Melanie Degel – IZTpresented byStefano Faberi – ISISBrussels, 12 April 2012

Smart grid energy business

Content

• Change of the electricity value chain• Development of business models• Existing and new business models• Pilot business cases• Future challenges• Conclusion

New value chain

• Core innovation is the Integration of DR, that entails:– Power system changes from: “one way street” to “two-way communicating

smart system”– New business opportunities – New market participants – To remain competitive existing companies renew traditional business models– Utility challenge: identify necessary changes in existing business cases

business model development

Sustainable business models

Smart grid business models

Business model development

• The future development of the smart grid should be primarily market-driven, with system operators as the main investors and beneficiaries

• Business models that do not allow for the sharing of short-term investment costs and of long-term benefits are bound to fail

• Incentives from the regulatory framework should encourage the actors to seek benefits from efficiency increases rather than additional sales

• Only in this way the transition from the “volume-based” to the “efficiency-based” business model can take place (IEA 2011)

Business models

Existing business models

Business models

New business models

Business casesOverall key elements

• System integration of single technologies

• Equally shared costs among all stakeholders

• Complete consumer engagement by tangible tariffs

• Education and trust building

Examples

• EU-DEEP and FENIX Aggregation models DER integration

through aggregation operation by an

independent market participant (aggregator or retailer)

Aggregation business

• Aggregators are intermediaries between consumers and markets

• They group customer demand or generation into diversified portfolios of DER

• Aggregation business drivers– Lower market entry barriers– Rollout of smart meters as

enabler for aggregation– Optimization of generation

and consumption– Lower overall operating costs

• Aggregators finally require a stable legal and contractual framework

The aggregator needs to transform complex electricity market mechanisms into simple transaction mechanisms for customers

EU DEEP business modelsI: Aggregating commercial and industrial demand response to balance intermittent generation

II: Integrating residential scale flexible Micro-CHP into electricity markets

Result: low level of risk , application short-term perspective

III: Leveraging on the flexibility of aggregated CHP units and demand response to extend the conventional ESCO business

Result: extension of the existing ESCO modelfor new emerging services

Result: higher risks, application medium- and long term

A possible remuneration system

A conceivable remuneration system between aggregators and customers based on payments for the offered flexibility and provision on request in electricity markets(EU-DEEP Project)

Future challenges• Change of customers role from passive to active

– Customers expect real-time price signals – Relation between price signals and personal consumption, price of resources, system

security and environmental concerns• Radical utility change in data collection, storage and processing• Smart metering

– Utilities expect their customers to respond to price signals by modifying their electricity usage

– full benefits requires advanced technology in the homes of customers • Policy makers, entrepreneurs, manufacturers must support

economic convenient solutions to transmit price signals to the customer beyond the meter effective technologies and models for customer engagement the profitability of new models for small residential customers

• Further Development beyond the meter DR more than a capacity resource in peak times Integration of residential customers Direct and non direct customer feedback technologies Declining costs and the lack of granular energy data, Improvement of dynamic pricing and interconnection standards

Implementation of residential demand response business

Conclusions

Equally shared costs and benefits between all stakeholdersHigh levels of transparency, privacy and user friendliness

Systemic benefits from the entire smart architectureLess regulation more market competition

Thank you for your attention!

FENIX business model

• Framework– Virtual power plant concepts– Two models : Access to the market, in

absence / presence of strong pressure to integrate DER

– Participants: DER-owner, CVPP operator – CVPP responding to market price signals

• Results– Market-entry for small participants

– Improves their integration– Minimize investment costs and market fees, – Maximize benefits – Optimize real-time market operation,

– Strong pressure model II– Provide fast start-up power capacity– Higher grid reliability due to ancillary services– Postponed grid investments are reduced

– Costs: network expenditures– Needs: stable commercial, regulatory framework and ICT standards

Market platforms

• Market platforms for:– communication in smart grids– Interconnection of market actors– Data provision for system operation

• Status Quo: – DER integration on supply side is well advanced– much more demonstration is required on the demand side • Benefits– Access provision to applications and supply / demand data– Increase with the number of participants– Fundamental transaction rules– Clear coordination mechanisms between market actors and platform operator– Surrounding platform architecture influences long-term benefits

• Further development needs– Tight linkage of IT-infrastructure between DSO and TSO– Ensuring compatibility of energy services and physical constraints with

geographical area mapping– Success depends on high levels of transparency, privacy issues and user

friendliness