The EU’s goal for 20% penetration of renewable energy in end use by 2020 has resulted in significant changes in Europe’s energy delivery as a whole. For the electricity network, the high level of intermittent wind- and solar-based resources has driven much greater fluctuations in the network, and demand patterns for traditional supply have been greatly altered. Managing this intermittency in a cost-effective manner is a major concern for the networks. The high penetration of renewables, particularly at the Distribution System Operator (DSO) level, and the intermittency of their supply requires the electricity network operators at the Transmission and Distribution level to take a new “system level” look at the operation of the electricity network as a whole.
Meanwhile, the direction of EU policy continues to be towards energy delivery, which encompasses further renewables growth, higher energy efficiency and lower carbon output from Europe’s energy supply. This direction was again reinforced in the recent 2030 policy framework communications in January and July 2014. For the electricity network and generators, this means that traditional schedulable generation like CHP must support the intermittency of the prioritised renewables.
The ability to maintain the traditional high level of reliability and availability of electricity supply to European customers relies on maintaining the grid within key operating parameters of voltage and frequency while always having capacity available to meet actual demand. This is achieved through a combination of regulation, requiring certain performance and support from generators and markets to attract the appropriate generation at an optimal price. Energy market liberalisation continues in Europe and market mechanisms are favoured to ensure suitable supply meets demand.
The market mechanism is the operating principle of the balancing markets, which provide the level of generation availability needed to meet actual demand, while regulation plays a proportionally higher role in the provision of physical fault correction, safety and security management. However, at the moment there is real concern among European policymakers that the current approach is not sending the right signals to investors to invest, reinvest and upgrade capacity of various kinds to meet the needs of the future high renewables network. The day-to-day nature of the generation mix has changed significantly, with a range of new actors – principally those connected at the DSO level – who could take part in the various balancing markets and network management services directly or through intermediaries. The traditional split between TSO and DSO with virtually all capacity centralised and connected at the TSO level and a passive DSO network is challenged.
It is clear that a network with a high level of intermittent renewables requires increased flexibility from schedulable suppliers. But how is this to be provided and rewarded? Moreover, as the capacity of intermittent generation on the grid rises, how are continuity of supply and the necessary high level of availability to be assured?
In parallel to the drive to higher renewables, the drive to improve the efficiency of the gas and electricity networks continues. The Energy Efficiency Directive of 2012 introduced requirements for CHP to be able to take part in the balancing markets offering services at the TSO and DSO level, and additionally for Member States to promote access to, and participation in, balancing markets by parties offering demand response services.
To meet the full range of EU energy and climate policy aims – renewables, energy efficiency and CO2 reduction – the participation of highly efficient competent network resources such as CHP should be a strong part of providing and extending network support services that are required by the grid and in order to balance supply and demand.
As the most efficient form of schedulable generation on the networks, a wider role for CHP in the various services and balancing markets improves the overall grid efficiency. CHP is used across the economy in a diverse range of applications and its true breadth of use is poorly understood. Figure 1 shows the UK distribution of installed CHP plants according to their generating capacity. The smallest capacity of under 100 kWe meets the heat needs of smaller commercial or public buildings, while the larger (above 10 MW) plants are providing heat for larger industrial processes and some very large industrial complexes. In between are universities, hospitals, smaller processing and manufacturing industries and local area heat networks. The majority of electrical power is delivered by a relatively small number of large generators above 10 MW. The remaining delivered electricity is spread across a large number of small generators: there are over 5000 units in the 100 kW to 1000 kW range, and over 1000 units of between 1 MW and 10 MW. The UK capacity spread broadly mirrors the pattern across EU Member States. CHP is embedded heavily through small generating units connected to the electricity network at the distribution system level as well as the transmission system level. Local energy supply and history as well as climatic conditions influence the distribution.
In the emerging high-renewables world, there is the opportunity to deliver high-efficiency, low-carbon energy support for intermittent PV and wind using the capabilities of schedulable CHP generation from the DSO and TSO levels. CHP is well placed to provide balancing and network support services both at the TSO level – where large industrial plants have traditionally played a role – and at the DSO level, where the largest number of CHPs exist. Not all plants are designed to take part in such a market, but there is no doubt that new plants entering the low-carbon, high RES market can be designed with the needs of the electricity system in mind.
|Figure 1. The distribution of the CHP installed base in the UK economy by electrical capacity of the installation|
Embedding generation capacity in industries
There is also the possibility to better align Europe’s industrial policy to its energy policy by actively promoting CHP in industry and creating markets for CHP to participate profitably in providing services to the electricity network. CHP can be a competitive advantage, reducing the cost of steam for these industries, but this requires it to interact profitably with the electricity market. The new services market is an opportunity to enhance this profitability, and the timing is good in the next 10 years.
Currently, over 50% of Europe’s traditional electricity plants are over their lifetime design age of 25 years. They continue to run because they are amortised assets and can offer electricity at low prices. This cannot go on indefinitely. The older plants are showing signs of aging, maintenance costs are rising and inefficiency remains an issue. Therefore it makes sense to encourage industry to reinvest in modern high-efficiency CHP, updated to be able to take part where appropriate in the services market, thus allowing old condensing plants to be retired. Generation capacity is thus ‘relocated’ to be embedded close to demand, minimising distribution losses and adding to the industry’s competitiveness.
