Evolution and Revolution in Electricity Grid Operation

Ross McCracken, Editor, Platts Energy Economist

Focusing on new energy sources and current power crises often deflects attention from the impact changes in generation have on distribution and transmission. Driven by regulation, electricity grids face choices which have revolutionary implications for their operation and organization.

ALTHOUGH STILL YOUNG, 2008 HAS ALREADY seen its fair share of electricity crises round the world. Power shortages focus industry attention on traditional generating capacity, but there is another approach which promises to use existing and new assets in smarter ways. While new generation technologies compete for R&D funds, investment money and media space, there is also a revolution in distribution and transmission which may come to little, but might also radically change industry structures.

This is the hallmark of a revolution; not just a new technology or gizmo, but one that rearranges the organization of the industry in which it emerges. Structural change creates opportunities for both market entry and market exit. It can turn traditional business models on their heads and the failure to react in time or in the right direction can prove the making or breaking of companies.

So where is this change coming from and does it really meet the criteria to be described as a revolution: stakeholder demand; creating new market structures; and prompting wider industry change?

Electricity grids have evolved over more than a hundred years based predominantly on centralized carbon-intensive and relatively inefficient means of power generation. But consumers use of electricity has changed in this time, with power becoming a much more integral part of lifestyles. Consumers are also more digitally aware; widespread internet connectivity and the delivery of new services via the internet have created technological platforms that make the introduction of smart meters and domestic energy management more practical for consumers. As a result, grids and utilities need to respond by becoming more user-centric, a significant break with the past.

In addition, in renewing and developing grid capacities there are opportunities for pursuing efficient asset management and value-added services through greater automation that provides a better quality of service. This is in tune with both customer demand and the demand of other stakeholders, in particular governments. Greater reliability and efficiency, alongside better product offerings, have security of supply, environmental and competition benefits.

Moreover, while centralized generation and high-voltage bulk transmission will continue to play a major role, grids are having to accommodate an increasing amount of intermittent and decentralized generation. This is increasing the number of actors involved in generation, transmission, distribution and the operation of electricity systems, both changes in industry structure.

Government, at different paces, is pushing forward lower-carbon generation, new and renewable forms of generation and the more efficient use of heat. At the same time, policy is promoting greater interconnection between systems creating new demands on interoperability. The combination of end-of-life grid renewal and new technologies provides an opportunity to harness the advances in ITC technology to meet the new demands being made on power grids. There is both a consumer pull for better, smarter value-added services, but also a government push. EU targets for renewable energy, for example, imply huge growth in distributed generation, again a break with the past in terms of current grid organization and operation.

Today's power grids are based on large central power stations connected to high voltage transmission systems, typically run by monopolies, that supply power to medium and low-voltage local distribution networks. Power flows in one direction with little or no consumer participation or end-to-end communications.

Future grids will have to increasingly deal with bi-directional power flows, requiring a change from passive to more active grid operation. This will require coordinated local energy management with the full integration of distributed generation and renewable energy sources. A proportion of centralized conventional power generation will be displaced by distributed generation, renewables, demand response, demand-side management and energy storage.

US electricity networks already have demand response programs that total more than 23 GW of power and, in some, energy efficiency is defined as a resource that can compete head-to-head on an equal footing with power generation. US ISOs are beginning to allow demand-side projects to compete in auctions for new capacity. Significantly, the vast majority of demand resource applications are coming from non-utility or merchant providers.

In California, the Public Utilities Commission is pushing for all new homes to produce at least as much electricity as they consume by 2020, a standard that could be extended to commercial buildings by 2030. Several US states are even looking at decoupling utility revenue from sales as a means of encouraging utility pursuit of demand-side resources. These developments demonstrate that the growth of distributed energy does not have a single root.

In the EU, members states should by May have decided on how they will implement the EU's 2006 Energy Services Directive. The directive is designed to improve energy efficiency across the EU and one requirement is that governments ensure that customers have meters that provide actual overall and time-of-use consumption levels, where the benefits outweigh the costs in the long term.

The provision of near real-time price and consumption information will, it is hoped, prove the catalyst for a fundamental change in consumer behavior towards energy use. Italy has already installed 27 million new meters as part of its efforts to introduce advanced metering infrastructure, while Spain, the Nordic countries and the Netherlands have national level requirements to implement smart metering systems.

In effect, this means that the installation of a new generation of meters—smart meters—is going ahead and in an industry that is not used to change. In the residential sector, to get a real reading, as opposed to an estimate, the metering industry relies on quarterly visits by personnel to each individual customer. Seen against the huge advances in IT of the last two decades, an essentially manual process of data gathering looks positively archaic. The existing process is as dumb as smart metering is smart.

Smart meters provide two-way communication between suppliers and customers, or even suppliers and customers' electrical appliances. They would eradicate the need for meter reading, reduce the amount of back office work and create a flow of demand information that could be used by both network operators and suppliers. Given the aspiration of half hourly readings from every single meter and actual time-of-use price signaling for consumers, they would produce huge volumes and flows of data which would have to be aggregated and synchronized possibly from multiple communications platforms. This data would have to be robust and transmitted along equally robust and secure communications networks.

In fact, the physical design, manufacture and installation of the smart meters themselves is relatively trivial in comparison to the giant data processing requirements that lie at the heart of the smart metering concept. If the data management and communications side doesn't work, then the meter won't look so smart no matter what its IQ.

Smart meters are not the simple mechanical beasts of the past, but more in the realm of iPods and PCs, where operating platforms see continual updates. Metering would belatedly be joining the ITC revolution. This results in a conundrum; standardization is required now to move forward and ensure interoperability, but it risks locking in at a level which might quickly look redundant. This is because consumers are used to meters with long lives of 20 years or more and would be unlikely to take kindly to continual upgrades. This is again why many want the meter to be a hidden black box, with the visual display unit allowing functionality beyond just metering, acting as a platform for software development. Greater functionality would also increase consumer engagement as there is the real risk that interest would decline soon after installation.

But the path made possible by smart meters will pose as many questions for grid operators as solutions. Smart meters monitor power flows both to and from houses and businesses, and in so doing facilitate microgeneration.

This would result in less predictable two-way power flows, as well as coordination and power quality management issues. In addition, changes in cyclical demand patterns might impact on equipment ratings. Ultimately, it would require more active network management and control systems.

So is this a revolution? Potentially, yes. The demand for new ways of working is coming not just from consumers but powerfully from government through legislation and target setting, driven by considerations of security of supply, demand growth and the environment. The technological solutions represent a mix of the greater application of the ITC revolution to electricity networks, but also change in the generation side from centralized to micro and distributed generation.

Together these have the potential to change patterns of consumer behavior and alter the way in which power is delivered and managed across distribution networks. These processes are opening up new spaces in the industry which may be filled by the traditional incumbents, but might equally be secured by more fleet of foot entrants to the market. This represents structural shifts in the relationships between existing industry players that in turn should prompt wider industry change.

Figure 1. Smart meter initiatives around the world. Source: Commision for Energy Regulation, Ireland