/31st May 2017, IEA/ The greater uptake of distributed VRE shifts the historic balance of supply and demand in the electricity network and calls for a revision of the institutional arrangements guiding low- and medium-voltage grids. The rise of distributed generation assets – dominated by the rapid uptake of solar PV – translates into the growing complexity of power flows within the distribution grid. This provokes the need for innovative approaches to the planning and operation of low- and medium-voltage grids, with technical, economic and institutional implications. On the technical side, more dynamic and bi-directional flows of electricity (from lower to higher voltage levels and vice versa) require reinforced monitoring and control capabilities as well as upgrades to infrastructure. Moreover, planning standards need upgrading to manage the uptake of large shares of distributed resources. In this context, next-generation VRE technology – such as advanced inverters – can offer technical capabilities to support and sustain safe and reliable operations in local power grids, while also reducing energy losses in the overall power system.
For example, under a business-as-usual approach, high local penetration of distributed solar PV can create challenges related to maintaining the voltage at appropriate levels. These challenges can be mitigated by using solar PV inverters themselves to control voltage – a next-generation approach to deployment. To unlock this contribution, however, the technical requirements for VRE (grid codes) need to ensure that inverters are technically capable and correctly programmed. On the economic side, there is a need to reform electricity pricing. Where citizens install their own solar PV systems behind the electricity meter, the design of retail tariffs becomes a critical lever to guide investment in and operation of distributed resources.
In the past, consumers did not have a strong incentive to substitute grid-based electricity by generating their own power. The rise of distributed solar PV, combined with cost reductions in smart-home and battery technology, has begun to change this. However, the design of electricity tariffs is often based on the assumption that consumers have no alternative to the grid for obtaining their electricity. For example, the cost of the electricity network itself is frequently recovered via per-unit charges on electricity. In a situation where customers use their own solar PV generation to displace electricity from the grid, such pricing arrangements may be rendered disfunctional.
Tariff design will need to evolve, reflecting the fact that consumers of electricity can now also become producers, and consequently requiring a fair allocation of grid costs across all consumers. This may entail a departure from the current model of recovering the cost of distribution grid infrastructure. For example, the state of New York is currently comprehensively reviewing the design of electricity tariffs (State of New York, 2016). As part of the reform, it is proposed to introduce a new pricing element, a so-called demand charge. Customers who use electricity when the grid is most strained will need to pay more, while those customers that avoid consumption during peak times will pay less.
Reform will need to take electricity tariffs beyond simply pricing consumption. Distributed solar PV systems, combined with smart-home systems and electric batteries, are valuable resources for the entire power system. However, a way is needed to allow these resources to offer their services and receive appropriate compensation. For example, distributed resources can contribute to the provision of system services. But unlocking this contribution requires commercial arrangements to appropriately remunerate resources.
Traditionally, system services markets have been controlled by TSOs and only a small minority of these allow for the participation of distributed VRE assets. Looking ahead, making optimal use of the grid support services offered by distributed VRE may require that these services are procured and coordinated in a more localised fashion. Finally, participation in distribution grids is bound to change. For example, electricity suppliers will increasingly compete with aggregators of system services for access to customers. Similarly, a strong case can be made for establishing transparent power markets, known as market platforms, governed by independent institutions that have the responsibility to operate them fairly.