The 2008 IEA study for Europe cites investments in excess of €1.5 trillion over the period 2007-2030 to revamp the European electrical system in a ‘business as usual’ approach. Distributed Energy Resources (DER) and Renewable Energy Sources (RES) integration will reinforce the need for innovative technology development in order to keep Europe a world leader in energy-related and energy infrastructure-related technologies.
Before the 2008 financial crisis, the investor community had already made up its mind with regards to investing into renewables. 45 clean-energy companies were already listed on US stock
exchanges by the end of 2008.
New growth opportunities exist within technology development, both at Transmission and Distribution level, for upgrading the system so that it is able to manage the intermittency of RES at a reasonable cost, to integrate Distributed Generation and to benefit from the flexibility of Demand Response. Information and Communication Technologies (ICT) such as smart metering and telecommunication infrastructures will be critical components in making the smartgrid vision a reality.
- Do EU directives and subsequent regulations favour DER investments?
- Could DER compete with fossil fuel electricity one day?
- What are the critical technologies that can become blockbusters?
- What are the most promising business models for DER development?
The EU directives favour DER investments in electricity networks within a positive political climate
There is a large consensus about future needs for DER to meet the European 2020 targets to decarbonise electricity production. However,efforts must be made to ensure an improved access to the networks by third parties and to harmonise the regulatory regimes to support DER integration at a lower cost. The Strategic Energy Technology Plan foresees 600 billion euros of investment in network infrastructures over the next 30 years (25% transmission, 75% distribution) with 70% of private investment. Significant growth opportunities will arise around power technologies in the next twenty years.
DER will one day compete with centralised electricity generation provided that the entire value of DER brought to the electricity system is accounted for
Distributed Generation can be of benefit for the electrical system. The value it brings, however, depends on the technology, the way it is used, the system & network specificities, and the regulatory environment. In addition to the energy delivery value (selling electricity, heating or cooling), Distributed Generation (DG) can be seen as a substitute for network investment if it coincides with peaks (network value) or as a new system services source, if aggregated with other DG units.
The competitiveness of DER should be assessed on the basis of an in-depth analysis of all these different values components.
Aggregation business models will emerge to facilitate the technical and commercial integration of DER
An economic analysis of DER showed that nonintegrated DER cannot access different potential streams of revenue. In particular, the small size of the DER prevents them from participating directly in energy markets. Aggregation of DG and Demand Response (DR) will play a key role in including these local resources into the global dynamics of the market. The role of aggregators is to use the flexibility of DG units and to provide DR solutions, so as to reach a size, which facilitates the entry into energy markets and to provide services to the network operators.
Three EU-DEEP prototype businesses proved that it is already possible to launch profitable aggregation commercial offers in favourable regulatory frameworks
Among the various promising business opportunities arising with the emergence of DER, EU-DEEP carried out an in-depth assessment of three contrasted aggregation business models set in three different European countries, focusing respectively on (1) aggregating commercial and industrial demand response to balance intermittent generation, (2) integrating residential scale flexible Micro Combined Heat & Power (Micro-CHP) into electricty markets and (3) leveraging on the flexibility of aggregated CHP units and DR to extend the conventional Energy Service Company business. The assessment aimed to:
- evaluate the proposed technical solutions for each business model and test them in field experiments;
- appraise the economic viability of the business models in a given country-specific context and perform a similar analysis in different contexts (other countries or near future conditions).
The assessment shows that several business models of aggregation could earn a fair rate of return within specific regulatory contexts. However, the diversities of balancing mechanisms, “use of system” tariffs, “renewable” balancing obligations and support schemes are important barriers to ease the adaptation of the business models to different country contexts. The business model viability by 2020 was also assessed according to four different scenarios. In all the scenarios, the attractiveness of the aggregation business models is expected to increase. These new business opportunities promote greater interactions between producers and energy consumers. They also lead to an evolution of their respective roles, whereby the consumer may also become a service provider.
EU-DEEP has pinpointed enabling technologies that could become blockbusters
- Smart metering, when coupled with demand side energy participation measures, will help to optimise energy consumption while making the load more responsive and flexible.
- ICT to monitor and improve the control of selected distribution network areas is expected to make the grid more secure and reliable with the advent of RES and CHP units.
- Europe can reinforce its leadership in technologies to ensure active management of distribution networks by combining the know-how of large groups (SIEMENS, ABB, AREVA, and SCHNEIDER) and innovations coming from SMEs and start-ups.
- Storage of heat, cold and electricity appears to be critical in order to be able to cope with the intermittency of renewables or the decoupling between generation and the use of energy.
Challenges not covered by EU-DEEP
- What are the DER detailed growth perspectives in the most promising segments?
- What are the typical entrepreneurial profiles which will be needed in order to succeed in aggregation businesses?
- Does investment in metering technology start-ups make sense?
- What are the most appropriate contractual frameworks which should help aggregators deal with liability issues?