Sioshansi F.P. Smart Grid: Integrating Renewable, Distributed & Efficient Energy
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arrangements offered by retailers for large industrial and
commercial end-users typically involve a 2- or 3-period TOU
energy tariff. Network charges will typically incorporate a
“peak load” component or may just be bundled together with
the energy tariff [25] and few end-users have direct exposure
to NEM spot prices. Falling energy prices due to the success
of supply-side electricity industry restructuring have bolstered
the historically conditioned end-user complacency about
electricity costs, characteristic of ESIs globally, further
discouraging effective initiatives aimed at the management of
electricity demand [26] and [27]. Although many retailers
offer energy services consulting to larger customers, current
market arrangements mean that it is not generally in a
retailer's financial interests to promote energy savings [28]. A
number of consulting firms offer energy procurement services
but they have little influence on distributed resource
outcomes.
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Figure 2.7
Schematic of the current Australian electricity industry.
All but two Australian states in the NEM now have so-called
full retail competition where all small businesses and
households can choose a retailer. However, most customers
continue to receive supply from their default (franchise)
provider because of both limited end-user awareness of this
option and limited retail competition. At present, most of
these customers have only accumulation meters’ and profiling
is used to estimate varying usage over a typical day. Network
pricing generally involves some considerable spreading out of
augmentation and maintenance spending over all network
customers, and the potential for competition is significantly
limited because of the regulated monopoly status of the wires
businesses.
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A New Approach
This requires an integrative approach embracing the technical,
commercial, policy and regulatory, and governance
dimensions of the system [17].
• First, a technical framework allowing end-users,
distributed resource owners, and energy service companies
(ESCOs) to actively participate in the processes of
appropriately managing the quality and availability of
supply is required. It is critical that this doesn't discriminate
against particular technologies (particularly new entrant
technologies) and demand-side options such as EE.
• Second, a commercial framework (market design and
structure) that facilitates appropriate investment and
operation of distributed resource options organized, where
appropriate, through ESCOs and that doesn't discriminate
against particular technologies or participants (particularly
new entrants) is required.
• Third, a policy and associated regulatory framework is
required that internalizes climate change and other current
electricity industry externalities, while facilitating socially
desirable innovation in distributed resources and end-use
decision-making and that appropriately assigns risks and
accountabilities to end-users, industry participants,
regulators, and system operators.
• Fourth, and finally, governance processes are required
that will facilitate all of the above. It's essential that these
operationalize relationships between consumers and
providers, at all scales, moving beyond the traditional
demand management mindset that reduces consumers to
self-interested actors motivated by little more than price
and information.
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So, in this approach the system of interest is not conceived as
one connecting providers with consumers, understood to be
subject to manipulation via, primarily, economic incentives
and technological intervention. Rather the system is
understood in terms of “co-provision”[24], a notion blurring
conventional distinctions between providers and consumers
by recognizing the many ways that they might now intersect.
Such future systems, facilitative of smart use, involve a
recognition of many more players, some of whom both
provide and consume for example, and envisate the function
of the system as not simply one of transmission but also
storage and the smart management of widely distributed, and
commonly, intermittent sources of supply.
Frameworks for Engagement
The notion of “co-provision”[24] involves recognizing that
the emergence of distributed resource options, and the various
innovative arrangements such as cooperatives and mini grids
these can involve, requires a rethinking of provider/
utility-user relations. While it might suit some customers to
retain a fairly conventional relationship with a provider, there
will be other consumers, who both draw from the grid and
contribute to it, who require different and more flexible
arrangements. In their case engagement needs to be conceived
as a two-way process. Overall this indicates that ESIs of the
future will have to be more complex entities than current
ones, involving different kinds of consumers, different kinds
of providers, some of whom are also consumers, and a variety
of frameworks and arrangements to cater to the
interdependencies between them all. Such new frameworks
and arrangements will evolve over time to embrace all aspects
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of the system from the technological hardware, the
institutional “orgware” involved in its governance and
regulation, to the “software” encompassing the ideas,
attitudes, practices, and behaviors of all those participating in
it. Figure 2.8 indicates schematically key features of such a
system (which should be contrasted with Figure 2.7).
Figure 2.8
A schematic of a future smart electricity industry.
Source: Adapted from van Vliet et al. [24, p. 114]
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Technical Frameworks
Effective data collection at point of use is imperative. This
requires not only half-hour metered data but also measures of
power quality and reliability ideally involving data collection
at the level of major appliances. Historical data will also be
very important for planning purposes. Effective
communication, allowing people to act on this data within
appropriate time frames, will be critical. Important issues
include ones of ownership: do households or those collecting
it own the data? Increasingly such data are becoming an
important predictive tool for future electricity industry
challenges (e.g., historical experience and weather forecasts)
and also to facilitate the management of contingencies where
a near immediate response can have a particular value. Smart
grid technologies both within house, and household to
utilities/ESCOs are central elements here. Issues of power and
control are central. Traditionally all the power, to intervene
and control system elements, has remained with system
managers, providers, and retailers. As systems move further
in the direction of co-provision it will become imperative to
find means of sharing this power with the various classes of
consumer providers that will emerge.
