reserve range, to be organised by combining emergency generating units or electrical end-use equipment. The virtual power plant aggregates the electrical output from a multitude of plants and makes this supply available to the transmission system operator. If requested, the virtual power plant controls the immediate dispatch of the connected plants, thus contributing to grid stability.

There are those that think that Distributed Energy has a valuable part to play in but only in certain applications such as in rural areas, on military bases and at universities – but not in general. Others envisions communities driving future Micro-grid development, particularly those with building codes that require solar, wind or other forms of self-generation. “Big Data” will have a major impact on how this can work successfully.

Judging by the column inches that this subject has produced over the last six months and its growth since Hurricane Sandy devastated the US North East coastline last November; Distributed Energy will continue to drive forward and gaining momentum in the US because of the Obama administration’s push for more combined heat and power. It has set a target for the US to build 40 GW of CHP by 2020 and other projects like the Connecticut Department of Energy and Environmental Protection’s February announcement that it is evaluating 27 Micro-grid projects for possible funding. The projects were among 36 that sought $15 million in available state grants. Some of the projects are sizable – as large as 10 MW. Governor Dannel Malloy has recommended an additional $30 million for the program over the next two years.




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