An extract from IRENA report, System Operation: Innovation Landscape Briefs
Traditionally, electric power systems have been centralised structures organised into generation, transmission and distribution, placing customers at the end of the supply chain. This is a unidirectional structure where electricity generated by large power plants is transported via transmission and distribution networks to be delivered to customers. However, recent decades have witnessed the emergence of distributed energy resources (DERs) such as rooftop solar PV installations, micro wind turbines, battery energy storage systems, plug-in electric vehicles and smart home appliances that are becoming active participants in the electricity system.
The increasing penetration of decentralised energy resources and the emergence of new market players – such as prosumers, aggregators and active consumers – will usher in a new era. To take advantage of these new opportunities and to keep pace with both the transformation of the power sector and changing customer needs, distribution system operators will need to adjust their current role. Changing the regulatory framework for the DSOs – introducing new incentives to adapt the operation of distribution networks to the new paradigm of DERs – is key for the success of the energy transition.
With the emergence of distributed energy resources – such as distributed generation, demand-side response and storage – the role of DSOs will expand. As such, DSOs could have access to the distributed flexibilities connected to their grid for the benefit of both the distribution grid and consumers. In their new role, DSOs could operate the distributed energy resources, if the regulatory framework allows it. If not, DSOs could at least act as neutral market facilitators and provide high-resolution price signals to the market players that own such flexibility assets. Having access to distributed flexibilities would have a two-fold objective of optimising the use of the distribution networks and minimising the need for future grid investments.
The increasing penetration of DERs could lead to a less predictable and reverse flow of power in the system, which can affect the traditional planning and operation of distribution and transmission networks. Further, increased deployment of DERs is expected to cause congestion in the distribution grid, which must be actively managed. This raises the need for a change in the role of the DSOs that have conventionally planned, maintained and managed networks and supply outages.
To effectively benefit from the available flexibility of DERs connected to the distribution network, DSOs could deepen their role as active system operators, in addition to their role as network operators. Distribution system operators could procure flexibility services from their network users, such as voltage support and congestion management to defer network investments.
In addition, DSOs might provide reactive power support to transmission system operators (TSO). For example, DSOs could, in co-operation with the TSO, define the standardised market products for the services to be procured via these flexibilities, including the definition of technical modalities for participating in dedicated markets. DSOs could use such flexibility services, among others, for the management of local congestion and non-frequency ancillary services (e.g., voltage control), while TSOs would be responsible solely for frequency ancillary services.
Some of the regulatory mechanisms that could foster this new role include:
Non-firm connection agreements for endconsumers – These are connection agreements wherein the consumer agrees to have constrained power supply during peak hours, and the network fee is reduced as compared to firm connection agreements.
Bilateral flexibility contracts – This refers to contractual agreements between DSOs and DER’s owners to provide local system services – such as voltage control, peak shaving and congestion management – to the DSO.
Local markets – This refers to local flexibility markets for distribution system services in which DERs could participate to support the distribution grid. The output of these markets could be technically validated by the DSO, in co-operation with the TSO.
A relevant initiative in this regard exists within the new regulatory framework of the European Commission’s Clean Energy for All Europeans legislative package in November 2016. The revised Electricity Directive, which will enter into force in 2019 and is applicable to all European Union (EU) Member States following negotiation of the proposal, sets the regulatory framework in which distribution system operators can procure flexible services from network users (EC, 2016; EC, 2018). For example, this could be done via bilateral contracts between renewable energy owners and DSOs or via economic incentives set by DSOs (prices with some locational / temporal differentiation).
This new regulatory framework foresees that DSOs can own (and operate directly) flexible DERs only under specific circumstances. These include, for example, instances where no other parties have expressed an interest, or where the storage facility is necessary for fulfilling the DSO’s obligations, and subject to the approval of the national regulator. The primary role of DSOs is to act as a neutral market facilitator for flexibility services.
