EcoGrid EU NEWSLETTER No 1

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1 EcoGrid EU NEWSLETTER No 1 February 2012 EcoGrid EU POWER MARKET OPERATION IN REAL TIME The objective of EcoGrid EU is ambitious to develop a prototype of a European Smart Grid market platform. The demonstration will take place on the Danish island Bornholm where households by means of more flexible consumption will show how Europe can manage over 50 % wind power and other fluctuating and less predictable renewable energy sources 1. EcoGrid EU is mainly motivated by the challenges of balancing wind power fluctuation related to the European power system. The key idea of the project is to introduce market-based mechanisms close to the operation phase that will release valuable balancing capacity from distributed energy resources (DER), particularly from flexible energy consumption, says Ove Grande (SINTEF), Coordinator of EcoGrid EU. The aim of EcoGrid EU is to demonstrate a market concept that is designed to incorporate small-scale distributed energy resources as well as flexible demand into the existing power system markets, balancing tools and operation procedures. The concept will remove the barriers that have been complicating introduction of DERs into the present market structure, e.g. barriers related to size, online monitoring as well as a significant administrative burden including bidding on the markets, complying with schedules and financial obligations. Likewise, the market tool will provide a transparent and simple 1 The share of wind production of total electricity consumption is 30% (2011) mechanism as well as sufficient incentives for encouraging the participation of small endconsumers. REAL WORLD DEMONSTRATION Bornholm represents a unique test area, because it allows testing the EcoGrid EU market concept in a real power system, where the share of wind power exceeds 50 %. Furthermore the framework conditions are optimal on the island: local politicians, industry and residents of Bornholm, all sharing high environmental awareness, support EcoGrid EU. The local grid company, Østkraft, knows how the significant amount of wind generation challenges the power system. Østkraft therefore foresees added value from finding new solutions for managing the power system. In other words; Bornholm wants to find solutions for many power system challenges that Denmark and several other countries in Europe are likely to meet in the future. Finally, Bornholm is not operated as an islanded power system, but as an integrated part of the Nordic Power System. EU Supported Project with a Total Budget of 21 M EcoGrid EU is a large-scale smart grid demonstration project supported by EU s 7 th Framework Programme on Research, Technology, Development and Demonstration. The total budget of EcoGrid EU is 21 million of which EU finances more than half. In August 2011 sixteen European partners held the formal EcoGrid EU Kick-off Meeting in Copenhagen. EcoGrid EU is scheduled to end by the spring of households on the Danish island Bornholm are planned to participate in the demonstration. They will ensure an efficient and secure use of more than 50 % renewable power generation by means of more flexible power consumption. 1/8

2 It is important to emphasise that the EcoGrid EU market concept will be tested in a real power system. In this case Bornholm, which is electrically connected to and is a part of the Nordic Power System, says Ove Grande. THE TIME IS READY FOR EXTENSION OF THE POWER MARKET SYSTEM The current market design needs an improvement in order to secure efficient management of the power system with high shares of fluctuating and less predictable power production from renewable energy. In Denmark the share of wind power will reach 50 % of total electricity consumption within 10 years. In EU27 as a whole, wind generation capacity is planned to triple in few years Remove barriers for small market participants. Today and in the future most of the small DERs under the current framework will face barriers to supply balancing services. This means that, by preventing some units from participating in the balancing (or market for ancillary services), the balancing resources used will be scarce and thus more costly in terms of socioeconomic costs and not least: The end-users of electricity will probably face higher electricity bills in the future not only because of increased cost for balancing the power system, but also because of the need for new grid enforcements and investment. Bornholm is an island with a 60 kv AC cable connection to Sweden. Bornholm is fully integrated in the Nordic Power Market as a part of the East Denmark price area (DK2) (from 84 GW today to at least 230 GW in 2020) going further to 400 GW in The share of wind to consumption in EU may hence increase from 5 % today to nearly 30% in 2030 (EWEA, 2011). What are the shortcomings of the current market framework in order to manage a situation with significantly more power generation from renewable energy than we are used to? Furthermore, the expected increase of electricity consumption for transportation and heating will put even higher pressure on the grid under the current power system's architecture and market design. This pressure can be reduced by the introduction of a real-time market. This will shift the border between market-based operation and direct control closer to real-time to facilitate more efficient operations. Today the market operation is based on an hourly time resolution that does not reflect the actual dynamics in the power system. This leads to less efficiency, which means that costs of operating the power system may become higher than necessary, says Jacob Østergaard, Center for Electric Technology at Technical University of Denmark. Østergaard is the key responsible for the 2/8

