Market aspects of smart power grids development

Smart Grids herald a revolution in the power sector. The cen-tralized and passive power grid model known for over a cen-tury is before our very eyes assuming a completely brand new shape: of an active and dynamic network with an increasingly relevant role of consumers – prosumers, who are offered brand new products and services. Such an active development is pos-sible due to a number of factors, such as:1. Synergy of ICT with power engineering – these disci-

plines are becoming an indispensable element of the modern power grid’s operation,

2. The European Union’s regulations in the area of reduc-tion of CO2 emission and improved energy efficiency, as well as identification of Smart Grids as one of the opti-mum tools,

3. Growth, thanks to continuously increasing expenditures, public awareness of the purchase and rational use of energy.

However, the Smart Grid development and ICT implementa-tion in the power sector also carry a risk in the matter of setting up system and process links between the systems of concerned energy market players, which should be mitigated by develop-ment of technical standards, methods and principles of good cooperation between the concerned parties. Mitigation of the risk, and as a consequence, effective Smart Grids development will provide conditions for dynamic development of new roles and mechanisms on the energy market. Offering modern prod-ucts and services to consumers and prosumers, and effective implementation on a national scale of demand management mechanisms will be a source of multidimensional benefits of a functional and financial nature, and will also have a positive impact on the National Lower Grid’s security.

INTRODUCTIONDevelopment of Smart Power Grids that combine power systems and smart metering AMI (Advanced Metering Infrastructure) infrastructure with state of the art ICT (Information and Communication Technology), is a de-velopment opportunity for the entire energy market, and for materialisation of the prosumer concept in particu-lar. A prosumer is a special type of consumer, which by generating energy in microsources, effectively manag-ing its energy consumption, or actively participating in “Demand Response”, becomes an energy market player, where through aggregation services it may even become a co-provider of services of an ancillary nature.

SMART POWER GRIDS: SYNERGY OF POWER INFRASTRUCTURE AND STATE OF THE ART ICT TECHNOLOGYThe conventional operating model of companies in the power sector, and especially of distribution grid opera-tors, is based on a simple paradigm: energy supplier (distribution system operator and seller) – energy con-sumer, shall be subject to significant transformation in the nearest future. One of the main change drivers is the development of IT and information transfer technologies – jointly referred to as ICT (information – communication technology), and its application in the energy sector.

Already now the operation of basic power system component without ICT participation is hardly imagina-ble. Not to mention the importance of ICT for the further evolution towards smart power grids and the fulfilment of EU Member States’ obligations to reduce CO2, emis-sion, the references to which are found in numerous documents, such as the report of the European Commis-

sion’s Ad Hoc Advisory Group “ICT for Energy Efficien-cy”, published on 24 October 2008.

A model example of the ICT implementation in pow-er engineering is development and implementation of smart metering systems, the proper operation of which requires adequate quality measuring instruments in the form of AMI (Advanced Metering Infrastructure) meters, a reliable transmission medium (very often such medium is a power grid), as well as efficient and reliable software.

POTENTIAL BASED ON INTERACTION AND SHARED STANDARDSProvision of new services to end consumers will require cooperation between DSOs and electricity sellers to a much greater extent than has been the case so far. An ex-ample of such co-operation may be transfer of electricity consumption readings from AMI systems implemented in the DSO structures to electricity sellers, or companies providing energy outsourcing services, in order to enable consumers’ use of advanced management services, and not, , as has been the case so far, for billing purposes only. Enabling consumers’ use of this type of services is one of many B2B class business processes requiring direct and relevant quality and security standards com-pliant communication between IT systems of concerned market players.

Smart Grid development will also enable provision of ancillary services to the TSO by “active consumers” with sufficient potential of electricity consumption reduction, or even by special entities dedicated to these tasks, such as, for example, aggregators, but in specific cases also by consumers themselves. Also in this area standardi-

Aleksander Babś | Maciej Makowski

Special Issue – Smart Grid 19

Abstract

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Aleksander Babś, ENERGA-OBRóT SA | Maciej Makowski, ENERGA-OBRóT SA

sation will be required with regard to interaction of the existing and developed ICT systems to enable effective actions aiming at assurance of the National Power Grid’s stability and sharing with end consumers the potential resulting from implementation of AMI and Smart Grids.

