Decentralized Energy
Decentralized Energy
A Decentralized
World
The growing importance of distributed power
generation means utilities must adapt their
business models. Four executives from around
the globe talk about how decentralized energy
is affecting their business.
Text: Ed Targett Illustrations: Matthew Billington Portraits: Elliot Beaumont
U
A new world of energy:
The one-way street
of centralized power
supply is being replaced
by a complex system
of “give and take,” with
a multiplicity of feedin points.
tilities face significant challenges and regulatory environments in integrating distrib­
­ ower generation into their
uted p
portfolios and business practices.
One thing is clear, however: The industry is evolving; a simple return
to purely centralized plants will not
happen. But how to juggle supply
­security, ­assess demand curves with
intermittent production, and – amid
shifting load factor patterns on thermal plants – guarantee market transparency and meet environmental
­obligations?
Conversations between Living Energy
and forward-thinking chief executives from utilities across the globe
suggest there is no single specific
­answer to meeting these challenges
and ensuring commercial success –
or at least stability – whilst doing so;
but it is increasingly clear that in a
liberalized market, there is likely
to be a business case for prosumers
who switch between consuming
and producing power according to
their needs.
Whilst in developed countries, regu­
latory positioning driven by carbon
reduction targets can seem the ultimate driver of the shift, policy makers
in less developed countries are a
­ lso
increasingly asking themselves whether it is worth establishing a transmission grid just to put a unidirectional
plant at one end of it, in view of energy losses during the transmission
and the huge investments required.
These concerns are compounded
by uncertainty regarding the security
of fuel supplies, and, among the utilities, the fear that they will no longer
have guaranteed returns on investment as was the case before liberalization.
Living Energy joined four leading
CEOs to hear their thoughts on the
future of distributed energy.
Ed Targett is a freelance journalist based in
London. His news reports have been published and broadcast in a number of media
outlets, including the BBC, the Daily Mail,
South Korea’s Yonhap News Agency, Yahoo!
Asia, and others.
Living Energy · No. 11 | December 2014 17
Decentralized Energy
Decentralized Energy
“A fully digitized distribution network has
been a very important enabling factor in the
change toward distributed generation.”
Francesco Starace, CEO and
General Manager, Enel
Enel CEO Francesco Starace has had a
sweeping view of the electricity market, having started his career in nuclear engineering before holding a
high-profile role in the gas turbine
business and, most recently, successfully presiding over the creation and
the IPO of Enel’s renewable division,
Enel Green Power, of which he was
the CEO since 2008, prior to landing
the top job at the parent company
­Enel last May. The head of the major
Italian utility tells Living Energy that
Enel has a head start in handling distributed generation, owing to Italy’s
fully digitized distribution network
and, as an early adopter of distributed generation, is successfully exploiting its business opportunities.
Government support for photovoltaics in recent years has triggered a
boom in the country in rooftop installations (in the first eight months of
the year, 9.68 percent of Italy’s total
net generation came from PV plants),
and ­Starace acknowledged that that
had been both a challenge and an opportunity: “A fully digitized
18 Living Energy · No. 11 | December 2014
distribution network has been a very
important enabling factor in the
change toward distributed generation,” he says, ­explaining how Italy is
the first and, to date, possibly the
­only country in the world to have a
fully digitized ­distribution network,
thanks to an extensive rollout of
smart meters and ­other automation
systems by E
­ nel in the 2000s.
“There are two aspects to the boom in
distributed generation for Enel; on
the one hand, you have an overall reduction in the absorption from the
grid and, therefore, an impact on
consumption. On the other hand, you
have an increase in business in the
distributed network division, as thousands of installations ask for connection to the grid. Right off the bat, you
have a benefit, although the two
­impacts don’t entirely balance out.”
He adds: “There are issues with a grid
designed over the past 40 years to
work from high voltage to low voltage, which now works in the opposite
direction many times during the year.
We will not have a problem if we keep
adding flexibility to the system by
providing additional connections and
better software to manage the grid at
a local level, plus additional storage
capabilities across the network, which
is something we are studying very
carefully. On top of this, nowadays,
the flexibility gap between thermal
generation and large renewable
­generation in the portfolio is proving
to be a lot less than earlier studies
suggested.”
Enel is approaching the changing
market in two ways, Starace h
­ igh­lights:
“On customer-based ­distributed
­generation, if you take a leading role,
and Enel is by far the largest player
in this field, you get close to the most
advanced and technologically savvy
customers; you have to stay close to
them and supply services such as installing, maintaining, and providing
additional improvements to their
panels and other equipment. Then,
there are the u­tility-scale distributed
generation plants. Here, we have an
interest as an investor and are active
particularly in mini hydro and biomass generation.”
