The Development of Distributed Generation

Martin Scheepers
ECN Policy Studies

www.ecn.nl
Int. Conf. Energy in Changing Environment, 13-14-15 December, 2007, Jacobs University Bremen
Contents

What is distributed generation (DG)?

The policy drivers
Integration of DG in the network system
Effect of a large penetration of DG on the
regulated operators of electricity distribution
networks
Impact of a large penetration of DG and electricity
from renewable energy sources (RES) on the total
electricity system costs and costs for society
What is distributed generation (DG)?

Combined Heat and Renewable Energy

Power (CHP) Sources (RES)

Large-scale Large district heating* Large hydro**

generation Large industrial CHP* Offshore wind
Co-firing biomass in coal
power plants
Geothermal energy

Distributed Medium district heating Medium and small hydro

Generation Medium industrial CHP Onshore wind
(DG) Commercial CHP Tidal energy
Micro CHP Biomass and waste
incineration/gasification
Solar energy (PV)

* typical > 50 MWe

** typical > 10 MWe
 DER share in total electricity capacity (%)

0
5
10
15
20
25
30
35
40
Au
st
r
Be i a
lg
i
D um
en
m
ar
Fi k
nl
an
d
Fr
an
G c
er e
m
an
G y
re
ec
e
Ire
la
nd
L u Ita
xe ly
m
N
et bur
he g
rl a
n
Po d s
rtu
ga
RES

l
Sp
a
Sw in
CHP

ed
en

U
Market presence of DG in Europe

C Bu K
ze
DG total

ch lga
R ria
ep
ub
l
Es ic
to
ni
H a
un
ga
ry
La
t
Li via
th
ua
ni
a
Po
la
R n
om d
an
Sl ia
ov
ak
Sl ia
ov
en
ia
Source:DG-GRID / SOLID-DER
The policy drivers
Climate Change
- 20% or 30% lower GHG emissions in 2020 compared to
1990
Renewable energy sources (RES)
- 20% RES in final energy consumption in 2020
- 40% to 60% RES in electricity mix in 2020
Energy efficiency
- 20% more energy efficient in 2020
- More CHP
Energy Security
- Reduction of gas and oil import dependency
- Secured reliable electricity supply
Market liberalization
- Electricity directive: integration of DG in network
system
Integration of DG in network system

Electricity Directive Art. 14/7

- When planning the development of the distribution
network, energy efficiency/demand-side management
measures and/or distributed generation that might supplant
the need to upgrade or replace electricity capacity shall be
considered by the distribution system operator
DG-operators

Regulator
Equipment
Incentive Equipment
regulation: procurement
revenue cap Operating &
price cap maintenance
profit

Connection charges
Use of System charges
Transport services
(Transport + system services)
Ancillary services TSO

Connection charges
DSO
Use of System charges
(Transport + system services)
Energy loss
compensation
Consumers Large power
producers

Distribution grid
Effect of a large DG penetration on
operational and capital expenditures (I)
Problems to solve
- DG in rural networks causes voltage rise problems.
- DG in urban networks causes fault level increase.
Reinforcement costs
- At low DG penetration levels reinforcement costs are zero, but
they will increase progressively with higher DG penetration.
- Also DG-density causes cost increases.
Energy losses
- DG may initially reduce energy losses, but with higher DG
penetration losses will increase.
Distribution asset replacement value
- DG may reduce power flows through high voltage T&D network
assets and possibly postpone network reinforcements. This
benefit reduces in case of high DG penetration and high DG-
density.
DG-operators

Regulator
Equipment
Incentive Equipment
regulation: procurement
revenue cap Operating &
price cap maintenance
profit

Connection charges
Use of System charges
Transport services
(Transport + system services)
Ancillary services TSO

Connection charges
DSO
Use of System charges
(Transport + system services)
Energy loss
compensation
Consumers Large power
producers

Distribution grid
DG-operators
Energy loss
compensation
Ancillary services Regulator
Equipment
Incentive Equipment
regulation: procurement
revenue cap Operating &
price cap maintenance
profit

Connection charges
Use of System charges
Transport services
(Transport + system services)
Ancillary services TSO

Connection charges
DSO
Use of System charges
(Transport + system services)