The growing number of active consumers, i.e. such customers, who knowingly want to and can shape their electricity consumption profiles, and increasingly – as prosumers – can generate electricity from microsources, requires implementation of new system solutions that provide a power grid with the “smartness” necessary to ensure the power grid stability, proper power supply qual-ity, as well as safety for the DSO’s technical services per-sonnel. The necessary solutions involved are advanced ICT systems made up of the hardware, teletransmission, and software layers. The advent of the new and smart so-lutions, will enable the extension of the existing, centrally dispatched (in regard to generation sources) power grid operating model by the aforementioned active consum-ers and prosumers as market players of growing poten-tial and relevance.

One of the major problems in the development of IT system software is the proper definition of interfaces, i.e. the piece of software which is responsible for data ex-change with other systems.

The service interfaces of Smart Grid applications will have the key role in building a well functioning market of services for all participants of the electricity market. Given the national market model: a single TSO – individ-ual DSOs – multiple sellers, and the required possibility of interaction between all the aforementioned groups, standardisation is advisable in the area of B2B and B2C processes. Consistent actions of the market participants on the basis of the implemented standards allow for their efficient co-operation, now however – in the face of the Smart Grid development – this operating formula will be extended both horizontally and vertically. New services for electricity consumers will be practically entirely based on consistent and business-oriented cooperation of the market players: the TSO, DSOs, and electricity sellers. The standardisation of key relevance for this cooperation development will relate first and foremost to agreeing upon a common language to be used in communication between the market participants. Besides the language, it will be also necessary to set appropriate communica-tion channels. Despite the rapid development of Smart Grids and definition of standards, which advances in parallel to implementation of solutions based on these standards, it’s possible to employ well established infor-mation exchange and information definition standards.

The information definition – as a language itself – must be based on clearly specified and comprehen-sible rules for the communication parties, and it also must have a defined syntax. An example of such com-mon language is the concept of CIM (Common Informa-tion Model), which enables modelling in a standard way most of the data (objects) present in a power company, and determining a standard form of their recording. A

detailed description of such an approach is provided by a series of standards such as: IEC 61970 (Energy Man-agement System Application Pro gram Interface, EMS-API), IEC 62325 (including definitions, i.e.: Deregulated Energy Market Communication and Framework for Ener-gy Market Communication), or typically operator activity oriented: IEC61968. Conversation channels, i.e. transfer and exchange of standardised CIM messages can be carried out withinSOA (Software Oriented Architecture), which is utilised by major business applications in large companies and corporations. On the basis of SOA, large centralised ecosystems may be created, whereby infor-mation forwarded by market players is centrally collected and processed (like in the WIRE system – Energy Market Information Exchange in Poland), as well as decentral-ised structures based on standardised peer-to-peer com-munication (like for example the global cooperation of mobile telephony operators using the TAP protocol that enables unrestricted exchange of roaming calls billing details).

It is advisable that the electricity market players on the supply and distribution side start implementing the mechanisms listed above as soon as possible. Their im-plementation will enable offering modern products to consumers. From the consumer point of view these ser-vices will provide new opportunities, first and foremost with regard to rationalisation of electricity consumption and improved efficiency of its use.

Fig. 1. Flow of information and energy in Smart Grid betwe-en market players

TSO

Aggregator

Electricity seller

DSO

Prosumer

Consumer

Information flow Energy flow

NEW ENERGY MARKET PLAYERSAvailability of the infrastructure enabling the launch of new products to the electricity market will stimulate the emergence of new specialised entities that will be able to offer modern services to customers, as well as perform brand new roles in the energy market. High growth rate is particularly evident in the areas of energy efficiency and energy demand aggregation.

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Market aspects of smart power grids development

ESCO companiesESCO acronym (Energy Service Companies) is com-

monly used in Western countries to denominate a power services provider that offers comprehensive expert ser-vices in the power sector, and warrants potential custom-ers’ energy savings and reduction of energy bills. ESCO companies provide comprehensive energy management services under executive contracts, and grant energy saving guarantees.

