1. An economic framework for the remuneration of smart grid actors Prof. Paulo Manuel De Oliveira-De Jesus Simon Bolivar University, Venezuela Coimbra, November 19, 2014 UNIVERSIDAD SIMON BOLIVAR http:\\prof.usb.ve\pdeoliveira

2. An economic framework for the remuneration of smart grid actors 1.- SMART GRID: Looking for a Definition An economic framework for the remuneration of smart grid actors 2.- Who are the Actors? 3.- The Remuneration Frameworks 4.- Newtork Avoided Cost Evaluation

3. An economic framework for the remuneration of smart grid actors SMART GRID: Looking for a Definition An economic framework for the remuneration of smart grid actors

4. An economic framework for the remuneration of smart grid actors IEEE Power & Energy: September, 2005 Since Electric Supply Industry (ESI) began your path in the mid of XIX century, Electrical engineers have tried to introduce “intelligence” in generation, transmission and distribution of electric energy. Inventions as AVR, AGC, OPF, etc show how intelligence is added to ESI. When was the first time that You heard About the smart grid ? Since 2004 ESI is submereged in profound changes. A new paradigm called “smart grid” THE SMART GRID PARADIGM

5. An economic framework for the remuneration of smart grid actors 1884 1952 1986 2010 IS THE SMART GRID A RELEVANT TREND?

6. An economic framework for the remuneration of smart grid actors “The smart grid is the integration of an electric grid, a communications network, software and hardware to monitor, control, and manage the creation, distribution, storage and consumption of energy. The smart grid of the future will be distributed, it will be interactive, it will be self-healing, and it will communicate with every device.” Andres Carvallo Austin Energy 2004 2.- SMART GRID: LOOKING FOR A DEFINITION

7. An economic framework for the remuneration of smart grid actors “enables the integration of utility infrastructure, with buildings, homes, electric vehicles, distributed generation,energy storage, and smart devices to increase grid reliability, energy efficiency, renewable energy use, and customer satisfaction, while reducing capital and operating costs.” Andres Carvallo, 2004 2.- SMART GRID: LOOKING FOR A DEFINITION

8. An economic framework for the remuneration of smart grid actors Energy Infrastructure Intelligent Infrastructure Source: EPRI IntelligridArchitecture SMART GRID is the convergence of three very well established industries: -The Electricity Industry -The Telecommunications Industry -The Information Technology Industry A Short definition:

9. An economic framework for the remuneration of smart grid actors 1.- Foundation: Smart grid deployments depend upon standards and best practices. 2.- Power Quality and Reliability: Distributed generation can improve system reliability and address power quality 3.- Energy Efficiency: Smart grid sensing can be used to provide information to consumers and operators for a more effective use of energy 4.- Operational Efficiency: Automated systems can bring greater value to system operations. 5.- Clean Technology: The need to reduce or reverse environmental impact is driving of variable renewable resources 6.- Economy or Capacity. Distributed Generation and Demand Response can help shave peaks to AVOID, DEFER OR REDUCE investment in generation, transmission, and distribution From Ligthner (2010): An Orderly Transition to a Transformed Electricity System, IEEE TRANSACTIONS ON SMART GRID, Vol 1 No. 1, June 2010 The Smart Grid Functions according USA's DOE:

10. An economic framework for the remuneration of smart grid actors Why Smart Grid: Environmental Causes Environmental impact due to Carbon-based economy constitutes a fundamental driving force to develop smart grid and ensure sustainability. New technological advances allows distributed generation, mainly renewable, be competitive respect to traditional generation. Then, Smart Grid should integrate, optimize, monitor and control all distributed generation in order to mitigate climate changes. This means the end of economy of scale in centralized power generation?

11. An economic framework for the remuneration of smart grid actors Why Smart Grid? Economical and Reliability Causes 2003 BLACKOUT: 55Milion people affected August 14, 2003,August 13, 2003, The need for optimization of energy systems began after the 1973 oil embargo. As a result, DEREGULATION has been applied in many countries worldwide focusing on the maximization of the use of electricity infraestructure. Market forces send strong incentives for generators but poor incentives to network operators HOWEVER RELIABILITY HAS BEEN A MAJOR ISSUE Great blackouts happened in EU and USA in 2003 due to lack of monitoring and control in electricity networks The SG paradigm is the way to improve the monitoring and control of power systems

12. An economic framework for the remuneration of smart grid actors An economic framework for the remuneration of smart grid actors Who are the Smart Grid Actors and Stakeholders?

13. An economic framework for the remuneration of smart grid actors ENERGY FLOWS IN ONLY ONE DIRECTION Centralized Generation Power Transmission Power Distribution Utility Load Demand Energy Information INFORMATION FLOWS ONLY BETWEEN UTILITIES AND LOADS TRADITIONAL POWER SYSTEMS

14. An economic framework for the remuneration of smart grid actors ENERGY AND INFORMATION WILL FLOW IN MANY DIRECTIONS Distributed Generation Transportation and Electric Vehicles Centralized Generation Power Transmission Power Distribution Utility Load Demand Energy Information SMART GRID PARADIGM

15. An economic framework for the remuneration of smart grid actors Trasmission & Distribution Utilities Inelastic Demand Energy Regulators Energy Technology Providers Centralized Generators Traditional Actors: The Flow of the Money Fossil Energy Providers: Carbon, Oil, Gas € € € € Regulation defines Economic Framework: €

16. An economic framework for the remuneration of smart grid actors Trasmission & Distribution Utilities Elastic Demands Energy Regulators Energy Technology Providers Centralized Generators Smart Grid Actors: The Flow of the Money Fossil Energy Providers: Carbon, Oil, Gas € € € € Distributed Generators Telecom/IT Technology Providers € € € € € € € € € € €€ € €

