Cost efficiency DSOs: the smart bit is in the coordination
Simon Gill, Research Fellow, University of Strathclyde
Electricity networks are expensive. Across Britain, consumers pay more than £5 Billion a year to distribution companies, and nearly £3 Billion a year to transmission through use of system charges. They are also necessary, by linking generation to consumers they play the dual role of assuring a reliable supply, and facilitating competition. Whilst we can argue about how well competitive markets operate, or how reliable our supply should be, we generally don't argue about the fact that networks are necessary for either.
The question that network planners are tasked with answering is how much network is needed? Build too little and consumers suffer less reliable supplies and inefficient markets; build too much and those billions build up. With the advent of 'smart', smart devices, meters, monitoring and (hopefully) smart DSOs, there is the opportunity for the answer to be smaller than in the past, but achieving this will involve a significant increase in coordination with network users, suppliers, and between local and national interests.
Three changes in particular are making existing ways of planning distribution networks outdated: firstly distribution networks are continuing to move from connecting consumers to connecting both consumers and generators; secondly, customers' electricity demand will soon be visible in real time; and thirdly all network users will soon be within reach of real-time electricity markets. Traditionally, network planners had to work on close-to-worst-case estimates of power flows with no real-time confirmation of what was happening out on the network and no ability to influence usage. Tomorrows network planner has a fundamentally different problem to solve.
Take SSEN's Orkney distribution network as a simple example. Orkney was closed for new distributed generation connections in the early 2000s based on the minimum demand and maximum capacity of the undersea cables to mainland Scotland. However, the development of the Orkney Smart Grid allowed operational costs to be substituted for capital costs and has led to more than 20 MW of additional wind generation being connected without that network upgrade. Instead, the capital investment was removed, or at least delayed, in exchange for a different cost: curtailment of new generators. The graph below illustrates how these two costs combine as the network capacity increases. The red line shows the cost of network increasing as more capacity is built, whilst the blue line shows the costs associated with curtailment falling. The black line is total cost, and shows that the move from 'building more network' to allowing a managed connection leads to a lower overall cost.
The Orkney project has been a success, but it highlights the difficulties involved in coordinating costs and risk in a smarter electricity system. A key issue is that the two types of cost fall on different organisations: network companies pay for network, but generators pay the price of curtailment through foregone revenue. The actual costs of curtailment are difficult to see and can't easily be stacked against the reinforcement to identify if we really have arrived at the bottom of the cost graph. It is difficult, in this case, to effectively coordinate costs.
There is also a challenge of coordinating risk. In common with most proposal for similar schemes, generators in Orkney face the risk of curtailment. This is risk which small projects have little ability to control: it is risk associated with extended network outages, falling local demand, or growth of micro generation. Not only do these projects have limited control over these risks, but they may form an insurmountable barrier to the development. Is there a better way to coordinate risks?
These coordination problems are going to get more challenging. The future DSO won't just need to juggle curtailment and network costs, but also costs from demand response, storage dispatch, and vehicle-to-grid to name a few. How can each of those individual costs be brought together in a way that allows them to be compared? It might be a model where one party is responsible for all the costs and is incentivised to minimise the total, or it might be that carefully designed markets and strong regulation around transparency can be used to stack costs from different parties in a well function market place.
The potential impact of the third change 'access to real-time markets' highlights the important of coordinating between local and national interests. In October OVO energy announced that it would offer customers with a Nissan Leaf the opportunity to charge their car for free in return for control over when that charging happens. Taken at face value, OVO must feel they can make sufficient revenue from flexibility and don't need to charge for the actual electricity. Imagine a street full of EV owning OVO customers, each of which is controlled to respond to the national wholesale electricity price or the system frequency. In most places, the low voltage network underneath the street is only designed for a maximum of 1 or 2 kW per house so it is easy to see how multiple EVs charging in a correlated way at 7 kW or more can cause problems. Coordinating between consumers, aggregators and suppliers who want to trade flexibility into national markets on one side, and the physical limitations of the network on the other is a challenge for the DSO.
In Scotland there is a desire and an opportunity to solve these problems. Our distribution networks are at or close to capacity on the generation side. Scotland has large off gas grid areas where electric heating predominates, and the recently announced ambition of the Scottish Government to phase out the need for diesel and petrol vehicles by 2032 could bring forward the challenge of EV integration.
Scotland's Draft Energy Policy includes 'a smarter model of local energy provision' as one of its themes, the move towards DSOs represents an opportunity to do so in a way that is cost efficient. The smart bit is in the coordination.
Click here to read SSEN's Supporting a Smarter Electricity System report.