Duncan Sinclair, Redpoint Energy & Tom Fryers, Sentec, UK
The UK’s renewable energy strategy is a key part of its decarbonization agenda, which seeks to reduce carbon dioxide (CO2) emissions by 80 per cent from 1990 levels by 2050.
Ambitious short-term targets have been set for incorporating renewable sources into the energy mix: from two per cent today to 15 per cent by 2020. In order to meet these targets a sea change is required in the way the country thinks about energy consumption: the way it is used, the way it is sourced, the way it is controlled and regulated, and the way it is funded.
Smart metering is an integral part of the smart grid concept that is essential for the greater integration of renewable energy sources
However, the defining characteristic of many renewable energy sources is the intermittent nature of their output. Subject to fluctuations in weather conditions, wind turbines only turn when the wind blows, solar panels produce power only when the sun shines. In fact, wind power, the most widely adopted renewable energy source in Great Britain to date, perfectly illustrates the problem.
There are many views on how far output can be relied upon at times of peak demand: numbers range from zero to 30 per cent of its installed capacity. Aside from the uncertainty a problem in itself even 30 per cent compares rather unfavourably to the 90 per cent that can be expected on average across the conventional generation fleet.
This unpredictable and highly variable output creates a whole new paradigm for energy management, and a whole new series of challenges for the energy industry and the government to overcome.
CHALLENGING TIMES AHEAD
And the problem gets more challenging the more wind the UK uses. In a small system like that of Great Britain’s, output from renewable plant is highly correlated. In other words, the same weather conditions are likely to have a similar impact at each wind generation plant in a particular region, and possibly across the whole country.
Simply put, if one wind turbine is not running, the chances are that many others are not either. There is a far greater possibility that there will be little or no output at all from the entire wind fleet than there is with conventional generation where outages at individual plants tend to be independent of each other. And so we are left with a paradox: renewables can displace thermal generation, saving fossil fuels and reducing carbon emissions, but we will still need almost as much conventional capacity as we have today to meet demand when renewables output is low. We would also need more thermal generation to provide balancing services, since the variations in wind output are difficult to forecast.
With forthcoming closures of oil and some coal plant, gas becomes the prime candidate to provide that reserve supply. And here we find the first of many technical challenges, since a number of gas fired generation plants may struggle to provide the flexibility necessary for this new role. Then there are security-of-supply issues to contend with as last winter’s Russia-Ukraine dispute demonstrated, greater dependence on natural gas is not without risk to net importers like the UK.
SPILLED OUTPUT, SPILLED INVESTMENT
The problems are not confined to situations where there is a shortage of generated output. There is a very real risk that if low demand coincides with high wind, the excess output that results would simply be spilled if it cannot be exported or stored in some way. Spilled generation represents spilled investment. Only the generation output that is consumed counts towards renewables targets. If those targets are to be met, any spilled volumes must be replaced with additional investment in other renewables thus increasing the costs involved.
This is not the only investment challenge created by the intermittency of most renewable output. At current levels of use, wind plant in the UK should be able to capture a price slightly better than that of the baseload. However, any significant displacement of conventional generation will reduce the cost of marginal plant and lower market prices. This has already been observed in countries such as Spain, Germany and Denmark, where levels of wind capacity are relatively high.
As a result, we get a negative correlation between wind output and the price that generators receive: the higher the wind capacity the lower the prices for its power when it generates. Conversely, prices will be higher when wind generation levels are low. This means that initial investment in wind power delivers returns that may diminish over time as more and more plant is incorporated into the mix. Ultimately subsidies for renewables may need to rise to counter this effect.
All of these problems can be addressed in a number of ways: greater interconnection to other markets and diversifying renewable sources to include more marine technologies for example, whose output is less correlated with wind. Also greater electrification in the heat and transport sectors could also add valuable storage capabilities to the grid to help flatten load patterns. All of these alternatives will need to be explored if renewable generation is to be successfully incorporated into the energy mix.
DRAMATIC SHIFT IN CONSUMPTION
But an immediate and cost-effective solution may be found in demand-side modulation, so that the revolution in the way energy is generated and supplied is accompanied by an equally dramatic shift in the way it is consumed.
The current shape of demand causes huge costs to the system, but if it can be made flatter less ‘peaky’ and more consistent it will reduce the amount of back-up flexible capacity the country needs. And if consumers can respond to fluctuations in supply on the grid, then the cost of managing wind intermittency could be reduced yet further. In fact it would take comparatively little demand-side response to significantly reduce the risks associated with variable renewable output. Modulating demand with various degrees rather than cutting it completely is all that is necessary.
There are a number of ways in which this can be achieved, offering utilities and/or their consumers the ability to adjust consumption with various degrees of automation and control. There is significant technological development to support it, which themselves need large-scale investment and support. However, investment aside, if demand modulation is to succeed down to the domestic level, some form of time-of-use tariff that is more finely granulated than the current standard unrestricted, and peak and off-peak pricing schemes, will be required. Households will need to be able to see the impact of their behaviours, and to adjust their consumption according to changing price signals. Instrumentation and control customers’ half-hourly meters will need to become more sophisticated.
LESSON FROM AMERICA
The US has a very large installed base of automaric meter reading (AMR) one-way meters, and is rapidly deploying two-way advanced meter infrastructure (AMI) meters. But it has what might best be described as an interesting relationship with environmental issues, and one that changes from state to state. Here, smart metering has generally been driven by the desire to reduce the costs associated with manual meter reading and following the highly damaging series of ‘brownouts’ in states like California the desire to reduce peak load and enhance security of supply.