3 conceptual development of the real-time market concept architecture in EcoGrid EU. Similarly, the gate closure in the market several hours ahead is not in line with the predictability of DER since the ability to supply is not known until maybe minutes or half an hour ahead. There will be some overlaps especially with the current regulating power market. The current regulating power market is wellfunctioning and well-suited for a number of market participants, so it should be maintained with the least possible modification. We develop the EcoGrid EU real-time market to suit a range of new players and to allow new resources to participate in the faster system balancing in parallel with the existing markets, says Jacob Østergaard. The EcoGrid EU real-time market in the context of other balancing systems. The new market will extend the market operations closer to real-time and potentially reduce the need for more expensive automatic control systems like load-frequency control (LFC). Predictability and hence planning of operation for individual and small DER units is more difficult compared to larger market participants, as the main purpose of many DERs is not to supply services to the power system, but to provide services to the users. On the other hand, the small DER units typically have the ability to ramp up/down very fast e.g. by turning on/off. Thereby they have the ability to participate in markets with short time scales and high price volatility, Jacob Østergaard explains. THE REAL-TIME MARKET COMPLEMENTS EXISTING MARKETS To make the EcoGrid EU solutions more widely applicable, the real-time market concept will be designed for the existing power markets. Because of the test site location on the Danish island Bornholm; the real-time market concept will first be operational in the Nordic power market system. Is the EcoGrid EU real-time market replacing some functions of the regulating market? The aim of the real-time market is to provide balancing power via an aggregated response from numerous DERs and flexible electricity demand on a volunteer basis. The real-time market overlaps/complements the regulating power market, which mainly addresses larger conventional generating unit several MWs. In the Nordic system, the regulating power market is constituted by a common merit order list for up and down regulation available for the four national TSOs. This list includes bids from producers, large consumers and aggregated smaller loads. The TSOs accept bids from the list before or during each hour of operation to keep the system balanced. The contribution from the real-time market will become an additional source of regulation capacity in parallel with the regulating power market. A BIDLESS REAL-TIME MARKET CONCEPT In EcoGrid EU a real-time market is defined as a market, where power is produced or consumed without previous agreements. The "real-time" in this context means that the trades are based on 3/8