Consumers

Smart
Distribution grid
(Active Network Management)
Effect of a large DG penetration on
operational and capital expenditures (II)
Active network management
- Reinforcement costs can be reduced with active network
management. However, in some high DG-penetration cases
costs will be higher than passive network management.
- Operational costs (i.e. energy losses, curtailment compensation,
labour costs) will increase. This results in higher total costs in
some cases.
Neutralizing negative effect on the DSOs
revenues (I)
Extra DSO expenditures
- DG may induce extra operational and capital expenditures
DSOs should not be compensated through DG
connection charges
- to guarantee non-discriminatory network access DG connection
charges should be based on shallow costs (i.e. direct costs of
the connection)
DG-integration costs should be socialized
- DG-integration costs socialized among consumers and DG
operators through Use of System charges
- Use of System charges should be cost reflective
- Preferably differentiated by location and time of use
- Should be positive (if network costs are increased due to DG
operation) or might also be negative (if the network savings are
greater than the costs)
 Neutralizing negative effect on the DSOs
revenues (II) Impact DG on DSO revenue
60%
without regulatory improvements
50%

40%
with regulatory improvements
Incremental net profit/regulated profit

30%

20%

10%

0%

-10%

-20%

-30%

-40%

-50%

-60%
Network type R R U U R R U U R R R R U U U U R R R R U U U U R R U U R R U U
Network management P A P A P A P A P A P A P A P A P A P A P A P A P A P A P A P A
Intermittency Yes Yes Yes Yes Yes Yes Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No Yes Yes No No No No No No No No
Concentration
Low Low Low Low High High High High Low Low Low Low Low Low Low Low High High High High High High High High Low Low Low Low High High High High
DG penetration (%)
11% 11% 11% 11% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 46% 46% 46% 46% 46% 46% 46% 46% 46% 46% 46% 46% 91% 91% 91% 91%
DG penetration (MW)
50 50 50 50 100 100 100 100 50 50 100 100 50 50 100 100 100 100 200 200 100 100 200 200 100 100 100 100 200 200 200 200

Impact with compensation Impact without compensation

Impact of a large DG penetration on the
total electricity system costs and society
Power generation costs
- Electricity from RES still more expensive
- Intermittent RES (e.g. wind) causes higher balancing costs
Network costs
- Higher network costs
Costs for society
- Electricity prices (commodity prices + network tariffs)
- Financing support schemes for RES/CHP
 Funding
Funding Consumers
Consumers
through
throughTSO
TSO
or tax system
or tax system electricity end-user price
network tariffs

TSO
TSO
Balancing
Balancing
Support
Support
Mechanism Power
PowerMarket
Market Grid
Grid
Mechanism
TSO
TSO
Ancillary
Ancillary
services
services
electricity
market price
production
subsidy or
network tariffs
feed-in tariff
DG/RES-E
DG/RES-E
 Impact on
Funding
Funding Consumers balancing costs
Consumers
through
throughTSO
TSO
or tax system
or tax system electricity end-user price
network tariffs

TSO
TSO
Balancing
Balancing
Support
Support
Mechanism Power
PowerMarket
Market Grid
Grid
Mechanism
TSO
TSO
Ancillary
Ancillary
services
services
electricity
market price
production
subsidy or
network tariffs
feed-in tariff
DG/RES-E
DG/RES-E
Large budget Impact on Impact on grid
increase market prices costs
Evolution of total system costs
Generation
costs, incl.
balancing
Costs

Generation
costs
incl. external
benefits

RES-E/DG penetration over time (%)

Evolution of total system costs
Generation
costs, incl.
balancing
Costs

Generation
costs
incl. external
benefits

Network
integration
costs
0
Innovative
network
integration

RES-E/DG penetration over time (%)

Evolution of total system costs
Generation
costs, incl.
balancing

Overall costs
incl.
externalities

Overall costs
incl.
innovations
Costs

Generation
costs
incl. external
benefits

Network
integration
costs
0
Innovative
network
integration

RES-E/DG penetration over time (%)

Summary and conclusion

In future a large share of power generation will come from DG and

RES.
The technical and economical impacts should be considered.
Besides a smart technical integration also a smart economical
integration of DG and RES is necessary.
This requires adaptation of the regulatory framework and market
design
The overall costs of a electricity supply system with a high share of
DG/RES may increase.
Acknowledgements and further information

http://www.dg-grid.org/

http://www.solid-der.org/

http://www.improgres.org/
Thank you