There are a number of areas where
R&D efforts should be focused in the
meantime, the company’s CEO
tells Living Energy: “I’d like to see
more ­research in the hardware-software combinations that are needed in
­order to have existing renewable
i­nstallations all over the world behaving as thermal generation, a technically achievable solution on which we
are also working. I would also like
to see more research in network digitization to make it more flexible,
as well as ­research in marine energy
and superconductor technology.”
Gaetan Thomas,
CEO, NB Power
NB Power, the electricity utility for
the Canadian province of New Brunswick, sees power demand double
from approximately 1,500 megawatts
in summer to over 3,000 megawatts
in the region’s harsh winter. Publicly
owned and vertically integrated, NB
Power has a 4,000-megawatt system
generating C$1.6 billion revenue
through a nuclear plant, a coal-fired
plant, hydropower, wind power purchase agreements, and a large oil
peaking plant.
CEO Gaetan Thomas, 54, points to
new generation costs as a key driver
of the company’s ambitious Reduce
and Shift Demand initiative in New
Brunswick: “In the 1970s before the
oil crisis, we had no gas supply here,
only oil. Now, due to our high electric
heat load, the oil is only used for
peaking power, often during just two
weeks in the winter; but there’s just
no business case for building a gas
plant to run for two to three weeks,”
Thomas notes.
He is focused on demand-side management: “Our winter peak loads occur twice a day, and those peaks can
add 700 to 800 megawatts, which is
the equivalent of our nuclear plant.
Our long-term goal is to avoid about
630 megawatts of generation; within
the next five years, about 150 megawatts. That capacity will be made
available to the market. That’s extremely valuable in the winter in
this part of the world.”
The CEO is frank about the opportunities and challenges when it comes
to decentralized generation, especially since falling costs are making solar
energy a real competitor: “We see
that as an opportunity for us. To back
up decentralized generation, you
still need an integrated grid to ensure
safe and reliable operation on the
customer side.”
That process requires careful attention: “When you integrate decentralized generation, it is very hard to exactly match the load requirement. An
“When you integrate decentralized
generation, it is very hard to exactly
match the load requirement.”
exchange of energy must occur when
the decentralized power generators
produce more than what the customer can use, so the grid has to accept
that. And vice versa, when there is no
sun and no wind. Until you get good
storage, it will be very tricky for utilities to manage reliability with hundreds or thousands of decentralized
generators.”
The answers are out there, though:
“Grid integrity and the need for twoway metering mean that smart metering will become a must. You can’t
deal with just one reading a month
anymore, you have to deal with peaking power, and the cost of meeting
demand has to be shared equitably
between people using decentralized
power generators and the ones that
want to remain on the grid. The minute you have a hybrid system, the
complexity becomes considerable. A
smart grid is the key to tying all this
together and ensuring these customers get cost-effective, reliable power
for a long time.
If you have a good phased-in approach with a smart grid, you can
optimize and also allow more renewable energy on the grid. We already
have 300 megawatts of intermittent
wind on our grid, and to optimize
that requires us to use customer
loads to ­actually put more on the grid.
If not, it becomes so expensive, because you now have a nuclear plant
or a coal plant only coming to back
up wind. That means you need both,
and then you have the cost of maintaining two sources of energy to meet
the needs of the customers. If you
can do that by changing the load patterns, you can actually supply more
renewable ­energy without needing
that backup.”
He concludes: “Our plan is worth
C$1.4 billion net present value over
time for us in New Brunswick. It
avoids the need to build new generation in the future, and allows us to
optimize the existing infrastructure
to get more value for money for our
customers.”
Living Energy · No. 11 | December 2014 19
Decentralized Energy
Decentralized Energy
Karim Garcia, Vice President, Trans-Asia Oil
and Energy Development
Ingo Luge, CEO, E.ON Germany
Former oil trader and power developer Karim Garcia has recently taken
the lead on strategic planning as
Vice President of the Philippines’
Trans-Asia Oil and Energy Development utility. Distributed generation
is expected to play a significant role
in powering the archipelago nation
forward, he says: “The Philippines
with its over 7,100 islands faces some
unique challenges. The electricity
grid is not fully connected, so decentralized power is essential in providing power to stand-alone grids, often
serving populations of just a few
thousand people, serviced and subsidized by the Small Power Utilities
Group (SPUG). These stand-alone
grids are largely powered by smaller
diesel generators.”
