The Smart Grid: A Balanced View by Chris Trayhorn, Publisher of mThink Blue Book, January 1, 2008 Energy systems in both mature and developing economies around the world are undergoing fundamental changes. There are early signs of a physical transition from the current centralized energy generation infrastructure toward a distributed generation model, where active network management throughout the system creates a responsive and manageable alignment of supply and demand. At the same time, the desire for market liquidity and transparency is driving the world toward larger trading areas – from national to regional – and providing end-users with new incentives to consume energy more wisely. CHALLENGES RELATED TO A LOW-CARBON ENERGY MIX The structure of current energy systems is changing. As load and demand for energy continue to grow, many current-generation assets – particularly coal and nuclear systems – are aging and reaching the end of their useful lives. The increasing public awareness of sustainability is simultaneously driving the international community and national governments alike to accelerate the adoption of low-carbon generation methods. Complicating matters, public acceptance of nuclear energy varies widely from region to region. Public expectations of what distributed renewable energy sources can deliver – for example, wind, photovoltaic (PV) or micro-combined heat and power (micro-CHP) – are increasing. But unlike conventional sources of generation, the output of many of these sources is not based on electricity load but on weather conditions or heat. From a system perspective, this raises new challenges for balancing supply and demand. In addition, these new distributed generation technologies require system-dispatching tools to effectively control the low-voltage side of electrical grids. Moreover, they indirectly create a scarcity of “regulating energy” – the energy necessary for transmission operators to maintain the real-time balance of their grids. This forces the industry to try and harness the power of conventional central generation technologies, such as nuclear power, in new ways. A European Union-funded consortium named Fenix is identifying innovative network and market services that distributed energy resources can potentially deliver, once the grid becomes “smart” enough to integrate all energy resources. In Figure 1, the Status Quo Future represents how system development would play out under the traditional system operation paradigm characterized by today’s centralized control and passive distribution networks. The alternative, Fenix Future, represents the system capacities with distributed energy resources (DER) and demand-side generation fully integrated into system operation, under a decentralized operating paradigm. CHALLENGES RELATED TO NETWORK OPERATIONAL SECURITY The regulatory push toward larger trading areas is increasing the number of market participants. This trend is in turn driving the need for increased network dispatch and control capabilities. Simultaneously, grid operators are expanding their responsibilities across new and complex geographic regions. Combine these factors with an aging workforce (particularly when trying to staff strategic processes such as dispatching), and it’s easy to see why utilities are becoming increasingly dependent on information technology to automate processes that were once performed manually. Moreover, the stochastic nature of energy sources significantly increases uncertainty regarding supply. Researchers are trying to improve the accuracy of the information captured in substations, but this requires new online dispatching stability tools. Additionally, as grid expansion remains politically controversial, current efforts are mostly focused on optimizing energy flow in existing physical assets, and on trying to feed asset data into systems calculating operational limits in real time. Last but not least, this enables the extension of generation dispatch and congestion into distribution low-voltage grids. Although these grids were traditionally used to flow energy one way – from generation to transmission to end-users – the increasing penetration of distributed resources creates a new need to coordinate the dispatch of these resources locally, and to minimize transportation costs. CHALLENGES RELATED TO PARTICIPATING DEMAND Recent events have shown that decentralized energy markets are vulnerable to price volatility. This poses potentially significant economic threats for some nations because there’s a risk of large industrial companies quitting deregulated countries because they lack visibility into long-term energy price trends. One potential solution is to improve market liquidity in the shorter term by providing end-users with incentives to conserve energy when demand exceeds supply. The growing public awareness of energy efficiency is already leading end-users to be much more receptive to using sustainable energy; many utilities are adding economic incentives to further motivate end-users. These trends are expected to create radical shifts in transmission and distribution (T&D) investment activities. After all, traditional centralized system designs, investments and operations are based on the premise that demand is passive and uncontrollable, and that it makes no active contribution to system operations. However, the extensive rollout of intelligent metering capabilities has the potential to reverse this, and to enable demand to respond to market signals, so that end-users can interact with system operators in real or near real