In the United Kingdom (UK), variable network access for distributed generation exists in the form of non-firm connection agreements. Such agreements allow the distributor to temporarily curtail the power injection or withdrawal of an end-user for security reasons. A trade-off exists between reducing the value of renewable energy due to curtailment and the benefits reaped from swifter integration of renewables-based distributed generation. Thus, solutions should be promoted to keep the amount of curtailed renewable energy low – preventing costly grid reinforcement, increasing network hosting capacity and allowing for more rapid connection and access for distributed generation.
Contribution to power sector transformation
The new role of DSOs will have a significant impact on the way the power system is operated today.
Increasing flexibility in distribution networks: Taking advantage of the increased penetration of DERs, DSOs could procure flexibility services – such as voltage support, congestion management, peak shaving, etc. – from the assets that are already connected to their distribution network. Using such services would further contribute to the integration of renewables in the distribution grid and especially the integration of variable renewable energy sources. One way to achieve this is through the introduction of locational price signals in the distribution grids, or the establishment of local markets. Bilateral long-term contracts are a short-term solution and are easier to implement when the number of market participants is limited. The extra revenue stream for providing these flexibility services would incentivise the owners of the distributed energy resources to further deploy these resources, which in turn increases the flexibility in the distribution network.
“Taking advantage of the increased penetration of DERs, DSOs could procure flexibility services – such as voltage support, congestion management, peak shaving, etc. – from the assets that are already connected to their distribution network. Using such services would further contribute to the integration of renewables in the distribution grid and especially the integration of variable renewable energy sources.”
Using distributed energy resources to avoid or reduce network investments: DSOs have conventionally invested in network reinforcement to reduce network congestion that could occur during peak demand intervals. Thus, the rules under which DSOs plan and size their grids – for example, in response to a worst-case scenario – could be modified to allow DSOs some freedom to decide whether a) to reinforce the grid, b) to offer non-firm access to their users (consumers, as well as generators) or c) to use flexibility services provided by DERs. By optimally managing DERs across the distribution network and mandating them to comply with certain communication requirements and dispatch signals, DSOs could avoid congestion and defer costly network investments. Similarly, meeting peak load demand through locally stored or generated energy instead of transporting generation from a distant source may decrease grid congestion and defer network investments. For example, battery storage systems deployed by end-consumers could store excess energy produced from renewable sources such as solar PV or be charged using grid electricity when it is relatively cheap. Batteries can then be discharged during peak time intervals to fulfil demand. Using DERs, and in particular batteries, to avoid investments in the grid is also known as virtual power lines. For example, UK Power Networks, a DSO operating in the UK, recently announced its plan to create London’s first virtual power plant (VPP), comprising solar panels and a fleet of batteries across 40 homes in London. A trial of this concept was conducted in February 2018 wherein a fleet of 45 batteries was used to fulfil peak demand. The project is expected to provide an alternative to the traditional approach of increasing network capacity to meet peak demand (Hill, 2018).
Leveraging data to increase renewable energy penetration: DSOs can serve as the central hub for managing consumer data related to electricity consumption, production, billing and location, as well as the type of DERs. DSOs can collect and store these data according to the prescribed regulatory standards while protecting consumer rights, including privacy. For instance, the EU’s Clean Energy for All Europeans package contains, among others, common rules for data management, including a common European data format requirement, where DSOs would have to ensure non-discriminatory access to data from smart metering systems (Hancher and Winters, 2017). Using these data, DSOs can better forecast demand, leading to better planning and system operation. Such data also can enable greater deployment of renewable energy by helping consumers understand their consumption and / or production patterns and make efficient decisions about their distribution network use. DSOs could share such data neutrally and transparently with consumers as well as third parties, according to the prescribed data-sharing regulations, to enable better decision making. In particular, third parties such as Energy-as-a Service (EaaS) providers could utilise such data to provide optimal energy management services to end-consumers, thereby helping them in providing more flexibility to the system as well as increasing their energy efficiency. Gathering and sharing such data would not only help DSOs in operating the grid better, but also allow third parties to explore new business models for end consumers, while helping end-consumers play an active role in the energy system, such as through demand-side response schemes.