A new feed-in tariff (FIT) means a
­significant expansion of hydro, wind,
and solar is likely, he adds: “My company, Trans-Asia, is developing a
54-megawatt wind farm on the Visayan island of Guimaras.” Energy security is a key driver, along with a better
balance of payments and a cleaner
environment for the country, but
Germany’s E.ON has witnessed the
impact of one of the world’s most significant national shifts in energy policy, and as one of the country’s leading utilities – though with a major
international presence – it has been
working on some of the most innovative responses. E.ON Germany
CEO Ingo Luge has studied at first
hand the impact of widespread distributed generation and has a clear
vision as to what constitutes the best
approach forward for companies in
the energy space.
He tells Living Energy: “We believe
that the best approach is to go to a
­location where the best technology is
applicable in the most efficient way;
where the sun shines and the wind
blows. We are currently experiencing
a large influx into demand-side management. However, we can’t rely on
asking customers to lower their load
to supply the grid with flexibility.
Combined heat and power (CHP) is a
large area of distributed energy that
is of real interest to us, although it is
not applicable for every customer.
You need customers who have a high
need for heat, either for heating of
rooms or factory buildings, or for
­industry processes.”
Investment in storage will be vital,
and that is where R&D funding
should be concentrated, Luge suggests. “We at E.ON undertake significant research on battery storage and
power-to-gas storage, to get costs
down, so that on an industrial scale,
large-sized storage becomes viable;
to my mind, this is the most promising way to replace conventional generation in the long run. To integrate
the increasing number of different
participants in the energy market into one stable and well-functioning
system is worth a lot of effort, but
it is also a significant challenge,”
he adds.
“A key question is how you finance
renewables production and less how
you finance network extensions,
­because the latter are operating in a
“In the Philippines,
­decentralized power
is essential in providing
power to stand-alone
grids.”
20 Living Energy · No. 11 | December 2014
challenges remain in terms of public
acceptance of a subsidized regime.
“Unfortunately, many consumers in
the Philippines simply look at the price
of power (pesos per kilowatt-hour) and
do not really care about their sources
of power. Since renewable energy is
subsidized with a FIT rate, many consumers fear their power rates will go
up. Regardless, hundreds of megawatts’ worth of renewable energy is
currently being developed in the Philippines. The biggest challenge is developing these projects with ambiguous policy on FIT megawatt allocations
and electricity tariffs. And as in any
other business, uncertainty brings
challenges and added risk. To encourage investment in renewable energy
projects, clear and unwavering policy
needs to be in place.”
In terms of the business opportunities with regard to distributed generation, he notes: “For more variable
renewable energy, grid impact is a
major factor, and obtaining grid impact assessment for larger renewable
projects can be challenging, which is
why the Philippines needs a better
energy mix policy, particularly in
terms of improving our mid-merit
and peaking power capabilities.”
Combined cycle gas turbines (CCGT),
which are cleaner, have a smaller footprint, and are faster to construct and
highly efficient, could do the job well,
and liquefied natural gas imports are
under consideration in the country.
With the growth in distributed and
variable renewables, rapidly available
megawatts will be all the more urgently needed, as Garcia highlights:
“An effective and reliable electricity
grid cannot and should not be built
solely on base-load, large-scale coal
plants that cannot be cycled and very
expensive diesel plants. While coal
plants definitely have a role as a baseload electricity provider, the grid also
needs hydro and CCGT to provide
clean and cost-effective peaking power. Meanwhile, in terms of R&D, technologies that can make renewable energy more predictable are vital, so
improvements in battery technology
would be very helpful, as would even
greater gas turbine efficiency.”
“A strong influx of variable production
creates a challenge in terms of system
stability and ensuring security of supply.”
regulated market. Network extensions can be delivered through new
technologies that can lower your additional investment costs and additional grid fees, although public
­acceptance of the need for increased
networks is not always easy to secure.
We e
­ xpect that smart grid innovations will help to ease the burden.”
He sees a major challenge on this
front, though: “A strong influx of
variable production into the system –
and we are a distribution system
­operator as well – creates a challenge
in terms of keeping the system stable and at the same time ensuring
s­ ecurity of supply. Moreover, there
are a vast number of ideas around
how to develop the market, and even
a big company cannot tackle every
one of them. What we can do is single
out technologies where we think
there is a good future economic opportunity. So we see ourselves more
and more as a special energy solutions provider. For example, we have
started to move into energy efficiency for buildings, as well as industry
processes.”
Living Energy · No. 11 | December 2014 21