4 The EcoGrid EU real-time market architecture: The TSO detects a need for correcting the system balance, and calculates the price that will re-establish equilibrium (1). The price is published and retrieved by market actors (2). Production and consumption is adjusted accordingly (3), and the TSO can monitor the impact to verify that equilibrium has been established (4). The loop is repeated every 5 minutes. Arrow 3 illustrates the power settlement process between prosumers (producers and consumers) and the electricity network. Arrow 1,2 and 4 illustrate the direction of communication. what market players actually do, rather than what they promise to do which is the focus of current markets like the day-ahead spot market. What distinguishes the new EcoGrid real-time market design from the current power market design? First of all the EcoGrid EU concept will be based on a "bidless" market with ex ante price announcement. This means that the final settlement price is determined by predictions of the price responsiveness rather than on explicit bids as known from conventional auction markets and published before each market interval, for which the price is valid. Furthermore each market interval is just 5 minutes, which ensures that the realtime price can follow the fluctuations of supply and demand, says Jacob Østergaard. A bidless market minimizes the efforts (transactions costs) put in by DERs, because they must not create bids and schedules, but simply respond to the current market price. A real-time market operator (RTMO) sets the real-time price. The real-time price is set by an independent RTMO and published in advance of each 5-minute period for which it is valid. The price is based on the expected supply and demand curves for a price area and set to establish equilibrium between supply and demand. To ensure close coordination with the balancing markets, presently operated by the TSO, and due to the natural monopoly status of the activity "equilibrium price calculation", the RTMO role logically belongs to the TSO. 5 minutes price intervals. The choice of setting a 5 minutes time resolution of the price signal in the EcoGrid EU market is a trade-off between complexity and response. Shorter price intervals would give higher response in terms of time scale, but also complicates the system in terms of data processing and communications. The update interval of 5 minutes provides a good compromise between on the one hand, a fast response for balancing purposes, and on the other hand the computational burden and complexity in the settlement process. Moreover, to be able to measure and settle the electricity consumption or production for each market interval, the real-time price signal intervals must match the smart meter intervals. Locational pricing: The pricing in the realtime market can reflect the dynamics in the use of grid capacity in order to manage possible congestions followed by an increase in electricity consumption, e.g. due to heat pumps (domestic as well as in district heating) and Electric Vehicles (EV s). In the projects solutions for using the real-time market for managing local grid congestions will be developed. CAPITALIZE ON EXPERIENCE FROM OTHER PROJECTS The development of the EcoGrid EU Real-time Market is based on lessons learned from other demonstration projects, industry play- 4/8

5 ers and field-tests. Experience from other projects is utilised in EcoGrid EU. However, there is little experience with bidless power markets, says Stephane Otjacques, ELIA, TSO Belgium. He is responsible for the study of existing and suggested future market solutions for realtime balancing using DERs. This study is a review of existing and suggested future market-based solutions supporting active participation of DER in system balancing. These solutions are proposed by the EU projects, i.e. OPTIMATE EU, EU-DEEP, FENIX, ADDRESS, INTEGRAL, by the experience in the Nordic Markets or in the United States (GRIDWISE). The main motivation is building on existing solutions and learning based on the computation of real time pricesignals in particular when developing the EcoGrid EU concept. In the review we focused on the design of the business market model rather than their expected operational market experiences that, for some of still ongoing projects, will come later. It is crucial that the EcoGrid EU business modelling will be challenged for all stakeholders in the value chain, including DSO, TSO, retailers, end-users and their contractual relationship. The role model is one of the first crucial steps to any market modelling, even real-time. The best real-time market can only be sustainable if the market actors act in a healthy way, receiving value and benefits when participating to this market, says Stephane Otjacques. If and when it will be time to replicate the EcoGrid EU model across Europe, the concept should open for country-specific requests, says Otjacques. As the key partner he and his colleagues in ELIA will lead the work package related to deployment and replication. He wants to make it clear, that scalability of the real-time concept requires that it is replicable to European countries other than Denmark and the Nordic countries. The EcoGrid EU partners therefore have an important task to describe the role each actor has to play in an optimized real-time market. The former project s experiences should help us in testing whether the EcoGrid EU model is robust or if there are some parts that need to be challenged and possibly tuned. Responsible for this important part of the work is Koen Kok, TNO who leads the design of the business models. ADVISE FROM EXTERNAL REFERENCE GROUP In order to strengthen the European dimension and support a fast-track replication of the EcoGrid EU solutions, an external EcoGrid EU reference group has been established. This group of high-level stakeholders will have a significant role in the project and act as a Devil s Advocate and give their feedback, opinions and support in yearly meetings throughout the project period. The first meeting in the Reference Group was held in Brussels on 19 January 2012 where the first results from the project where discussed. In general, the reference group members found the EcoGrid EU concept to be relevant and promising, and applauded especially for focusing on the flexible demand. Valuable feedback related to the market concept, products & services, demonstration & evaluation and questions regarding the possibilities of future replication is documented and will be followed up in the further development of the project. WHAT IS IN IT FOR THE CONSUMERS? Involvement and acceptance from consumers/prosumers is crucial for the success of EcoGrid EU. Most people do not have (or wish to have) a deep insight into the power markets, so benefits for participating customers must be clearly communicated and understood. Moreover, the financial risk for end customers that is related to their integration into a real time market has to be rendered acceptable without minimizing the incentives to actually respond to the changing prices. Therefore, one of the challenges is to design specific tariff models and contracts based on price signals, which will reflect the specific potentials for load shifting of different customers segments and likewise will be sufficiently attractive to trigger the expected response. A close insight into the customers needs and motivations is therefore a prerequisite for there successful involvement, says Markus Kessel, EnCT, leader of the EcoGrid EU work package: Products and services for consumption and generation. Several online surveys and in-depth interviews conducted by EnCT, ECN and Østkraft, 5/8

