European utilities are facing many challenges today, one of which is regulation. The energy efficiency directive is pushing utilities to decrease energy consumption by 1.5% per year. Meanwhile electricity consumption is stable but, the peak demand is growing. As a result, countries face growing challenges to balance supply and demand.
But, many utilities are not familiar with what happens behind the meter and this is where partnerships with demand management solution providers can help them achieve these regulatory goals, says Jean-Yves Blanc, Demand Management Vice President at Schneider Electric. He adds that some utilities do not understand the implications of demand management and will “fall behind their competitors.”
Blanc believes that despite directives and regulation, utilities are likely to follow the US example of demand management where in some states, they cannot increase tariffs until they can prove that they have adopted demand response solutions to improve energy efficiency. He says, “In Europe, demand response can only be made possible through the right directives or local regulation. The European Commission will probably move towards the same situation in the US by setting high level ambitious targets for the continent. Sooner or later, measures will be put into place to achieve this.”
Challenges of demand management in Europe
Europe’s demand response development is still at a very low level. Blanc blames this mostly on the region’s lack of favourable regulations. Olivier Baud, the President of Energy Pool – Schneider Electric’s subsidiary – which currently acts as a Demand Response operator, aggregating and coordinating large-scale end users in France and in a handful of other European countries–says that a negative mindset towards demand management can also be a significant barrier to its development.
Baud explains that grid operators typically meet demand fluctuations by turning generation units up or down. However the energy community is becoming increasingly aware that this is no longer sustainable and managing demand is now a priority:
As peak demand grows generally faster than average consumption, it becomes necessary to build additional dedicated thermal peaking plants to meet this fast-growing peak demand. However the profitability of those plants is seriously challenged as the number of their operating hours is shrinking, the fossil fuels on which they run become more expensive and their environmental impact becomes better reflected in prices.
In addition, renewable energy deployment is spreading fast and the large penetration of renewable energy generation units requires significant and expensive additional peaking units to mitigate supply intermittency risks. These important requirements further jeopardize asset profitability and GHG emissions reduction.
“Thanks to smart grid technologies, end users can actively help balance supply and demand”, says Baud. “Energy Pool is proud to be at the forefront of this revolution by implementing innovative smart energy management solutions that benefit all grid players. Peak consumption can now be reduced by up to 13% through demand management, compared to the 2-3% reduction from a time-of-use pricing system.”
By introducing an agile and flexible way of balancing power supply and demand, demand response technology addresses the issues of consumption fluctuations as well as renewable energy integration. The market will force utilities to develop demand response solutions because other energy supplying competitors will propose demand response discounts, explains Baud.
IT and OT integration critical for demand management
There will be a dramatic change in utilities’ business models as they develop new services in response to market demands, explains Blanc. “Today, utilities are not really challenged. Their business has always been to provide electricity. However, there are now more electricity suppliers feeding into the grid and they need to integrate IT and OT to make these demand management opportunities a reality. This will facilitate how utilities implement new ways of working with their customers, sell such services and integrate demand into the whole operations picture. We live in a world of optimisation and there is a need to optimise operations. The use of IT is critical for this. This industry is growing ever more competitive and utilities must embrace data management solutions too.”
“It’s time to recognise that the industry is changing and traditional business models will have to change and as fast as possible. With new market entrants like Apple and Google, utilities need to wake up and partner with IT/OT solution providers who can make these changes happen.”