Building resiliency at the distribution grid level-Germany’s Business Model

The incentives, initiatives and technological drivers that come in to play when building a resilient distribution grid.
Published: Thu 16 Jan 2014
The energy market is moving towards becoming privately-owned and decentralised, generating renewable and carbon free power. According to Christoph Burger, Managing Director of ESMT, there are a number of drivers that are causing this transformation:

Technological drivers

  • There are a lot of technological brokers and existing technologies (such as grid parity PV and heat pumps micro– combined heat and power (CHP), are providing learning curves. 
  • Information and Communications Technology (ICT) progress-the ICT layer enables us to have multi-directional flows to monitor different streams. This helps the industry to develop completely new business models.
  • New Technologies such as smart meters and e-vehicles are being developed. 

Regulatory drivers

  • Avoidance of negative externalities caused by climate change and supply security
  • Trade-off between transmission lines and decentralised systems

Empowerment

  • The transition from consumer to prosumer and more participation from civilians
Mr Burger describes the road to decentralization as a “snowball effect which cannot be stopped.” He points to Germany’s energy plan, Energiewende, as a good example of this inevitable transformation. The ambitious plan was established to increase Germany’s reliance on renewable energy (RE) generation and improve energy efficiency. Today, the country’s renewable energy accounts for 23% of its electricity generation-a figure that already exceeds the European Commission’s expectation of 20% by 2020.
 
He explains that Energiewende started in the 1990s when water power accounted for 3% of the country’s power generation. The government first focused on developing biomass and then wind and solar followed. The relative feed-in tariff was linked to the retail price and then after a decade, the government decided that it was an unstable investment scheme. In order to develop more certainty, the country switched to a feed-in tariff that would be fixed for 20 years. Currently, there are discussions to reduce the fixed rate.
 
He points out that Energiewende caused fundamental changes in the energy chain:
  • Large-scale renewable energy generation
  • Prosumers are now feeding energy in to the distribution grid
  • New markets in energy performance- contracting and building efficiency
  • There are now new players in generation, storage, CHP and Virtual Power Plant (VPP), smart home management systems, developers of area networks, utility system integration and grid optimization
 
The value chain has been turned upside down, he explains. “The real revolution is not the renewable energy part-it’s the turning around of the value chain. The consumer has more control and is now providing the power.”

Transformation- grid resiliency becomes both a threat and opportunity

The transformation to renewable energy has left the grid somewhat “shaky.” The nation’s grid operators, such as Tennet, must intervene to stabilize the grid as increasing renewable energy is putting extreme strain on the grid. Mr Burger explains that the market needs to view this as an opportunity and as a sign that the RE market is literally booming.

Capacity markets and strategic reserves

Currently regulators are discussing how the market should be regulated in order to guarantee availability of capacity. They realize that if peak load prices are too low, there will not be enough capacity to provide the required energy.
 
There are two available strategies:
 
Firstly, the Strategy Reserve-this is where utilities can be requested to keep plants running. Alternatively, there are other new solutions available:
  • LichtBlick, in co-operation with VW-combines micro CHP to a virtual power plant. This provides heat for households and electricity for the spot market. Residential households will experience empowerment and emotionalisation.
  • Demand side management. Entelios and EON claim that there is 9GW demand response potential from Germany. This figure is even higher at 25GW for industry and commercial consumers. 
  • Energy storage parks. Younicos has developed a 5MW /5MWh storage park with Wemag to ensure flexibility and security of supply.
  • Bioenergy villages and energy cooperatives-developing energy-autonomous regions. There are currently over 130 bioenergy villages in Germany and this number is growing. People are willing to pay a premium to ensure risk reduction and possible investment opportunities.

Regulation

With regards to regulatory discussions, Mr Burger points out that in Germany, the mindset is dominated by a centralized energy value chain and not by the possibility that there are various decentralised models. He suggests limiting administrative hurdles for decentralised generation. This will initiate competition so that the best integration models can be put in place. He says, “Communities should be allowed to compete for the best model.”
 
He concludes that the market should not be over-regulated as the aim is to liberalise the market. “We want transparency when it comes to the costs and benefits of our energy supply. People must be able to understand the process and prices should be negotiable.”
 
Image courtesy of stockimages / FreeDigitalPhotos.net