In Europe, ‘unbundling’ of supply and transmission networks in certain European markets, has led to a search for competitive differentiation of what is now a commodity proposition. Smart metering will probably be deployed in this context to strengthen long-term customer relationships. In Italy, which has more than 30 million installed meters, one of the key drivers was tackling energy theft and the cost of managing meters. In the Canadian province of Ontario it was peak shaving and the move towards time-of-use pricing.
Of course, the environmental rhetoric does play well with certain consumers, and energy suppliers are more than happy to exploit growing eco-awareness among the general population. Even if the green messages fail to engage the consumer base, the cost-saving benefits of smart meters are likely to prove attractive, particularly when purse strings are being tightened, and the fear of fuel poverty haunts the corridors of the UK Department of Energy and Climate Change.
In other words, most companies and most governments have a mixed bag of market-driven rationales. In fact there are normally at least three aims behind smart metering deployment. But if smart meters have the potential to address a number of issues, that potential can only be realized by appropriate system design and deployment as close examination of systems elsewhere proves.
First of all, although some degree of standardization can be helpful, excessive rigidity in system design and inflexible specification is not appropriate. In this case, one size most certainly does not fit all.
Standards can be stipulated for various elements of the system. The hardware at each stage in the network, the communication protocols and infrastructure, the data interfaces, format and level of interoperability can all be subject to strict specification. With the supplier requirements for smart metering (SRSM) being drawn up by the Energy Retail Association nearing completion, and London’s plans announced in May for the nationwide roll-out of smart meters, the basic structure of the UK programme for smart metering is all but in place. But between them, these two pillars of the system’s architecture appear to have created a number of potential problems. Put bluntly, current plans may well be taking us down the wrong path by forcing a standard that is not necessarily the right one.
The widespread adoption of smart meters is key to successful demand-side management
A quick look across the Atlantic provides ample evidence of what works and what does not. The extensive smart metering schemes deployed in the US give us a view of a number of cost models from various designs of smart metering systems. They show, categorically, that there is no universally applicable solution and that the most cost-effective system for a metropolitan area can prove to be far more expensive and far less effectual in the sparsely populated rural heartlands. The most successful implementations are completely bespoke up to the point of interface with the rest of the system.
But the SRSM does not appear to have taken this into account. Instead it proposes to fix precisely what data comes out of the meter and how it needs to be processed, rather than allowing the utilities to translate and standardize it once it reaches their back office. This loads unnecessary functionality, and hence cost, into the high-volume elements of the system the meters rather than into the much smaller number of back-office interfaces.
Excessive standardization also diminishes competition, and inhibits innovation. In Italy, for example, the regulator mandated both the type of meter to be used and the extra cost that can be charged.
The utilities get all their money back from the consumer, regardless of the system design or the meters used. The result? No incentive to design a future-proofed system. So although the smart metering project met its initial objectives, and easily exceeded pay-back, the country is now facing the possibility of a highly disruptive, wholesale replacement of its smart metering infrastructure, rather than a series of staggered upgrades.
If the UK is to avoid similar problems, then we need to take into account the fact that current smart meters are the gateway to a number of future functions. Just as bar codes at the supermarket were introduced as a method of stock control but became a marketing tool, smart meters have the potential to alter fundamentally the relationship between utility and customer in ways that we do not, as yet, fully understand. Meters are already capable of spotting faulty appliances or personalizing energy efficiency advice. It does not require a giant leap of imagination to see them taking a far more active role in household energy management.
The simple fact is that smart metering cannot be treated as a one-off implementation that will survive 20 years before old age takes its toll. Advanced meters have a much shorter innovation cycle. Most utilities have yet to make the psychological shift necessary to take on board the fact that smart metering really is the end of business as usual.
But they need to, otherwise they will be locked into a continual pattern of expensive replacements, and will fail to secure the competitive differentiation they initially sought. The evidence from existing deployments in Europe and North America is there for all to see.
METERING ESSENTIAL FOR RENEWABLES
Despite these issues, the widespread adoption of smart metering is essential to the greater adoption of renewable energy sources. What’s more they have the potential to incorporate greater flexibility into the grid through small-scale renewable generation. As a result local supply and demand can be matched more closely, and hence more efficiently, and regional pressures on the grid can be eased.
But it is important to note that this kind of change cannot be expected overnight. Even the widespread deployment of smart meters cannot guarantee that customers will respond and change their consumption based on short-term signals, since the marginal cost of consumption is small in the immediate term.
Furthermore, the very things that have the greatest immediate impact on demand in a domestic setting the television, the heating, the washing machine are precisely the appliances that are considered essential. Consumers are unlikely to cut down significantly on these big energy hitters. However, the time of use of the latter two can be shifted with little impact on the consumer, and it is to be hoped that consumption patterns will change over the longer term, once the cumulative effect of smaller actions upon the overall bill can be seen.
Nonetheless, as enablers of dynamic response and dynamic demand, smart meters are critical and a successful national rollout will be key to the UK’s low carbon strategy. There is little possibility that any form of demand-side modulation can successfully be achieved at the domestic customer level without the bi-directional information they provide and the dynamic pricing signals they support.
Other changes will certainly be necessary the settlement system being perhaps the most obvious of many candidates. But smart meters can be seen as the first step towards the smart appliances and smart grid technologies that are a key element in transforming electricity transmission and distribution in the face of greater penetration of intermittent renewable generation.
And although the immediate goal of smart meters may simply be to encourage greater energy efficiency, it is in achieving this longer-term goal that smart meters will fulfill their true potential.
Duncan Sinclair is a director of Redpoint Energy, a consultancy specializing in the European carbon, gas and electricity markets. Tom Fryers is commercial director at Sentec, which serves the smart metering industry. For more information visit . For more information visit www.redpointenergy.co.uk or www.sentec.co.uk.