Vogel_Outsourcing_book_temp.qxd 24/02/2010 10:46 Page 85
Long-term Investment Signals Related to Distributed Generation
storage. It is even possible to aggregate groups of DG units into
Table 1: Costs and Benefits of Distributed Generation
so-called virtual power plants and to use parts of those units to offer
system services. Due to the fact that system services are mostly
Benefits Costs
Provision of electricity and partial heat –
tendered by transmission system operators, the decision as to whether
Reduction of CO
2
emissions and –
there is a positive value in offering system services by DG units should fuel consumption
also be market-based. In case revenues from the provision of system
Reduction of investment costs of Investment costs for distributed
conventional sources generation technology
services become higher than the costs for the necessary technical
Partly reduced demand for Partially increased demand for
equipment (e.g. optimisation tools, meters and heat storage), DG system services system services
sources should be used to offer system services. In this situation, the
Partial reduction of Partial increase in transportation losses
transportation losses
flexible DG units might be used to counterbalance deviations induced
Partial reduction of investments into Partially increased investments into
by inflexible DG sources, e.g. wind turbines.
4
grid components grid components
Evaluation of grid interaction is more difficult with DG because there is
no well-defined effect of DG units on the electricity grid. Usually, allowed to allocate price signals to different areas of their distribution
transmission and distribution grids are designed to enable the transport grid, thereby ensuring that DG sources are build at sites where they are
of electricity from large-scale power plants to end consumers. The most valuable to the grid. If DG units make new grid components
inability to store electricity calls for large capacities that remain unused necessary these costs should ideally be charged to the DG investors. In
for most of the time. Peak demand usually determines the transmission principle, this may lead to situations where grid costs circumvent
and distribution capacities. If DG sources are built close to the load, investments into environmentally friendly technologies, but if all
they can be used to reduce peak demand and hence also reduce the environmental benefits are considered properly, e.g. by CO
2
pricing, it
need for transmission capacities. At the same time the average amount makes sense in economic terms. At the same time the grid benefits at
of transported electricity is reduced, thereby also decreasing the losses other sites might make DG investments that have not been plausible
associated with transportation of conventionally produced electricity. without grid considerations attractive. Ex ante, it is uncertain which
However, it has to be taken into account that one single DG unit is not effect will level out the other. After all, the consideration of grid effects
sufficient to reduce grid costs, because in cases of unavailability of the will improve the proper consideration of CO
2
abatement costs of a
generator the grid capacity is needed as a back-up for secure electricity distributed technology.
supply. In case a group of DG generators is considered, these can offer
a certain level of secure electricity provision within a distribution Although the above considerations are theoretically straightforward,
network during peak demand and hence can reduce the need for grid the special characteristics of electricity grids render planning
capacities. The avoided costs by DG units are mostly driven by costs for extraordinarily difficult. Grid operators are natural monopolists who
transformers needed to adapt the voltage of the delivered electricity.
5
operate and plan the grid on their own without any competitors.
6
The potential of a group of technologies to reduce peak demand is There is no market for grid services that would, ideally, lead to efficient
rather case-sensitive – it depends on the grid topology and the kind of prices. If the grid operators are allowed to freely set prices for grid
selected technologies. Hence, it is not possible to determine a single benefits or costs, they will do this in a monopolistic manner, charging
effect that DG units might have on the grid. This becomes even more too high costs and granting too little compensation for induced
complicated in cases where many DG units are in a certain distribution benefits.
7
Hence, markets fail to work in this case and the tariffs of grid
grid, because there is an increasing chance that the DG units will operators have to be regulated by a governmental authority, most likely
produce more electricity than can be absorbed by demand and a regulator.
transported away towards the transmission grid. In this case, DG units
increase the need for distribution grid capacity or even more expensive As grid operators are already regulated businesses for reasons of the
storage; hence the costs for distribution are even higher and not efficiency of grid operation and planning, it is useful to view the issues
reduced because distribution capacities have to be enlarged. Besides of grid regulation and DG integration in combination. Grid operators
these simple considerations, there are also manifold engineering issues have the best information about the particular impact DG units have,
to be considered when large numbers of DG units are introduced. In and a regulator might be unable to fully understand which costs are
principle, the benefits of avoided investment costs and losses of DG associated with DG issues or other more regular grid planning aspects.
sources but also potential cost increases have to be paid for by the DG Hence, the grid effects of DG have to be considered in any regulation
investors, so that DG generators are built at sites where they are most scheme. In this context, the grid operator’s superior information should
valuable to the grid. be used to provide the proper investment signals. In order to limit the
monopoly power of the grid operators, the regulatory agencies should
Long-term Incentives in particular consider payments to DG operators within the regulatory
Unfortunately, generation units and distribution assets are not planned base and allow the free setting of any positive payments towards DG
by one single corporate body. There is no market for the grid effects of operators. In addition, a maximum price should be pre-defined for
DG; hence, there is no price signal for the grid value of DG available. payments charged to DG, because otherwise the grid operators might
While DG units are planned by industrial companies, households or make use of their monopoly power. So far, these issues have not been
contractors without any consideration for grid effects, these effects considered in regulatory practice; for example, in Germany DG units
have to be dealt with by the grid operators, which are unbundled from receive a standard compensation for grid benefits and grid operators
the generators. An obvious solution for the optimal long-term are generously compensated for costs induced by DG. In this way no
incentives would be pricing by the grid operators, who would be incentives for proper placements of DG are given.
MODERN ENERGY REVIEW VOLUME 2 ISSUE 1
85
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108