The global power sector is going through a great transition or, if you will, an innovative revolution. The energy utilities worldwide are adapting to new market conditions through innovation, change or expansion of service portfolios and modernization of business models. The time has come to give a thought to how to lead the change also in the power sector in Slovakia so that we don’t end up “learning how to walk where others will run”.
Idyllically said, the world power sector represents a longer than 120-years way of human life comfort optimization. After more than a half-century, it can be found again in the swirl of important changes. Due to global economic progress, automation, implementation of new technologies and mainly new consumers connecting to the power grid, the power consumption has been constantly and significantly increasing.
We are gradually managing to counter the trend of growing consumption, urbanization and technologisation with greater efficiency and sustainability.
The increasing dynamics of change is not only experienced on the technological side but also on social and economic side. The power sector as one of the most important sectors in the neural system of the national economy must search for flexible ways to keep up with the trend. Any half-solutions that some countries use to “flex” the positively growing efficiency curve have only little hope to achieve a positive result.
A New Philosophy
For decades, the power sector has been going through a process reformation and has opened up to a new paradigm. The essential changes that have happened so far can be attributed to three main phenomena:
- Political will (or rather obligation now) motivating to increase the efficiency of production and distribution capacities and make them more ecological,
- The launch of clean, economically available and spatially distributed energetic technologies,
- The existence of infrastructures producing high-quality data that is available for energy utilities as well as to final consumers.
These attributes of the energetic revolution significantly change the philosophy of the whole existence of the energetic system. The current development and search for a sustainable model influence not only the internal dynamics of technical infrastructure on the frontend but also the dynamics of social infrastructures on the backend. While in case of technologies we can talk about some sort of modernization, in case of customers it is a revolution.
Thanks to the existence of intelligent solutions, it is a success to mutually connect these two infrastructures using the two-way information flow between energy utilities and their customers. Moreover, the data availability provides a vast opportunity for further improvement of power systems functionalities and efficiency. Therefore, it is possible to presume that the innovative method of data researching for the purposes of new economic models identification along with the study of decision-making and behavior of companies and individuals will be an important factor in power sector in the years to come as technological development alone.
The new paradigm side effect will also be the stronger “intimate” relation between energy utilities and their customers. New communication capabilities (in hidden forms so far) change the position of a customer from a conventional – passive one to an active part – a “decision-maker” influencing consumption or the energy network services provider. From the point of data access and availability, it is a very delicate matter. The national systems will have to come up with solutions as to how suitably process the number of crucial information.
However, nothing changes the fact that the detailed information on the consumption side will be the key part of power sector transformation. After all, in some countries even now the number of applications for permission to “mine” data that would enable a profound view to consumers´ behavior significantly exceed the number of applications for mining fossil fuels. Timely pursuit and competent management of the trend will be crucial for stable power sector development also in Slovakia.
How to Deal with the New Trend in Slovakia?
The new facts and data that are pouring out of various channels must be organized and used in a search for alternative energy policies. The main changes must come on the side of regulation methods and on the side of technological equipment of the power grid. This is how we could create a base for a new framework for sustainable sector development and make it sufficiently flexible, economically reproductive, stable and socially acceptable at the same time.
Even though the existing simulation model of regulation is, in its core, effective as for the costs distribution and optimizing, it would be suitable to enhance it with solutions that are less financially demanding, utilize the existing production capacities better, make use of available metainformation and particularly are less burdensome for the society.
The Cheapest Energy Is the One We Don’t Consume
One of the most factual solutions that is enabled by the availability of the wealth of data, is the already mentioned inclusion of final consumers into the management of the power grid. It is already happening now, e.g. by flexibly managed consumption. Basically, it is a model in which the flexibility of customer´s consumption is used instead of auxiliary power units during the energetic peak hours. In a simplified way, it means that customers do not consume the energy during the energetic peak hours and make the capacity free on the market (so-called “negawatts” – negative megawatts) for other less flexible processes (e.g. to industrial production, services, etc.).