ESCO companies, on the basis of precise and avail-able in real (or near real) time electricity consumption measurement data will be able to offer on a large scale to their customers, energy consumers, professionals ser-vices related to energy consumption and demand reduc-tion. The fee for the services is typically generated by the customer’s reduced energy bills. The scope of the ser-vices may include not only energy usage efficiency im-proving projects, but also equipment maintenance and repair, cogeneration of electricity and heat, new technol-ogies, and alternative electricity generation, if only the fee for these services originates from the accomplished savings1.

Aggregators – demand managementIn Smart Grid solutions two-way electricity flow in

grids is a paradigm. This means that electricity can flow not only from central sources to end consumers, but can also be generated by consumers and fed by them into power grids. The coexistence of the above trends is proven by the increased consumer activity on the energy market. An active consumer’s actions may include in-formed consumption reduction, altering usage patterns in time and energy generation using microgeneration sources. The emergence of active consumers as well as the two-way electricity flow account for a new area, within which many technological solutions have been recently conceived. From the Smart Grid viewpoint the demand response and distributed generation manage-ment concept consists of two basic elements:• controlled demand reduction (controllable loads ag-

gregation)• energy supply aggregation – in the meaning of the Vir-

tual Power Plant concept, whereby small sources play an important role – and support for their deployment is a commercially significant element of the demand response and distributed generation management.

SMART CONSUMER GRIDS – BENEFITS, MODERN SERVICESIn order to accelerate the Smart Grid deployment pro-cesses and acceptance, activities within the field of consumer value creation and appropriate communica-tion based on potential benefits need to be intensified.

On the electricity distribution side the Smart Grid de-ployment’s benefits for consumers will primarily consist in rarer occurrences and shorter durations of electric-ity supply interruptions. Owing to better observability of medium voltage grids, faults of which to a large extent affect SAIDI (System Average Interruption Duration In-

dex) and SAIFI (System Average Interruption Frequency Index) indices, faulty grid sections can be isolated in or-der to restore supplies to healthy grid sections. Another benefit from the Smart Grid deployment is the option to implement a system of public information on the elec-tricity supply status and the other events in the power grid of relevance to the safety of local communities [3]. Such a system, using a dedicated web service, would present details of the current condition of a given grid area retrieved from the Smart Grid system. This way lo-cal residents, businesses, and authorities would acquire access to details of the current electricity supply status and problems, if there are any, related to its transient in-terruption.

Examples of product deployments, the complete suc-cess of which require Smart Power Grids, and which will bring about numerous benefits, include the following:• Sharing with electricity consumers complete energy

consumption information in the form of reports and charts available through the Internet and with the use of portable devices, and enabling better understand-ing and modification of energy consumption patterns. Departure will be possible from the conventional mod-el of electricity billing based on forecasts in various intervals 6-month even, as instead the settlement is proposed as per the actual meter reading at any in-terval at the consumer’s convenience and discretion

• Introducing the option of participation in demand management programmes and making the available to consumers – prosumers

• Development of the Home Area Network as the man-agement centre for the house, energy efficiency, and – ultimately – a platform of offering value added ser-vices

• Ease of microgeneration sources deployment and management, renewable ones in particular, and wide-spread use of electric vehicles not only for transport, but also as elements of the demand management mechanisms or electricity storage (Vehicle-2-Grid con-cept).

In the context of the Polish power sector’s technical and operational conditions the aspect of demand man-agement and potential programmes that may be offered to consumers seems to be particularly worthwhile. The implementation of such programmes may be beneficial not only for them, but also for sellers, the TSO, and DSOs.

The demand management is typically divided into the following two basic areas:

Incentive programmes – enabling the reduction of the maximum peak loads, when the ratio of energy price paid by consumer to purchase costs is high resulting from events such as, for instance, energy supply short-age or increased overall demand. These may include:• programmes whereby the energy seller initiates activi-

ties leading to energy consumption reduction • as well as programmes that require the consumer’s

decision to reduce the consumption (or to shift it in time) based on appropriate price incentives.