For example, the regulatory proceedings under New York State’s Reforming the Energy Vision encourage sharing information and knowledge about the utility grid. The six utilities participating in this programme recently filed a plan in which they will provide data on the distribution grid in three stages. The first stage involves upgrading the grid with smart meters, sensors and other such communication and data collection hardware. In the second stage, the data collected by these devices will enable a marketplace between utilities and DERs. In the third stage, this will be extended to the rest of the market and will enable third-party service providers such as rooftop solar companies, Energy-as-a-service providers, etc. to leverage these data to provide better services (Trabish, 2017).
Key factors to enable deployment
Multiple aspects need to be changed to facilitate the transition of distribution companies from traditional distribution network owners and operators to a more active role as distribution system operators and market facilitators. Firstly, the regulatory framework needs to define clear roles and responsibilities for DSOs and to incentivise innovation. Secondly, there is a need to standardise the collection and sharing of data by DSOs as this will be crucial in providing value added services to consumers, as well as enabling successful system operation and management. Lastly, smart hardware backed by communication infrastructure is needed to facilitate complex interactions between DSOs and DERs.
Regulatory frameworks for the future role of DSOs: Despite the transformation of the role of DSOs, these entities will remain regulated. Therefore, regulations should allow this change by clearly defining the roles and responsibilities of DSOs, as well as of the owners of distributed energy resources. Neutrality and transparency should govern any interaction between DSOs and network users. Further, to enable DSOs to interact with DERs and to procure flexibility services from them, appropriate regulatory frameworks must be developed. These measures should aim at developing the mechanisms that encourage innovation by DSOs, as well as developing technical specifications and amending grid codes for the provision of such services.
For example, in the UK’s Office of Gas and Electricity Markets (Ofgem), the energy regulator adopted a new regulatory model called RIIO: “setting Revenues using Incentives to deliver Innovation and Outputs”. This model has price controls for network tariffs charged by distribution network operators while providing incentives to these operators for innovation with regard to customer expectations, environmental impact, etc. The RIIO model is helping distribution network operators transition to the system operator role by encouraging innovative approaches (Ofgem, 2018). In the state of New York, the Reforming the Energy Vision roadmap – a set of regulatory proceedings and policy initiatives – was launched in 2014 to restructure the rate-making and revenue models of state utilities so that they are better aligned with consumer interests and allow for the integration of DERs (New York State, n.d.).
Standards for data management: For DSOs to securely share customer data with third parties and market participants, standards for data management and data sharing need to evolve. Data management arrangements should serve to protect the privacy of personal data, and customers should be able to determine how their data is used. For example, in the US state of Washington, the Public Utility Districts have released guidelines for ensuring data privacy of consumers. These guidelines mandate utilities to get permission from consumers for the collection of private data and its disclosure to third parties (WPUDA, 2016).
“The deployment of smart grid technologies can enable enhanced interaction of DSOs with consumers and DERs, which is key for a system operator. The most straightforward approach is mandating DER units to comply with certain communication requirements and dispatch signals sent by the DSO.”