time. The widening availability of smart metering thus has the potential to bring with it unprecedented levels of demand response that will completely change the way power systems are planned, developed and operated. CHALLENGES RELATED TO REGULATION Parallel with these changes to the physical system structure, the market and regulatory frameworks supporting energy systems are likewise evolving. Numerous energy directives have established the foundation for a decentralized electricity supply industry that spans formerly disparate markets. This evolution is changing the structure of the industry from vertically integrated, state-owned monopolies into an environment in which unbundled generation, transmission, distribution and retail organizations interact freely via competitive, accessible marketplaces to procure and sell system services and contracts for energy on an ad hoc basis. Competition and increased market access seem to be working at the transmission level in markets where there are just a handful of large generators. However, this approach has yet to be proven at the distribution level, where it could facilitate thousands and potentially millions of participants offering energy and systems services in a truly competitive marketplace. MEETING THE CHALLENGES As a result, despite all the promise of distributed generation, the current decentralized system will become increasingly unstable without the corresponding development of technical, market and regulatory frameworks over the next three to five years. System management costs are increasing, and threats to system security are a growing concern as installed distributed generating capacity in some areas exceeds local peak demand. The amount of “regulating energy” provisions rises as stress on the system increases; meanwhile, governments continue to push for distributed resource penetration and launch new energy efficiency ideas. At the same time, most of the large T&D utilities intend to launch new smart grid prototypes that, once stabilized, will be scalable to millions of connection points. The majority of these rollouts are expected to occur between 2010 and 2012. From a functionality standpoint, the majority of these associated challenges are related to IT system scalability. The process will require applying existing algorithms and processes to generation activities, but in an expanded and more distributed manner. The following new functions will be required to build a smart grid infrastructure that enables all of this: New generation dispatch. This will enable utilities to expand their portfolios of current-generation dispatching tools to include schedule-generation assets for transmission and distribution. Utilities could thus better manage the growing number of parameters impacting the decision, including fuel options, maintenance strategies, the generation unit’s physical capability, weather, network constraints, load models, emissions (modeling, rights, trading) and market dynamics (indices, liquidity, volatility). Renewable and demand-side dispatching systems. By expanding current energy management systems (EMS) capability and architecture, utilities should be able to scale to include millions of active producers and consumers. Resources will be distributed in real time by energy service companies, promoting the most eco-friendly portfolio dispatch methods based on contractual arrangements between the energy service providers and these distributed producers and consumers. Integrated online asset management systems. new technology tools that help transmission grid operators assess the condition of their overall assets in real time will not only maximize asset usage, but will lead to better leveraging of utilities’ field forces. new standards such as IEC61850 offer opportunities to manage such models more centrally and more consistently. Online stability and defense plans. The increasing penetration of renewable generation into grids combined with deregulation increases the need for fl ow control into interconnections between several transmission system operators (TSOs). Additionally, the industry requires improved “situation awareness” tools to be installed in the control centers of utilities operating in larger geographical markets. Although conventional transmission security steady state indicators have improved, utilities still need better early warning applications and adaptable defense plan systems. MOVING TOWARDS A DISTRIBUTED FUTURE As concerns about energy supply have increased worldwide, the focus on curbing demand has intensified. Regulatory bodies around the world are thus actively investigating smart meter options. But despite the benefits that smart meters promise, they also raise new challenges on the IT infrastructure side. Before each end-user is able to flexibly interact with the market and the distribution network operator, massive infrastructure re-engineering will be required. nonetheless, energy systems throughout the world are already evolving from a centralized to a decentralized model. But to successfully complete this transition, utilities must implement active network management through their systems to enable a responsive and manageable alignment of supply and demand. By accomplishing this, energy producers and consumers alike can better match supply and demand, and drive the world toward sustainable energy conservation. Filed under: White Papers Tagged under: Distribution, Generation, Laurent Schmitt, Operations, Smart Grid, Transmission, Utilities, White Papers About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.