The important presumption for building such a model is the creation of a closer relationship between energy utilities and customers. The instruments needed for the process are the development of intelligent infrastructure in local distribution and communication networks and the access to information on prices and the market in real time and in a comprehensible manner. The new and very important aspect is the cultivation of a long-term partnership that could help energy utilities to better understand ”patterns”, flexibility and consumption motivation of their customers in different locations.
The main argument for the experimental study of the model´s implementation presumptions is the fact that, unlike conventional energy sources, the economy of using customers´ flexibility, so-called “demand response” is always positive – when consumers decide willingly not to use expensive energy, they automatically save money, not only benefiting themselves but also the entire economy in the form of maintaining lower prices in periods of time when prices typically spike up. In case of an existing stimulus, they can even “earn” money.
At the same time, it is important to say that per studies carried out in the recent years, using consumers´ flexibility is a cheaper alternative (Borenstein (2002), Fowlie, Auffhammer, Blumstein (2008), Darby, McKenna (2012), Chen (2014)) even in the case of an existing stimulus (in the form of new market tariffs or so-called offered prices (bids)). In my work, I often meet with refusal to pay any stimulus or subsidy for energy savings on the households´ side. However, if we look at the other side of the same coin, customers today de facto “reward” the grid operators with not insignificant amounts for strategic mistakes that happen during production/consumption planning process. Therefore, in this case, the two points of view on the same problem have two principally different economic and social impacts.
From Theory to Examples
Consumers, or rather their households or offices, are already used as a virtual source suitable for balancing the voltage and power volumes in the grid in many countries (e.g. USA, Denmark, France, Great Britain, Finland).
The first indication of the willingness to use customers´ flexibility in Slovakia’s power grid was launching the regulation of offtake in towns and industry using the systems of mass remote management (MRM). This solution is the first attempt to build intelligent network management but it is still only minimally used, in a limited one-way regime and mainly in the industrial sector. More studies (Gils(2014), Bertoldi (2010), Fraunhofer (2012), Toritti (2013)) stress that the space for regulating voltage and consumption in Europe will be mainly coming from the demand side, i.e. households, businesses and the industry.
The way this system in which households act as a network regulation element could work can be explained on the following example of the greatest “energy hogs” in the majority of households – the refrigerators. In fact, they represent the source of constant offtake and their consumption is relatively simply predictable.
According to statistics published by the RWE Group, the parent company of Východoslovenská energetika (Eastern-Slovakia Energetics), the refrigerators´ consumption represents on average 26 percent of daily household energy consumption. Yearly, refrigerators in Slovak households consume approx. 1.3 TWh of energy which is approximately the equivalent of a half-year production of one nuclear power station block in Mochovce (!). As refrigerators work constantly, in hours it is approx. equivalent to:
- 150 MW of physical installed capacity (or 150 MWh of electrical energy) at the full capacity factor,
- ~5 percent of average hourly consumption in the afternoon in the summer in Slovakia.
If televisions are added to the volume (~4W in the standby mode (SB)) as well as appliances and small gadgets with the input power of approx. 2 W which daily consumption in SB presents approx. 0.4 kWh/household, together with refrigerators we will achieve the capacity of approx. 185 MW which means approx. 25 percent of Čierny Váh Hydroelectric Power Station´s pumping capacity that is used by Slovak Power Transmission System to cover electric energy supplies during peak hours. As can be seen in the picture, the capacity could be used to regulate the peak hours in the Slovak power system.
At first, managing the demand through switching refrigerators off and on in short time intervals can sound relatively absurd. We can intuitively say that if we want to manage the electricity demand, then it would be worth it in big administrative buildings or production plants. It is simpler to manage a smaller number of big units than many small units. That is already happening. The big advantage of smaller units is their reliability, fast response and, from the point of the system, also more suitable spatial arrangement.
If we should find the right simile, then the fact that we can use the capacity of the certain number of households in one location to cover up for a sudden increase in demand is basically something like having a small power station built locally. The research presented in 2012 by the group of Dr. Callaway at the University of California in Berkeley states that for the reason of other functional parameters as those that need an auxiliary power plant to provide additional services, it is practically immediately possible to use the responsiveness of thermo-dynamic appliances in households in the volume of their 15-minute capacity. It is because their use does not require additional time to ramp-up.