Traditional utility companies and ESCOs currently partly or wholly manage CHP plants for industrial owners. This trend, which takes utilities’ electricity market expertise into a new service area, promises to be an effective business route forward.
Market design and distributed generation
There is a general consensus, based on the EU’s market liberalisation policy, that the necessary services to support the grid in absorbing increasing quantities of intermittent renewables should be created through market mechanisms, i.e. creating a market for the exchange of these services, which in turn provides a framework to encourage investment in appropriate generating, storage and demand response capacity. However, it is a challenge to make sure that these services are provided in the most efficient and environmentally friendly way, as the market is good at finding value but not at rewarding efficiency in the network as a whole.
The key to mobilising CHP’s advantages lies partly in the design of the market itself and its boundary conditions. For example, the limitations and requirements on operators and the time periods chosen for market actions and market closure dictate which operators can take part. It is important to review the markets for fairness and appropriateness to new operators, for transparency, and for compliance with Article 15 of the EED where considerations for CHP participation in the balancing markets, and the development of a broader demand response market, are set out.
The wide range of CHP facilities and economic applications which account for the 105 GWe of European CHP capacity have the increasingly valuable characteristic of being schedulable providers which could participate in delivering services ranging from demand response, thermal storage and balancing to frequency support. These also provide the significant advantage of higher fuel efficiency than the separate production of condensing power and heat on the same combustion fuel, independent of whether the fuel is fossil or renewable.
The installed base of CHP capacity represents a significant level of controllable distributed generation already embedded in the economy and the electricity network; the majority of this capacity in numbers of units is connected at the DSO level. It is embedded in a wide range of economic activities and enhances their competitiveness by lowering their cost of heat. These CHPs derive their high energy efficiency from the heat demand they serve in applications such as hospitals, universities, district heating networks, food processing and paper making. As generators and network service providers, these CHP plants providing heat to their main market can bring a range of desirable benefits to electricity system operation as a whole.
Traditional power utilities are several hundreds of MW in capacity. The relatively small size of CHPs by comparison delivers supply reliability; in other words, the availability of multiple smaller units in parallel offers higher reliability than one large generator which can modulate only within limits if it is to maintain efficiency.
In providing heat for a process in industry, for example, some CHPs are very tightly bound to the process itself. This means that electricity generation is also tightly bound to the process and the plant is extremely limited in its ability to respond to requests from the network. However, there are CHPs for which the supply of heat and electricity are not so tightly coupled and the supply of heat can be separated from electricity generation for certain periods, or the electricity production can be modulated without loss of overall efficiency. These CHPs have the ability to react faster to changes in demand than large generators, making them especially suitable for providing reserve power and for flexible load following and frequency control.
CHP’s local character means that it can supply power at the location where it is needed, and therefore DSOs may be able to avoid or defer costly network extensions to accommodate changes in demand. CHP can also provide reactive power, a necessity for overall system operation and the need or lack of which is typically a local issue.
In times of excess electricity due to overproduction from renewables, a range of CHPs with relatively minor modifications and some investment could absorb electricity and turn it effectively into useful heat. Some CHPs are already in a position to do this. Storage of low-temperature heat is current common practice for some CHPs, particularly in the district heating sector.
Using CHP to supply network services allows a high overall network efficiency to be achieved. EED Article 15 requires regulators to promote the efficiency of the networks as a whole and CHP continues to have a significant role to play in achieving network efficiency. The nature of CHP is that its heat and power are generated where they are used, avoiding network distribution losses which are still significant and remain a challenge. In the supply of network services, meeting legislative and regulatory needs for ongoing system efficiency and security of supply on an ongoing basis is enabled by using CHP in the services market.
|Figure 2. The distribution in France and Spain for comparison|
An energy-efficient system: the way forward
The current phase of change in the electricity supply system is already bringing forward new players and new ideas. For those involved in the policy sphere these early adopters – aggregators working with wide technology portfolios among small generators, demand response solutions built to work with the existing market structure, and DSOs operating a degree of local balancing as a solution to local congestion and demand issues – show that new entrants, which are part of the existing assets on the network, are a powerful potential first source of new network services. In exploring options for supplying the necessary availability and security of electricity supply in the new high-RES network, policymakers should fully assess the existing capacity and new actors as well as the boundary conditions of existing markets to see how existing assets, with modification, can supply emerging service needs. This review must be based not on the past centralised electricity network and supply structure but the future low-carbon, high intermittency, broad distribution base and active demand sector possibilities. This particularly requires that all aspects of electricity market design should be reviewed to enable full participation of all existing actors with the capacity to participate. The review should also embrace the drive towards higher network efficiency which first emerged in the EU’s Third Energy Market Liberalisation package and has been fully reinforced in 2012’s EED.
Dr Fiona Riddoch is Managing Director of COGEN Europe www.cogeneurope.eu