The presentation of data in clearly understandable and usable
formats is an important issue, notwithstanding the automated
use of data. Such formats need to be tailored to contexts and
to the responses available in different contexts, ideally
indicating both the character and degree of suggested
responses in a manner easily assimilated by the intended
target audience. Technologies for responsive action are
critical because if users have no or only limited, options to
respond then nothing will be achieved. Above and beyond
optimizing information provision, technologies designed to
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enable the operation of existing equipment to be brought into
line with this information are also important. While control
decisions might be local, the values informing these decisions
are likely to lie in coordinated action requiring
communication and decision-making (see the discussion of
DataCommsCo in the section “Policy and Governance
Frameworks” below) at the system level. Distributed
generation options that can provide local “power quality” and
power, such as PV, cogeneration, and battery storage, can
also be important in these developments.
Commercial Frameworks
Commercially, economically efficient pricing for end-users
has significant parallels with that of wholesale markets,
involving spot and future market prices in both energy and
ancillary services reflecting short to longer term operational
and investment aspects of industry economics. However,
support allowing small industry participants to actively and
effectively participate in the market will also be required and
will involve advice and appropriate resources, flagging a
significant role for ESCOs or analogous bodies. Traditionally,
ESCOs have commonly been seen as primarily suited to
delivering energy efficiency to large industrial and
commercial customers through performance contracting.
However, they have a much wider potential role in terms of
end-users (from industry to the commercial and domestic
sectors) and in DE options (from EE to micro-generation).
ESCOs can play a valuable role in bringing information,
knowledge, skills, capabilities, and financing to bear on DE.
However, pricing that doesn't include externalities is, by
definition, economically inefficient. This will need to address
not only carbon and other environmental externalities but also
the potential distributional implications of prices, such as the
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impacts of prices on vulnerable consumers with little capacity
to pay (e.g., low income), or limited options to respond (e.g.,
rental housing) This is, by far, the greatest unfinished
business of current commercial arrangements although further
innovation will be required to cope with the transition to
co-provision.
Policy and Governance Frameworks
Policy must involve, in addition to facilitating traditional foci
such as information (helping end-users respond to market
signals) and the internalization of important environmental
externalities (e.g., carbon pricing), attention to the transition
to co-provision illustrated in Figure 2.8. While more
traditional command and control regulatory measures such as
minimum energy performance standards have a vital role to
play, matters such as the financing of nontraditional
generators also require attention. Such matters can be critical;
for example, the success of Danish wind coops has been
vitally dependent on access to competitive finance. This can
involve subsidies, low-interest loans or tax breaks, which are
a simple way to overcome the upfront cost barrier inherent in
many options in order to stimulate and harness demand-side
innovation.
Policies may mandate targets for one or more end-user
options and use tradable certificates to ensure compliance
market-based measures enabling the costs of particular
projects to be spread across a range of energy consumers.
Policy must also attend to matters such as training and
accreditation, testing and standards, and, vitally, ensuring an
adequate institutional infrastructure. Smart ESIs of the future
will also require policies to guide the centralized
decision-making inevitable in an industry requiring high
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levels of coordination beyond that achievable through
conventional price signals and information. For example at
the time of writing, the UK experience of rolling out smart
meters was suggesting a particularly pivotal role for a market
in DataCommsCo's that would take the lead in the facilitation
and centralized coordination of communications, data, and
security services [29].
Businesses installing EE can also achieve economies of scale
where they become specialized at particular actions and have
access to cheaper finance. The need for enabling and
facilitating regulations and procedures as well as training and
accreditation, reflects the broader definition of technology
that includes orgware (the associated commercial and
governance systems and institutional frameworks and
capacity to deploy and integrate the hardware), and software
(the knowledge to appropriately apply and use the hardware),
in addition to the traditional emphasis upon hardware.
To date governance arrangements for wider policy efforts to
support end-user engagement have generally been far less
formalized and assured than those for supply-side
participants, reflecting, perhaps, their lower priority. Present
retail electricity markets and associated regulatory
frameworks provide a largely uninformed and unresponsive
interface between end-users and wider decision making.
Effective end-user advocacy arrangements can be challenging
to achieve. Supply-side participants are generally large,
focused almost exclusively on the electricity industry, and
have considerable shared interests. End-users are far more
diverse and generally have only a limited interest in
electricity itself.
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Formal governance processes must be able to manage these
asymmetries between supply- and demand-side stakeholders,
particular as these conventional distinctions start to erode.
This may require moving beyond straightforward market
arrangements so as to further facilitate cooperative and other
community-based initiatives that currently are a notable
end-user, rather than industry, innovation. Arrangements
adequate to both facilitate and interface these with an industry
organized on market lines will be required. This may involve
governments having to reflect and articulate values not only,
as at present, in tune with the rationality of markets but also
with the rationality of community values more focused by
issues of long-term sustainability.
Conclusions
The content and character of the existing suite of energy
services, along with a narrowing of the dominant
understanding of the exercise of consumer choice to, most
notably, a matter of simply price and information, reflect the
preferences of utility managers, engineers, and regulators,
rather than those of consumers themselves. The
entrepreneurial exploitation of emerging technological
possibilities in the face of aggregate growth in population and
wealth has been the primary driver of load growth since the
inception of the electricity industry. This dynamic has been
central to the development and growth of the industry and is
reflected in its supply-side oriented structures and
institutional arrangements. However, emerging resource
constraints and, most notably, climate change make it
imperative to rapidly decarbonize the industry. This chapter
has argued that the scale of this challenge requires a
substantive re-engagement with end-users so as to grant them
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