Real Life Example
I will again give an example: The Bratislava Volkswagen´s painting room consumes approx. 7 MWh of electric energy per hour. During the same time, only small household gadgets and refrigerators in the housing estate in Devínska Nová Ves and in Stupava consume approx. 1.5 – 3 MWh of energy. If we put only 1/3 of the households out of operation, we could theoretically compensate a sudden 6-14% (!) consumption increase of the painting room with no need to start auxiliary power units (after the synchronization of needed parameters in the network – phases, marginal voltage etc.)
Theoretically, if we remotely switched off refrigerators and small gadgets in Slovak households for a short time, already running power plants and the newly-freed capacity could be used to cover the demand peak in one of the other sectors – e.g. in industry, administrative buildings, hospitals, data centers, shopping centers, stadiums, etc.
A system functioning this way de facto fulfils the function of auxiliary services that are used to balance the system in case of offtake irregularities and which are nowadays provided by subjects on the supply side of the equation. To illustrate, an average hourly volume of auxiliary services (positive and negative) was approx. 60 MWh in Slovakia in 2012.
When Less Is More
As I’ve already mentioned, the sources on the supply side that are used for system balancing are namely pumping hydro, thermal, gas power plants and CCGT. An increasing amount of regulation energy is also traded in the energy market where the volumes are not guaranteed.
The main difference between the forms of regulation is their flexibility and cost. In the period of 2010-2013 more than half a billion EUR was spent (SETS, 2014) for auxiliary services which represent approx. 100 EUR per capita. What’s more, in the last few years the SETS declared a problem with fulfillment of the secondary regulation auxiliary services that in the current condition reach the level between 55-80% of needed capacity. There could be more reasons for this.
One of the main reasons is the problem in continuous secondary regulation resource onsets due to network fluctuations caused by renewable energy resources (RES). Also from this point, the introduction of a wider demand management system is advantageous because, in the first step, it can help regulate voltage in the system during sudden RES supplies interruptions and, in the second step, to round up capacity and voltage shortages in the network.
Reaching needed operation voltages is important to for the system administrators to start-up secondary regulation resources. This is an area where households could play a major role in the future. They could provide flexibility by decreasing or increasing offtake during network irregularity events. For example, in case of excessive production from RES, households, and companies could use the surplus (cheap) energy for cooling, heating, hot drinking water heating or electric cars recharging. And, of course, in case of shortages, they would reduce their use.
Another main advantage is the economical aspect of the service. When managing the demand response (flexibility) of households and companies, we can save a significant amount of money as for costs related to the service and that could be estimated in approx. millions of euro a year. For a more detailed illustration of advantages I offer an approximate conservative comparison of solution´s economic parameters using some technologies currently used for auxiliary service provision:
Looking at the infographics it is important to bear in mind one important fact. In our system, we use a pumping hydropower plant Čierny Váh for regulation. Currently, the power plant is used mainly as a big accumulator for storing an excessive amount of energy from RES. The installed capacity of Čierny Váh is 735 MW. The power station produces approx. 370 GWh of regulation energy annually which, conservatively speaking, presents the annual production of a power plant with installed capacity of approx. 50 MW.
It is 1/3 of what we presume is the virtual capacity that could be provided by fridges in Slovak households by limiting their consumption at given time intervals. It means that the usage of Čierny Váh during a year oscillates around 2-3% of its total potential. The latest empirical evidence shows that the use of capacity on the demand side when using the system’s “demand response” can be between 25-35%. Although the demand management infrastructure requires a relatively high investment related to the installation of intelligent network elements and the operation of the virtual capacities aggregator, the economic advantages of this alternative in case of smaller low-volume auxiliary services are indisputable. Eventually, the above-presented figures send a clear message.
Presumptions for Using New Services and Their Meeting in Slovakia
The first key prerequisite for a successful implementation of new regulation services such as the use of demand management is the reliability of intelligent “smart-grid” technologies and cost efficiency of their operation. The Slovak distribution companies have already been testing the smart-grid operations and have already passed the pilot stage of implementation of smart metering infrastructure. The transmission system operator has experience in intelligent metering and system management from the past.
