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Balancing variable renewables- capacity markets, smart grids or super grids?

By Dave Elliott

The previous few posts have looked at the state of play with renewables in some key countries. In many cases an urgent issue is grid integration and balancing. The variable outputs from wind and PV solar outputs are balanced on some grid systems by using existing fossil-fueled plants, but the later are having a hard time competing, now that some of their peak market has been taken over by low marginal cost (zero fuel cost) wind and PV. To ensure that there is enough capacity still available capacity markets have been proposed, offering extra payments. Some critics don’t like the sound of that- it’s yet another subsidy, in effect for fossil fuel. However, the proposed UK version includes payment for energy storage and demand management options, as well as for gas-fired back up plants, and longer term, fossil gas might be replaced by green gas in the latter. There again there are other balancing options- supergrid links for example, which would open up a new multi-national balancing market.  Which option is best?

Competitive market enthusiasts naturally see market signals as the best way to achieve balancing, and so they like the wider scale competitive markets that supergrids would deliver, even if some utilities don’t- they fear loss of control over their national markets. Similarly some free market enthusiasts dislike capacity subsidies (which they say would distort the market), but some utilities wouldn’t say no to subsidise for some of their old fossil plants! For a fascinating review:

However there may be other approaches. So far, wind and PV outputs have been treated as  ‘must take’ options- in part since the marginal cost was low, but also to aid the development of these new options and avoid what is usually seen as very wasteful output curtailment- i.e. dumping of valuable green power. Curtailment has certainly become an issue in some countries, the USA for example, although that has partly been because their (often long) grids were not up to taking all the power available at some high wind/sun times. Better grids would help.  But in typical US free market style, another approach is to reconfigure the market, to treat wind and PV just like any other source, using as much of it as was needed, curtailing the rest, but paying a special ‘dispatchable intermittent tariff’ for what was used. So wind/PV run up and down to match demand much as conventional plants do. That’s what is being done in the US Midwest, with improved wind forecasting playing a key role in making wind more like a ‘dispatchable’ source:

It’s not clear if this is an environmentally optimal approach in terms of net emissions, but it avoids having the pay fossil plants extra to stay on-line for when they are needed- they just compete (or not) as normal- and the overall cost may be similar.  However it does waste some potential green power, so in the EU at least, there is more interest in supergrids to exchange it, coupled perhaps with smart grid/demand management to balance supply and demand:

Certainly there is enthusiasm for smart grids, as part of a demand management system, with demand peaks being delayed by switching off some loads which can cope without power for a while.  In some variants, discounts are offered to consumers for accepting interuptable supply, so as to cut demand peaks. So that’s a market based approach. That’s an improvement on the relatively simple smart meters that are to be installed across the UK soon in a £12bn programme running up to 2020- they just passively monitor energy use.

Critics fear that the main benefits of the simple passive meters will be to the utilities, who will no longer have to send out meter readers, and can collect useful planning data from consumers, although some hope that consumers will reduce their energy use when they can see what it is. However the system is new and there are doubts about whether it will be ready or viable, with critics asking wouldn’t it be better to wait for a more sophisticated more interactive smart grid system:

Germany is having second thoughts about the deployment of its version of the simple meter  system given what it sees as the high cost and worries about consumer privacy. And in the UK full scale smart meter implementation has been delayed by a year:

Meanwhile, some progress is being made on fully interactive load management systems and they may well spread, possible using variable pricing to alter behaviour. For example, in a pilot project nearly 6000 smart meters installed in domestic consumers’ homes across London. As well as monitoring their energy use patterns, as with the simple smart meters, they can be used to monitor the impact on demand of flexible tariffs – reducing the tariff price when more electricity is expected to be generated through low marginal-cost green sources and increasing it when renewable output is expected to be low or at times of temporary network constraint. The £27m project involves UK Power Networks with project partners EDF Energy and Imperial College. Proper DSM. See earlier Ofgem

In Denmark, EcoGrid EU is testing a smart grid market system aiming to release balancing capacity, particularly from flexible consumption. The test, on the island of Bornholm, involves near 2000 residential consumers, with over 50% of electricity use met by renewables, and flexible demand response to real-time price signals, via residential demand response devices/ appliances with ‘smart’ controllers. That presents real-time prices to consumers and allows them to pre-programme their automatic demand-response preferences, e.g. via different types of electricity price contracts. ‘Automation’ coupled with customer choice is thus a key element in the concept. The total budget for the 4 year project, which runs up to 2015, is €21m, of which about half is from the EU.  This is a dynamic demand management follow up to an earlier pilot project in the same location which focused on balancing up to 70MW input from 5 CHP units and 47 wind turbines, with the CHP heat to power ratio changes and heat storage of excess power, being used to help balance wind variations:

The US has also been experiment with smart grids and smart meters.$3.7bn of American Recovery funding went into 100 Smart Grid assessment and development projects.

Some work, like that carried out the University of Berkeley, has looked at the demand side impacts of variable pricing in California:,+2013&utm_campaign=blog41&utm_medium=email

For IRENA’s global review of ‘smart grids and renewables’ and ideas about how best to proceed see:

Will any of these new systems prove effective at balancing grids, technically and economically? Technically they all could to varying degrees, but economically, what’s not clear is whether dynamic demand management distorts the supply market or is a way to make the market responsive to variable supply. It’s also not clear what the supergrid power exchange market would look like- who would win out? Those with excess or those with storage? And would any of this be better than having capacity markets, using cheap backup?

In the next two posts I will look at the current state of play in relation to supergrids and then at smart grids and smart meters.

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