By Simon Hobday, POWER-GEN Europe Advisory Board Member and Energy Partner, Osborne Clarke.
Technology’s integration allows companies to streamline processes, but, it’s also changing the model of how consumers use energy, and how companies provide it
Since the turn of this century, increasing concern about climate change has driven a dramatic growth in renewable generation across Europe. Power plants have become smaller, localised and distributed more evenly across regions or nations, compared to the large centralised systems that characterised the middle of the twentieth-century. This is due to a mixture of the very nature of the technology, and the support regimes implemented through European and national legislation. Today technology continues to transform the sector model, enabling more sophisticated distribution management processes, as well as radically altering the relationship between suppliers and consumer.
Communications and computing power
The impact of a growing proportion of disruptive, near zero marginal cost, low carbon generation is forcing traditional generators to re-evaluate the business case for not just building but also operating fossil fuelled plants. Simultaneously, directional changes in power flows across transmission and distribution networks are raising issues never considered when the networks were originally designed and constructed. This has coincided with a radical transformation in communications and computing power that has provided access to a wealth of data and information accessible at the swipe of an app on a device that fits in your pocket.
By way of example, over the past five years, there has been a significant growth in process management – utilising the ability to switch off or turn down processes for short periods of time and monetising that ability through mechanisms such as the Short Term Operating Reserve (STOR) market in the UK. This ability has grown out of greater controllability of physical plants through remote computer switching and computer based energy control and market trading mechanisms.
Modern communications and computing advances have the potential to drive far more efficient uses of energy and to harness the power of local generation. This will be particularly important for enabling countries to meet Europe’s 2020 decarbonisation targets set by national Governments, the European Union and on a global scale under the United Nations Framework Convention on Climate Change (UNFCCC).
Over the past 15 years, new forms of distributed generation have increased the amount of electricity generated close to where it is consumed than has been seen to date. This has an immediate benefit in terms of energy efficiency in that long distance transmission of power over AC lines suffers from significant losses – transmission losses over AC networks can account for up to 50 per cent of total generation. Local generation and consumption therefore reduces the amount of energy wasted and the overall carbon footprint.
This is not to say that local generation does not have its difficulties. Increasing flows in and out of distribution networks has made them much more volatile meaning that distribution networks require a much more active system management than has historically been the case. In addition, generation plant connected to distribution networks can cause voltage variations or transients on transmission networks. Many of the industry codes and agreements setting out the arrangements between generators, distribution operators and transmission operators were not drafted for such operating characteristics and will require modification to be appropriate for these new conditions. There are also concerns that the growing tendency for sites to be energy self-sufficient while maintaining a grid connection for stand-by purposes challenges the economic basis for both the business model and regulatory settlement for network businesses.
Redefining the distributer-consumer relationship
One potential effect of these trends could be a fundamental change in the relationship between the industry and electricity consumers. Currently the industry could be regarded as being organised in a top down fashion, in that generators produce, the networks transport and the suppliers sell to the customer. In such a model the customer has a relatively passive role in paying for the electricity delivered and consumed. They have little knowledge of, or control over, when or how much electricity in fact is being consumed. Rather, consumer behaviour is driven by wanting to watch television, have a cup of tea or coffee or heat a home rather than an active decision to buy kWh.
Distributed generation located at customers’ sites or premises is now starting to change that behaviour in terms of customers becoming generators with bilateral flows onto and from their local network. Commercial customers, for example, are currently being offered turn down services – a third party takes a degree of control over electricity consuming devices such as chillers or air conditioning units, and in return the companies earn revenue from supplying that negative capacity to grid operators to assist in grid balancing. These services may mean simply turning down an appliance at a particular time or, increasingly, moving the time when the appliance is operating (load shifting).
For domestic consumers the technology already exists, albeit in basic form; for example electric vehicles. If a car is fully charged but not needed, the owner can indicate this through a smart system. The system then injects power back into the network at peak usage to ease pressure on distribution and the wider system. This underlines how consumers are beginning to think about their energy needs in a different way.
Changes in the nature of generation plant are resulting in upwards and downward flows of electricity. The nature of electricity requires increased active network management to cope with this, and technology is becoming especially important for enabling analytical observation and maximising efficiency. Oen potential side effect of more efficient distribution network control and management of distributed generation or storage could be easing the strain of peak demand and alleviation of network congestion.
An alternative model driven by smart enabled devices is one that lets the distribution network operator or supplier have overall control of switching a smart device on or off, regardless of application, to increase efficiency. Such an approach will need to operate within parameters set by the end-user and the end-user will need to see value in some shape to incentivise a move to a different, new and hence unfamiliar purchasing model. Such approaches may stretch the boundaries of what is possible within the current legal and regulatory framework and may challenge regulators' and others perceptions of what the industry provides and hence the appropriate legal and regulatory structure for the industry and its engagement with customers.
If entities are successful in re-evaluating the value chain and identifying different value segmentation through the use of radical technologies to create more efficient and effective processes in energy supply and consumption then the traditional certainties of the industry, regulators and legal and regulatory regime will be subject to challenge and change. Entities already in the industry may feel threatened by these developments and look to act defensively (as we have seen in other sectors with radical new business models such as taxis). However, those at the forefront of change and identifying different value propositions will change the status quo. Europe is moving towards a consumer-led world, enabled by communications and computing advances. This change is coming to the energy sector and will change expectations and consumption of energy and how entities in the sector engage and collaborate with each other - and how consumers regard and value their consumption of electricity.