6 the local DSO on Bornholm, will provide this crucial knowledge. A key result from EnCT s preliminary survey on Bornholm is that the customers main motivation for participating in the EcoGrid EU demonstration not only relates to its potential economic benefits. Customers also place a high value on environment/climate benefits, including better utilisation of energy resources. Some customers simply want to participate because they think it will be interesting to be part of an innovative project like EcoGrid EU, says Markus Kessel. The customer segmentation in EcoGrid EU from a technical perspective intelligence embedded in the distribution grid, monitoring and controlling the grid itself. Finally, the third phase will add locational pricing to provide incentive-based congestion management, and complete the picture of the European smart grid prototype. Based on the surveys, Østkraft will make the first recruitment in the next three months and select the Bornholm customers, who are both willing to and qualified for participating in the EcoGrid EU demonstration project. THEORY TO PRACTICE NEXT PROJECT STEP The project will demonstrate many different aspects of the future smart grid. Three demonstration phases in increasing complexity will demonstrate the key concepts involved in the project: 1. Real-time market operation 2. Smart distribution networks 3. Locational pricing Illustration of the key demonstrationcomponents, altogether forming a prototype of the future European smart grid. The numbers refer to demonstration phases The first phase will demonstrate the core concept of real-time pricing. In the second phase the demonstration is converted to a smart distribution network with distributed 6/8

7 MANAGEMENT OF THE CUSTOMER RECRUITMENT PROCESS Energinet.dk, the Danish TSO, is responsible for the work packages "Demonstration and Evaluation" and "Dissemination". They see the recruitment of motivated customers as one of the key success factors when entering into the next project phase. We see that the most important and challenging task in the upcoming months of the project is to obtain commitment from up to participants to install Smart Grid equipment that will allow for market participation in their private homes. This is a very busy phase that requires strong cooperation between all project partners, says Kim Behnke, Energinet.dk. As host of the EcoGrid EU demonstration the local electricity company Østkraft is key responsible for the recruitment. Customer participation will involve every ten households of Bornholm. Crucial for the success of EcoGrid EU is to manage recruitment carefully from the initial phase, says Maja Felicia Bendtsen, Østkraft. On 13 and 17 February Østkraft invited respectively the press and the citizens on Bornholm to the opening of Villa Smart and to the kick-off for recruitment of EcoGrid EU participants. Therefore a national funded program is running in parallel with the EcoGrid EU to support the initial need for information and education of participants in the EcoGrid EU project. One of the most significant local initiatives is the establishment of Villa Smart. This will be a house where interested and participating EcoGrid EU customers can learn how the EcoGrid EU will impact the every day life of a typical household. Customers will learn how increased use of demand response requires sophisticated control mechanisms to ensure that not too many appliances turn on and off at the same time. Østkraft expect to learn more about how much customers are willing to pay in terms of potential reduction of comfort level, e.g. room temperature. The customers will also have access to their own discussion forum on the local website, where Østkraft continuously will inform customers on topics and events relevant to EcoGrid EU. The website will also serve as a place where customer can contact Østkraft for advice. 7/8

8 ECOGRID EU PARTNERS 8/8