Economics of Microgrids Presentation at UNSW, Oct 5 th 2017 Chris - - PowerPoint PPT Presentation

Economics of Microgrids

Presentation at UNSW, Oct 5th 2017 Chris Amos

2

The Network Today

3

Retail Customer $ $ Energy supply contract physical energy delivery Regulated Sector

National Electricity Rules

Competitive Market

Competition Legislation and National Electricity Rules

Customer Supply contract NECF Customer Connection Contract $ $ Pool $

AER regulation AER regulation (in NSW)

Transmission e.g. TransGrid Distribution e.g. Ausgrid Generation $ National Energy Retail Rules

4

Assumptions of Regulatory Framework

• Framework assumes top to bottom flow
• Requires that a retailer is appointed for each

connection point

• There are exemption guidelines, but they

contemplate embedded networks

• Network built with redundancy on the basis of peak

usage (i.e. those short periods where supply peaks to meet demand peaks)

5

Possible Future

6

Potential Scenario: Large Volumes of Distributed Storage

• Hypothetical

– What if there was enough distributed storage to supply all electricity demand for 4 or 5 hours? – What if there was enough distributed renewable energy that produced enough electricity to cancel out the need for centralised generation? – Is centralised economic dispatch required? – Is N-1 or N-2 planning required? – Retailer and Network business models?

7

Month Network cost Load, percentage of maximum RRP 0.01% 0.1% 1.0% 10% 100% Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04

S S S W W W W S W W S

Jul-04 $1 $10 $100 $1,000 $10,000 20% 40% 60% 80% 100%

Some Problems with Relying on Price

8

Poor Correlation of Pool Price and Network Costs

$1 $10 $100 $1,000 $10,000 0.0% 0.1% 1.0% 10.0% 100.0%

Line of best fit R2 = 0.29

Daily peak network cost Pool price at time of daily peak network cost

9

Distribution Regulation: The Challenge of Sunk Costs

10

Graph retrieved on 13 July 2017 from https://kellyandjenny.wordpress.com/2012/01/15/natural-monopoly/

11

Graphic taken from presentation by Professor Mahesh Bhave, Microgrid Convergence Conference Urban and Campus Microgrids October 25, 2016 Downloaded from: https://www.slideshare.net/MaheshBhave/microgrid-convergence-conference-urban-and-campus-microgrids-october-25-2016-68081058

12

What Used to be Immutable Truths

• Supply and demand must balance instantaneously as stockpiling

is not economically feasible

• Central co-ordination is required to keep the grid stable –

frequency control/electrical inertia

• AC wins due to ease of transforming between voltages to reduce

losses, and DC breaking being difficult

• Natural barrier to entry

– Can’t compete with the cost effectiveness achieved from scale economies – Capital intensive in nature

• Consumer behaviour has tended to be economically inelastic, so

does not respond to peak pricing

13

The New Paradigm

The economics of scale are falling away

• Optimization for capacity, or sizing of generation

sources

• Optimization of operations
• Pro forma cash analysis with assumptions
• Demand management, especially in emerging

economies

14

Alternate Paradigms / Fractionation / Productisation

• DC in the home, savings from not having to do

multiple transformations

• Niche local electricity solution for specific applications

such as pumps

• Stand alone rural microgrids
• Federation of microgrids with decentralised control

15

Alternate Paradigms / Fractionation / Productisation - 2

• How committed is the government committed to a

centralised dispatch market?

• Break up the network businesses into microgrids and

auction access rights to provide infrastructure and energy supply service

– completely dismantle existing market structure

• Parallels to teleco break ups, in the 1990s, but does

electricity lend itself to ‘productisation’ like mobile devices?? Probably not, but watch this space.

16

Evaluating Market Opportunities

• Technical Feasibility

– Matching/optimising generation mix, storage & loads – Grid and end user integration – Siting

• Economic Feasibility

– Identifying Costs and Revenues – Does project exceed current cost of energy for end users?

• Financing

– Capital Stack and investors’ hurdle rate – Ownership / Management structure – Repayment structure

Retrieved from” Brian Farnen, General Counsel and Chief Legal Officer Connecticut Green Bank http://apps.americanbar.org/dch/thedl.cfm?filename=/NR350550/newsletterpubs/BFarnen_Slides-CT_Microgrids.pdf

17

Consideration of Longer Term Liabilities

• Battery warranties – Buyer Beware
• Consumer expectations of High 9s Reliability

– Particularly relevant for stand alone systems

• End of Life

– Enduring obligations to supply??? – Replacement CAPEX. What about possible AUGEX?? – Cost to dispose of batteries – Environmental risks from battery chemistry? – PV long term performance degradation – Regulation of microgrids likely to develop in the future, what

• verhead in cost will that bring??

18

Battery Warranties (from 12 months ago)

Information on this slide retrieved from web article by: Ronald Brackels, retrieved 14 June 2017 from https://www.solarquotes.com.au/blog/new-powerwall-warranty/

• Mercedes-Benz Energy Storage Home: 80% of nominal capacity

after 8,000 cycles.

• SimpliPhi PHI3.4 Smart-Tech Battery: 80% of nominal storage

capacity after 10,000 cycles.

• Enphase AC Battery: 95% of nominal storage capacity after 7,300

cycles.

• LG Chem RESU: 80% nominal storage capacity after 2,625 cycles.
• GCL E-KwBe: 80% of nominal storage capacity after 2,000 cycles
• Tesla Powerwall 1: 60% of nominal storage capacity after 2,368

cycles