The evident problem is the condition of the distribution and transmission system. A major part of the infrastructure in Slovakia is getting into the fourth or fifth decade of its physical existence and it is on the edge of its technological life. For many parts, the residual time of reliable operation is 5-10 years. The systems are not accustomed to intelligent management and they lack necessary automated control and safety features for events of sudden frequency and electric current fluctuations.
The renewal of the distribution and transmission network requires a massive volume of investment. In the summer of 2014, the Slovak Electrical and Transmission System (SETS) published a 10-year investment and resource plan proposing renewal and development of transmission networks with total estimated investment reaching 600 million EUR. For comparison, the Czech transmission system with similar age parameters plans to invest three times the amount (mainly for the development and renewal of equipment and transformers and 400kV cabling as 220kV cabling has already been renewed).
As for the distribution infrastructure, we can use the example of Západoslovenská distribučná, a.s., a distribution system operator that covers the most densely inhabited part of Slovakia. In the last seven years, the company has invested more than 500 million EUR in various network renewal and development projects. In case of the transmission and distribution systems, an increasing amount of investment goes to the development of smart grid solutions. In order for the consumers to be actively participating in the system management, sizeable synchronization of renewal and development strategies for the systems will be required. To fully use the functionality of the “demand response” system, it is important to start developing infrastructure in densely inhabited areas with high rates of potential aggregated capacity.
The second important factor is to solidify the technical-economic framework for the evaluation of the advantages of new regulation services provided in electrical energy and their implementation. This framework should be an information resource for the creation of appropriate standards and policies. The areas that are important to deal with not only in practice but in the academic environment are e.g.:
- The elasticity of demand and economic value of electrical power from the customer´s point of view
- Time-Spatial analysis of available capacities for providing “demand response” services
- Simulating development, operation and transaction costs associated with the new network regulation forms
- Simulating reliability of supplies and technical performance of the system when implementing the new forms of network regulation
- Cost-benefit analysis of using households as auxiliary power units
- Analysis of socio-economic benefits of energy efficiency and comparison with benefits of demand management
Opening these topics and researching new trajectories of power sector development not only increases the flexibility of possibilities but more importantly, it timely identifies cost and benefits that are presented by individual alternatives. We could find many different arguments for configuration or economic efficiency of new regulatory solutions and their overall impact on the society. What’s more important, however, is to start the debate at a professional level.
Why does the power sector in Slovakia call for innovation?
The current power market model in Slovakia is ineffective and costly in the long run. We can also question its sustainability and ability to motivate individual subjects to innovate. It is important to speak about the feasibility, cost and benefits of alternative regulation models including also the demand response for three reasons: the first one is economic, the second one is social and the third one is pragmatic.
Money needed for the above-mentioned operation and investments into development of the network and production capacities come from the customers (companies and households) in the form of tariffs that are a part of the final price we pay for electric energy. In the recent years, the tariffs have increased mainly due to the support of renewable resources but also the consequent increase in network overload.
The consumption of Slovak households represents around 20% of total electrical energy consumption in the country (to compare, in the Czech Republic and Germany it is almost 26% and in France up to 38%). In 2014-2015 households made payments in the amount of about 373 million EUR to the system, transmission and distribution. Of that, according to a top-down calculation – with the 2014 Regulatory Office for Network Industries (RONI)´s analysis on the composition of SOT (system operation tariff) missing – approx.
64 million EUR annually is distributed to support the RES and CEHP (combined energy and heat production) production and roughly 31 million EUR is used to support domestic coal mining and the operations of STEMO (short-term energy market operator). Approx. 278 mil. EUR remained for the operation and development. As I already mentioned, it is evident that cost increase can be attributed mainly to the problematic integration of renewable sources (RES) into the system which leads to serious problems in the overall system balancing and curtailment.
This is where the use of demand management can be used as an important and cheap tool for solving these problems and securing uninterrupted operation of the overall power system thanks to its quick potential dispatchability. When assessing the use of demand-side in managing the network, we can further speak about benefits consisting of better demand knowledge, prediction, and management capabilities or more effective management of infrastructure and its individual segments.
