Smart grid strategies have still to be finalized as countries strive to lower their greenhouse gas emissions, increase energy efficiency and ensure security of supply. A growing number of initiatives are underway, ranging from the small and simple to implement, to the large and highly complex. What’s become clear is that smart grids are challenging to deliver, raising multiple issues around the role that market participants should play, how best to meet consumer needs, and what the optimum technologies, standards, and schemes should be.
There are two essential elements to any smart grid design: a smart meter that can measure electricity consumption by the hour at each point of delivery; and tools for the consumer to control their consumption, based on factors such as the current tariff being applied based on time of day, the loading on the energy grid, and environmental concerns – i.e. whether the energy is derived from a renewable source. The smart grid might also be the tool with which to address the issue of renewables representing an intermittent source of power generation, with the addition of small scale wind and solar technologies, intelligent consumer appliances, heat pumps, and electric vehicles (EVs) operating in reverse mode.
How this will be implemented in Europe will depend largely on the process of deregulation in the electricity sector, and in respect of the separation of transmission and distribution from the generation and sale of electricity. It is essential that the industry focus on flexible and well structured concepts not too complex to implement and that maintain the structural separation in liberalised markets. And although the potential of the smart grid has never been in doubt, there has so far been a tendency to focus on the size of the market opportunity, as opposed to the most efficient, simple, and robust architectures to deploy.
A complex but pressing challenge
The Smart Energy Demand Coalition estimates that the EU could see savings of €52 billion annually by reducing losses in the electricity distribution network via automation, and by encouraging consumers to cut or alter their energy consumption. Meanwhile, analysis by research firm NanoMarkets suggests that the European smart meter market will reach $1.3 billion by 2015, as utilities look to meet the EU’s aim of equipping 80 per cent of homes with smart meters by 2020.
However, there are still numerous challenges to overcome. Meters for interval measurement have already been installed for commercial and industrial users in most EU Member States, but smart meter penetration in private households is fairly low. Deployments are often based on proprietary technologies and, at up to €250 per installation, cost remains a major hurdle. This was one of the conclusions reached by SAP in a report presented to the European Energy Commissioner in January 2011. The report also found that the cost for the smart meter device itself is around €100, although SAP believes this could be reduced if economies of scale can be introduced.
Changes in the energy mix are making commercial realisation of smart grids more pressing. The adoption of renewables to meet environmental targets makes balancing supply and demand difficult for utilities, because renewable energy sources provide intermittent power generation. At the same time, demand side management requires tools enabling consumers to better monitor and manage their energy consumption. The provision of tariff information based on time for example, will support ‘peak shaving’ schemes, whereby the consumer is able to purchase power from the utility when tariffs are low, while giving them the ability to turn-off appliances. Some of the more optimistic smart grid proponents also believe consumers will be able to generate their own power when tariffs are high.
Yet early efforts by utilities to gain customer acceptance of smart meters have met with limited success. A recent study by Ovum warns that unless utilities do a better job of educating consumers about the long-term benefits of smart meters, it’s likely they will fall back on old power consumption habits and entire grid projects could ultimately fail. Another problem will be solving the question of who pays for the rollout of smart meters, with the solution varying according to whether it is a liberalised or regulated market.
Smart grids and market liberalisation
One of the fundamentals of the deregulation of electricity markets in Europe and worldwide has been the separation of transmission and distribution from generation and sales of electricity. This is a cornerstone for the development of a competitive market which, in respect of accepted commercial models, should be to the benefit of consumers in terms of lower prices. Having originated in the UK in 1990 with the privatisation of the electricity supply industry in England and Wales, and in Scandinavia in the mid-1990s with the development of a competitive market for power generation, full deregulation is now sweeping across Europe from north to south. However, the EU target for full deregulation by 2007 has been missed, and about 50 per cent of the markets are still making the transition to full competition.
Market structure impacts the strategies for smart meter deployment, and approaches in European markets therefore differ significantly. Ideally, the Distribution System Operator (DSO) should be responsible for the implementation of a smart meter that will measure the electricity consumption by the hour; with energy retailers then able to supply not only electricity and electricity saving advice, but also the tools for managing consumption according to price and/or environmental concerns within the concept of a free and competitive market. A number of markets in Scandinavia are following this type of model, whereas in many other parts of Europe, smart grid discussions gravitate around the more complex model of the DSO being responsible for both metering and providing consumers with tools for controlling consumption of electricity.
Certainly, there are no technical reasons to combine metering and the controlling of energy consumption. The data input to the controlling unit can be distributed via the internet or by wireless networking technologies such as GSM and, in a competitive electricity market it would most likely be easier for the retail supplier of electricity to submit one price tag to the consumer than for a DSO to submit many price tags from multiple retailers. In addition, when a consumer changes supplier, it would be up to the new supplier to change the home energy management tool, whilst the DSO would have no need to be involved in the process.
Promoting consumer choice
When designing smart grid concepts, it is essential to define the role and tasks of the DSO in a way that will release the creativity and competitive forces of a free and open market. A well-designed home energy management tool might be considered as a key differentiator for one electricity supplier, and could just as easily be introduced by a competitive player – provided it is linked to the supplier’s price tag for electricity. Moreover, a smart grid controlled centrally with non-conditional disruptions enforced by the DSO with a direct connection to a consumer’s household appliances risks being viewed as a ‘big brother’ approach. Rather, a smarter, simpler and more efficient approach to promoting efficient energy consumption is required.
A basic home energy management tool can be as simple as an SMS message, whereby the consumer receives an SMS when the tariff passes above a certain level, thus enabling them to make an informed decision as to whether they wish to turn off their appliance(s). It can also be extremely sophisticated, with automatic control and regulation of electricity-intensive equipment such as air conditioning, outdoor heating, washing machines and tumble dryers. It could even deliver a reverse mode for EV batteries, thus fully supporting peak shaving schemes.
The most important consideration for any smart grid strategy is that in the same way as a consumer should have the freedom to choose their vendor of electricity based on the most competitive price, they should also have the freedom to choose the best supplier of automation services for their electricity consumption. A smart meter supplied by the grid company that is a monopoly would not afford the consumer this choice. And a consumer able to request a home energy management tool based on their personal preferences is much more likely to use it effectively.
Essentially, the change in the energy mix requires smart metering that gives consumers right tools to move their consumption of electricity according to their requirements, preferences, and in response to periods of high or low supply. Utilities will need the means to measure consumption every hour at the point of delivery, and the capability to transmit tariff information to the consumer, by the hour, if they are to successfully influence consumer behaviour. Crucially, metering must be the responsibility of the DSO, not the retailer, if smart grids are to be implemented without compromising the important separation of transmission and distribution from generation and sales of electricity.
About the author
Ulla Pettersson is a member of the advisory board for POWER-GEN Europe 2011, Europe’s leading event for the international power industry, and will be chairing a conference session at the show on Nuclear Plant Operational Excellence. Pettersson is also the founder and director of ‘e for energy Management Consulting’, a consulting firm assisting utilities and oil corporations with strategy development, business planning, transformation projects and performance improvement. Specialising in power generation, and working with all sources of power – from nuclear and fossil, to renewables such as hydro, wind and biomass – Pettersson has worked with the energy industry since before the advent of deregulation, and has assisted utilities during the deregulation of several power markets.