17. An economic framework for the remuneration of smart grid actors

18. An economic framework for the remuneration of smart grid actors An economic framework for the remuneration of smart grid actors The Remuneration Frameworks

19. An economic framework for the remuneration of smart grid actors Where are THE AVOIDED Costs? Fossil Energy Providers: Carbon, Oil, Gas Centralized Generators Trasmission & Distribution Utilities Fossil Enegy Centralized Generators T & D Utilities Energy Flow A= Avoided COSTS on Fossil Fuel Infrastructure and Consumption B=Avoided COST on Centralized Generation C=Avoided Network/GRID Costs E=Added costs in: Widespread Distributed Generation + Smart Grid Infraestructure Inelastic Demand Distributed Generators Elastic and Responsive Demands D=Avoided Enviromental Costs A+B+C+D-E > 0 ?

20. An economic framework for the remuneration of smart grid actors IF FUEL AND GENERATION AVOIDED COSTS ARE REAL ECONOMY OF SCALE MUST MODIFY SUPPLY AND DEMAND FUNCTIONS THE MARKET MECHANISM

21. An economic framework for the remuneration of smart grid actors NETWORKS ARE REGULATED AS NATURAL MONOPOLIES AND REMUNERATED BY MEANS OF USE OF THE SYSTEM (UoS) TARIFFS UoS LOCATIONAL MARGINAL PRICING sends adequate economical signals for efficient generation location and operation. UoS AVOIDED COST PRICING could be applied as a strong strategy for efficient grid expansion under the transition Smart Gri Stage. T & D NETWORKS

22. An economic framework for the remuneration of smart grid actors An economic framework for the remuneration of smart grid actors Newtork Avoided Cost Evaluation An illustrative Example

23. An economic framework for the remuneration of smart grid actors PROPOSAL: THE CONCEPT OF GRID AVOIDED COST: If Distributed Generation and Demand Response are well specified, it is possible to shave peaks to AVOID, DEFER OR REDUCE investment in transmission and distribution systems

24. An economic framework for the remuneration of smart grid actors TO EVALUATE AVOIDED GRID COSTS A NETWORK EXPANSION PLANNING PROBLEM MUST BE SOLVED IN TWO STAGES: 1.- IN A TRADITIONAL FORM (WITHOUT THE NEW SMART GRID ACTORS) 2.- CONSIDERING ALL NEW SMART GRID ACTORS Distributed Generation and Demand Response can help shave peaks to AVOID, DEFER OR REDUCE investment in generation, transmission, and distribution

25. An economic framework for the remuneration of smart grid actors Multiple Objective NETWORK EXPANSION Problem: Minimize Network Investment, Minimize Operational Cost Maximize Reliability Subject to: Network Constraints and Capacity Constraints

26. An economic framework for the remuneration of smart grid actors 100 kWh 200 kWh NEW LOADS 300kWh EXPANSION PLAN : NO SMART GRID

27. An economic framework for the remuneration of smart grid actors 300kWh Solution 1: Investment: 1000€ Operational Cost: 100€ EXPANSION PLAN : NO SMART GRID

28. An economic framework for the remuneration of smart grid actors 300kWh Solution 2: Investment: 1500€ Operational Cost: 60€ EXPANSION PLAN : NO SMART GRID

29. An economic framework for the remuneration of smart grid actors 300kWh Solution 3: Investment: 2000€ Losses: 60€ EXPANSION PLAN : NO SMART GRID

30. An economic framework for the remuneration of smart grid actors Investment Operational Costs Solution 1 100€ 1000€ 40€ 2000€ 60€ 1500€ Solution 2Solution 3

31. An economic framework for the remuneration of smart grid actors EXPANSION PLAN : 100 kWh 300 kWh NEW LOADS Incl. PHEV 250kWh With SG: DG, PHEV and Storage 150 kWh Distributed Generation 400 kWh Loads

32. An economic framework for the remuneration of smart grid actors 250kWh 150 kWh Distributed Generation 400 kWh Loads Solution 1: Investment: 600€ Operational Cost: 40€ EXPANSION PLAN : With SG: DG, PHEV and Storage

33. An economic framework for the remuneration of smart grid actors 250kWh 150 kWh Distributed Generation 400 kWh Loads Solution 2: Investment: 700€ Operational Cost: 25€ EXPANSION PLAN : With SG: DG, PHEV and Storage

34. An economic framework for the remuneration of smart grid actors 250kWh 150 kWh Distributed Generation 400 kWh Loads Solution 3: Investment: 900€ Operational Cost: 15€ EXPANSION PLAN : With SG: DG, PHEV and Storage

35. An economic framework for the remuneration of smart grid actors Investment Operational Costs Solution 1 100€ 1000€ 40€ 2000€ 60€ 1500€ Solution 2Solution 3 15€ 900€ 25€ 700€ 600€ Solution 1Solution 2Solution 3 Avoided Cost Avoided Cost: 1400€

36. An economic framework for the remuneration of smart grid actors Conclusions: 1.- SmartGrid Paradigm is founded on the fact of all investments in control devices and optimization systems will PRODUCE global AVOIDED COSTS 2.- If AVOIDED Costs are Real, Economy of scale due to widespread implementation of smart grids SHOULD be reflected on global energy market. 3.- Remuneration of natural monopolies (as T & D systems) should integrate avoided costing tariffs for Network Actors in order to ensure the correct deployment of Smart Grids under this transition stage.

37. An economic framework for the remuneration of smart grid actors Thank you very much for your attention: My web page: http:\\prof.usb.ve\pdeoliveira Further Reading: Jesus, P. Remuneration of Distributed Generation – A Holistic Approach, Ph. D Dissertation, Porto University.