These are all areas where improvement can be beneficial for energy sales companies. In the United States, the country that is pioneering the use of demand management systems, the energy utilities were able to save significant amounts of money. The concrete example is Pacific Gas & Electric Company from California which was able to postpone their scheduled maintenance and exchange of transformers by 3 to 5 years by decreasing consumption in peak hours and lower network overload. This way, in 2014, they freed-up capital amounting to 2.5 million USD that can be used to finance other projects within the company. Another noteworthy benefit is the fact that establishing the demand management programs comes with important job creation; many highly qualified job positions (for electrical engineers, system managers, software engineers, analysts, office managers and also a wide network of traders and servicemen) have been created in the segment to-date.
Slovak population suffers from the Europe-wide problem which is fast aging. The average age in the EU countries is around 40 years while the expectations are that at the current birth rate, longevity trend and migration as much as 25% of the European population will be older than 65 years in the coming decade. There is a real risk that this trend will influence the power consumption as well.
In connection with the demographic development and above-mentioned economic facts, it will be important to reconsider the system of grid development, the support of RES integration and the structure of tariffs to ensure the new adequate distribution of the cost burden on the population.
The trend of an aging population will at the same time be translated into a) lower disposable income for the elderly majority of the population and b) higher energy consumption in the household segment during the day, as elderly people tend to spend most of their time at home. As a matter of fact, it has been proven that the average age of the population is a relatively good proxy for average energy consumption in households that increases along with the average age.
More research works proved that households with people of retirement age consume most of the most expensive (peak) energy. At the same time, the studies prove a high rate of flexible behavior in the older part of the population which contributes to a higher probability of their engagement in the demand management programs and therefore the possibilities of using their capacities to regulate the power system. From the academic point of view, the problem has been studied by prof. Madlener from Germany, professors Brounen, O’Neill and professor Chen from the USA, and Dr. Torriti from Italy.
If the energy utilities and regulators are supposed to successfully face up to the new challenges stemming from the system transformation, the new regulation philosophy has to focus more on the final customer. Figuratively speaking, the current model makes it easier for the regulator and the energy utilities to integrate new generation sources into the system instead of installing smart meters, analyzing complex consumer data, setting dynamic power prices and creating compensation mechanisms for flexible demand management services.
We can expect that the EU mandate requiring a larger use of demand management in the power sector is only a question of time. The transformation of energy utilities from operators providing power to companies providing energy solutions is inevitable. Already today, through the myriad smart IoT devices, we can observe an unprecedented increase in demand for solutions that significantly simplify the energy or comfort management of companies or households.
The goal of energy utilities should be to provide the consumers with unique metering systems that would inform the consumers about their real-time consumption gas and power consumption and would provide them with a cost estimate at the same time as well. The configuration of such a complex system as demand management is, requires a lot of effort, learning, time and mainly surgical precision. Without changes in the legislative and regulatory environment, such a system is almost unthinkable.
Time for an Experiment
Slovakia takes pride in one of the cleanest energetic fleets in the world. At the same time, the economy is successfully fulfilling the overall mandate to decrease emissions across the industrial sector. Thus, while decreasing of the carbon footprint in the power sector is not the most burning problem, there are a space and time for the attention to be focused on innovations, sustainability, dynamics and the quality with which we use energy in the economy.
The new elements mentioned in this article should become the cornerstone of the new energy policy and the country’s strategic energy master plan. Energy utilities together with the regulator should hold “the finger on the pulse of action” in the process of formation of these concepts. As for the economic and social support for increase of the efficiency of power consumption, it is possible to reduce the sense of this activity into a very simple but intellectually extensive concept – with every EURO that is not invested in the fossil fuels, or expensive power plant reconstructions, but is timely spent on energy efficiency projects and intelligent networks, we are talking about investing in innovation and the future people and companies.
After all, it is difficult to imagine a cheaper alternative than the one where our energy consumption will be addressed by the photons from sensors monitoring our consumption instead of electrons in the power grid. One thing that nobody will tell us is when we should start to learn and make experiments. I think that the time is up for the Slovak power sector. If we fail to embark on this journey as soon as possible, we risk that we will “ be learning to walk where others will run”.