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Pricing programmes – which require the consumer’s decision to reduce the consumption (or to shift it in time) in specific times of the day, based on pricing incentives offered by energy supplier. The most popular groups of pricing programmes include:• Time-of-Use pricing (TOU pricing) – electricity prices

change in the daily, weekly, and seasonal (summer/ winter) cycle. Price rates are set for longer periods. TOU tariffs provide consumers with incentives to re-duce the energy consumption at load peaks, and to use electricity when its prices are low (in a load valley)

• Real time tariffs RTP (Real Time Pricing) – provides for electricity price variability throughout a day. Electricity price rates vary similarly to wholesale market prices, while consumers are informed of projected energy prices in advance of one hour up to one day

• Tariffs with peak price option CPP (Critical Peak Pric-ing) – a specific variety of ToU tariff, whereby rates are strictly tied up with the power system’s current oper-ating conditions. Some CPP tariff varieties introduce one or two additional very high rates for the system’s peak loads, i.e. the periods when the wholesale mar-ket prices are the highest. Consumers are informed at short notice that the rates will apply, and their amount and validity period are set by the energy supplier.

The programmes presented above are only examples of demand management tools, the availability of which will be possible along with the Smart Grids deployment, and which facilitate consumption reduction in peak periods or shift to a non-peak period. As a result, the smoothing of the daily energy demand curve can be observed, which is good for the national power grid, while at the same time providing consumers with tools for better understanding and rationalization of expenditure on electricity.

SMART GRIDS FUTURE IN THE CONTEXT OF OFFERED SERVICES AND CONSUMER ROLEThe power system of the future will be based on the fol-lowing two key pillars: Smart Grids and specialised en-ergy management systems. Smart Grids will provide an accessible and safe infrastructural platform and will be managed by DSOs, and in some selected areas by the TSO as well. The energy management systems will be-long to the sphere of competence of electricity sellers or specialised entities such as, for instance, aggregators.

In a longer run it may turn out that the strict interde-pendence of the both system will evolutionary lead to the emergence of energy agents, i.e. autonomous entities continuously communicating with each other and imple-menting their own strategies in the context of the whole power system. The agent, as meant by the foregoing as-sumption, may be practically any receiver, device, or object connected to a power grid and provided with an appro-priate controller with its own efficiency and optimisation algorithm with the option of unrestricted communication with other agents. In the system such agents will represent consumers, prosumers, energy sellers, large generators and grid operators at all levels. The agents’ interrelations will be dynamic, and they will be automatically pursuing the maximisation of their own objective functions based on exchanged signals, for example: temporary and maxi-mum allowable power grid operation parameters, prices of electricity from available sources, current and planned capacities of these sources, customers’ tendency to con-sume a specific volume of energy at a specific price.

In the light of the currently conducted research and pioneering efforts undertaken in the area of providing the theoretical basis for operation of the energy agents mod-el, Smart Grids may be just a stopover in creating the power infrastructure of the future, which will ultimately shape consumers’ behaviours and demand for the whole new set of energy market related services.

1. The Smart Grid – Lunch and Learn, GE Power 2011, http://www.usea.org/USEA_Events/Smart-Grid-Briefings/Ses– sion_2-The_Smart_Grid-The_Consumer_View.pdf.

2. Smart Energy Management: Decentralised Collective Demand – Response Management in Smart Grids, http:// www.swinburne.edu.au/ict/success/research-projects-and-grants/smart-energy/.

3. Krohns H. et al., Demonstration of Communication Application for Major Disturbances in the Supply of Electric Power, Conference CIGRE 2011 – The electric power system of the future, Bologna 2011.

4. Studium wdrożenia inteligentnego pomiaru energii elektrycznej w Polsce [A study of the smart electricity metering deployment in Poland], Polish Society for the Transmission and Distribution of Electricity in cooperation with Insti-tute of Power Engineering, Gdańsk Division and Ernst&Young Business Advisory sp. z o.o.

5. “ICT for Energy Efficiency”, Report of the European Commission’s Ad Hoc Advisory Group, Brussels 2008.

6. “Firma usług energetycznych – ESCo” [An Esco company], Marek Butkowski, PSE – Wschód sp. z o.o.

Aleksander Babś, ENERGA-OBRóT SA | Maciej Makowski, ENERGA-OBRóT SA

1. “Firma usług energetycznych – ESCO” – Marek Butkowski, PSE – Wschód sp. z o.o.

References