The Smart Grid ‘Acid Test’ – Accommodating Variable Renewable Energy (VRE)

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Courtesy of Memoori Business Intelligence Ltd

In the previous posts, we have discussed the need for the regulators and policy makers to develop a new framework on which to build Smart Grid. The next stage is to investigate how much VRE can be accommodated through Smart Grid.

Maximising the amount of VRE that can be accommodated is the ‘Acid Test’ for Smart Grid. We are moving from a central system that provides consistent power quality that can quickly cycle load up and down, to a decentralised one with variable on / off power from many different distributed sources.

The thinking in the US is that it would require conventional spinning reserves to be operational to accommodate VRE and that in the case of wind power the tipping point for benefitting CO2 emissions could not exceed 20% of the total central power generated. Over this limit spinning reserves will create more CO2 emissions and nullify any benefits which are the sole reason for installing wind power in the first place. It is not clear whether this is based on the present ‘dumb’ transmission and distribution network or a fully modernised Smart Grid model but if its the later then VRE has a limited part to play in the US.

In Germany they are building their energy power model on the basis that by 2050 80% of their power needs will be provided by VRE and they will not need conventional spinning reserves. Germany is now pressing ahead with this new model which claims VRE can in time deliver almost all the power they need and will not require conventional base load generation; provided you have a Smart Grid that can balance supply and demand, has a mix of renewable generation with some storage on its PV solar content and is locally distributed. The proof of this is going to be played out over the rest of this decade when they plan to have renewable sources providing 35% of its electricity by 2020 and 80% by 2050. If this model is proven then it opens up much wider options on which countries can base their energy policy, trading cost with long term availability, security and safety of energy supply.

The German grid, which is not yet smart, is currently accepting 15% renewables with wind providing over 9% of the country’s grid power while solar PV has more than a 5% share. But penetration rates can be much higher in real time, as solar production went from zero to 15.6 GW on the 30th September, at which point it was meeting 30% of total demand. Renewables also supplied about 40% of Denmark’s power in 2011. Both countries have robust grids and the lowest rates of outage in the world.

Irrespective of which theory is correct and both could be dependent on the state of their grids and decentralised power coming from variable and non-variable clean energy sources; the need for a Smart Grid goes without question. The prime requirement now being to concentrate on automating demand response on the transmission and distribution lines, building on an existing but robust system, whilst taking in distributed power from independent public and private sites. This as we have already noted in the previous posts is also dependent upon the structure of the electrical utility industry to morph from a central to a decentralised hybrid model. That will require Smart Grid ownership and operation to be shared amongst all the stakeholders if it is to work.
 
Is the Technology in Place and can the Supply Industry Deliver it?
Our recent report (http://www.memoori.com/portfolio/the-smart-grid-business-2012-to-2017) shows that the supply side is changing to meet the challenge; with billions of dollars being invested in Smart Grid supplier companies through M&A and Venture Capital. The structure is changing with a perceptible move away from the dominance of the international majors to the medium and small companies who are increasing their share of the business and a significant number of new entrants from outside the industry including the IT & Communications businesses, which increasing competition and strengthening the industry.

The technology is in place and there are no known roadblocks here that will restrict Smart Grid’s development, although in some areas a full working prototype at a utility scale has yet to be proven. The new technology surrounding communications and “Big Data” has yet to be proven in the Smart Grid environment however it is already being used in other industries and at the electrical utility scale.

OFGEM, the UK regulator of electricity and gas markets recently reported that electrical generation will plunge to 4% spare capacity from its present level of 14% by 2015. Some 12GW of coal fired plants; equivalent to a 6th of the total generation capacity, can now only operate for a limited number of hours before they are closed in order to comply with the European Union air pollution regulations.

Similar news has been broadcast in the US. So both countries look to be heading for some significant disruption in power supply, unless through Smart Grid, they can take on board more VRE and distributed power, or significantly reduce peak load demand. This can only push the regulator to hastily set about delivering the new model so that Smart Grid develops on a firm foundation.

Further Research
Memoori’s report The Smart Grid Business 2012 to 2017 is a definitive resource for the Smart Grid Industry combining clearly defined market sizing statistics with a review of the structure of the supply side and financial analysis of M&A and Investment opportunities.

It is our 2nd annual assessment of the world’s Smart Grid business; providing a comprehensive analysis that brings together market sizing data across product segments and countries, analysing all the technological and commercial factors influencing and driving its future. This includes reviewing strategic business models on both the demand and supply side delivering products & services that will drive more ROI out of investment whilst meeting the challenges of a low carbon economy in the 21st century. For more details please visit the Website – http://www.memoori.com/portfolio/the-smart-grid-business-2012-to-2017

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