Smart grids and digital technologies: In the future, DSOs will need to develop innovative systems to solve network constraint issues and to manage the injection of variable power. This can be enabled through enhanced use of information and communication technologies (ICTs). The emergence of advanced digital technologies such as sensors, smart meters, artificial intelligence and robotics has unlocked new and efficient ways of managing the network. These solutions comprise, among others, automated voltage control or automatic grid reconfiguration to reduce the loading of a distribution feeder by transferring part of the distributed generation feed-in to a neighbouring one. Grid networks enabled by such technologies are often referred to as smart grids. The deployment of smart grid technologies can enable enhanced interaction of DSOs with consumers and DERs, which is key for a system operator. The most straightforward approach is mandating DER units to comply with certain communication requirements and dispatch signals sent by the DSO. Implementation of these digital technologies also can enable the real-time exchange of information between DSOs and DERs. One of the ways to encourage large-scale adoption of smart grid technologies is through regulatory frameworks. For example, the European Commission has mandated that all EU Member States upgrade at least 80% of their meters to “smart” versions by the year 2020, although considerable delays are expected (thinkSPAIN, 2017). The UK plans to deploy smart meters to approximately 50 million households by 2020 (Nhede, 2018). Italy, a leader in the deployment of smart meters, has over 30 million smart metering devices in operation. Driven by EU energy efficiency requirements (European Directive 2012/27/EU), e-Distribuzione, a power distributor in Italy, is in the process of replacing the country’s current smart meters with second-generation smart meters that reflect the evolution in the field of metering and remote management. These new meters will make it possible to promote energy efficiency, increase awareness of consumption behaviour, encourage competition in post-meter services and develop a home automation market (Engerati, 2017).
Improving communication with consumers: As the role of DSOs evolves, they also need to engage consumers better through improved communication. DSOs will need to respond to a new generation of customers – who are now able to engage with their banks through web chats, order taxis using smartphones and talk to various service providers over social media – without neglecting customers who are not familiar with the new technologies. DSOs therefore will need to focus increasingly on digital media capabilities for customer interaction and engagement. For instance, DSOs in Spain, such as Iberdrola and Endesa, have developed smartphone applications that allow consumers to check their hourly consumption, submit their real meter readings, manage their contracts and pay bills (Endesa, 2018; Iberdrola, 2018).
Current context and leading initiatives
New York’s Reforming the Energy Vision: Under the state of New York’s Reforming the Energy Vision roadmap, the New York Public Service Commission has mandated six large investor-owned utilities to undertake several measures to integrate DERs. These include creating charging systems for EVs, creating online marketplaces for energy products and services, building virtual power plants and enabling connectivity of DERs to the grid, and developing storage on demand, among others. The costs for these products and services will be recovered through revised tariff structures. These utilities have launched multiple demonstration projects (New York State, 2018).
United Kingdom’s Open Networks Project: The UK’s Open Networks project – launched by the Electricity Networks Association, a national trade association representing the transmission and distribution networks – is expected to lay the foundation for transitioning the role of DSOs. Its objectives include developing improved processes for transmission and distribution system operators, planning and shared services, and a needs gap assessment for customers (Engerati, 2018). Western Power Distribution, a DSO in the UK, has released a four-point plan that includes expanding and rolling out smart network solutions to higher voltages, contracting with aggregators and customers for various services, TSO-DSO coordination and ensuring the integrity and safety of lower-voltage networks (Engerati, 2018).
Scottish and Southern Electricity Networks’ (SSEN) local flexibility marketplace: SSEN, a distribution system operator in the UK, has begun trials for a new online marketplace hosted by Open Utility to procure flexibility services for local requirements. This will enable SSEN to address local network constraints by buying flexible services such as demand response and battery storage capacity. The project is expected to be commercially operable in 2019 (Grimwood, 2018).
National Grid’s Enhanced Frequency Control Capability (EFCC) project: National Grid, along with six companies (Flexitricity, Belectric, Centrica, Orsted, Siemens and GE Grid Solutions) and two universities (Manchester and Strathclyde), are working on the EFCC project under which a new monitoring and control system has been developed for grid management. This system is expected to help maintain system stability during peak hours using a range of technologies – Belectric will use its solar PV plants and battery storage systems to provide response; Centrica will use its combined-cycle gas turbines and wind farms to provide generation response; Orsted and Siemens will use wind turbines to provide fast frequency response and measure the associated cost for providing this service; and Flexitricity will use commercial and industrial customers to provide demand-side response. This project is expected to help in the development of new services for rapid frequency response (Porter, 2018).