Smart Grid policies in the European Union and lessons for India What are the policy considerations in Europe for developing Smart Grid based intelligent energy system - Lessons, Issues and Challenges. What is the learning for India from the European experience?
Major Project Report
Submitted by: Neena Sekharan 1013MPS
In partial fulfillment for the Degree of MBA (Business Sustainability)
Submitted to: Department of Policy Studies TERI University 10,Institutional Area,Vasant Kunj New Delhi, INDIA
May 2012
Major Project report - “Smart Grid policies in the European Union and lessons for India“
DECLARATION BY THE STUDENT
This is to declare that I have carried out this project work myself in partial fulfillment of the degree of Master of Business Administration (Business Sustainability). The work is original, has not been copied from anywhere else, and has not been submitted to any other University/Institute for an award of any degree/diploma.
Place: New Delhi Date: 29 May 2012
Signature: Name: Neena Sekharan
[email protected]
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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CERTIFICATE
This is to certify that Neena Sekharan has carried out her major project in partial fulfillment of the requirement for the degree of Masters of Business Administration in Business Sustainability on the topic “Smart Grid policies in the European Union and lessons for India” from January 2012 through March 2012 at Freie University Berlin.
The report embodies the original work of the candidate to the best of our knowledge.
Dr Kirsten Jorgensen
Dr Kaushik Ranjan Badhopadhyay
(External Supervisor)
(Internal Supervisor)
Teaching Director, Master’s Program,
Associate Professor and MBA Programme
Public and private environment management Freie University Ihnestr. 22/14195 Berlin
Director TERI University 10, Institutional area Vasant Kunj, New Delhi 110070
Date: 8 June 2012 Date: 8 June 2012
Dr Kaushik Ranjan Badhopadhyay Associate Professor and MBA Programme Director Department of Policy Studies TERI University
Major Project report - “Smart Grid policies in the European Union and lessons for India“ FINAL REPORT SUBMISSION FORM Name of the student
: Neena Sekharan
Programme
: MBA (Business Sustainability)
Name of the Internal Supervisor from TERI University : Dr Kaushik Ranjan Badopadhyay Name of the external supervisor
: Dr Kirsten Jörgensen
Organization where project is being done
: Freie University, Berlin
Title of the research project
Date of completion of project
: Smart Grid policies in the European Union and lessons for India : 31 March 2012
Signature of the student
Signature of external guide:
Signature of internal guide:
Dr Kirsten Jörgensen
Dr Kaushik Ranjan Badopadhyay
Teaching Director, Master's Program,
Associate Professor and Director MBA
Public and Private Environmental Management
Programmes, Department of Policy Studies
Freie University, Berlin
TERI University, New Delhi
Date
Date:
29 May 2012
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Acknowledgement I extend my gratitude to the Deutscher Akademischer Austausch Dienst (DAAD) and Freie University, Berlin for hosting my research as well as to TERI University for providing me with this wonderful opportunity. I am grateful to my external guide Dr Kirsten Jörgensen at the Environmental Policy Research Centre, Freie University Berlin for her encouragement and clear and precise feedback with regard to my research. It has been a privilege to know her and interact with her. I thank my guide at TERI University Dr Kaushik Ranjan Bandopadhyay for his guidance in understanding the economics of regulation and building my understanding beyond the thesis. I would also like to thank Dr Subir Sen at TERI University for his constructive feedback. I am also grateful to the many people who gave me considerable amount of time to discuss their knowledge and views on Smart Grid policies in the EU - Dr. Dörte Ohlhorst (Professor at Freie Universität’s Environment Policy Research centre (FFU) , Berlin), Mr Max Grünig (Economist and Fellow at Ecologic Institute, Berlin), Mr Koen Noyens (Advisor in the Networks Unit of Eurelectric), Mrs Antonella Battaglini (Program Director at Smart Energy for Europe Platform and Senior Scientist at the Potsdam Institute for Climate Impact Research), Ms Elena Scheiber (in the office of Ms Ingrid Nestle - Member of Parliament and spokesperson for Energy - Parliamentary Group), Ms Mercè Griera-I-Fisa (Project Officer at the European Commission’s DG Information Society and Media ICT for Sustainable Growth), Mr Martin David Ledwon (Vice President - Government Affairs at Siemens AG), Dr David Jacobs (Director of Renewable Energy at IFOK Gmbh and visiting professor at Freie University, Berlin) and Ms Parimita Mohanty (Fellow, TERI, New Delhi). I would also like to extend a heartfelt gratitude to the wonderful students at Freie University – Rainer Quitzow who helped at the start with some primary references and all the students at Dr Kirsten Jörgensen’s class for their intellectually and emotionally stimulating discussions. And finally I would like to thank my friends through the years and my family for all their support in seeing me through this research as well as the MBA program.
May 2012 Gurgaon
Sincerely, Neena Sekharan
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Table of Contents Acknowledgement ............................................................................................................................. 4 Executive summary ........................................................................................................................... 7 List of figures .................................................................................................................................... 9 List of abbreviations ........................................................................................................................ 10 Introduction..................................................................................................................................... 11 Objectives ....................................................................................................................................... 14 Methodology ................................................................................................................................... 14 Section 1 – Smart Grids and the European context ........................................................................... 15 What are Smart Grids .................................................................................................................. 15 Why Smart Grids? ....................................................................................................................... 18 Decision making process in the EU .............................................................................................. 20 The electricity sector ................................................................................................................... 22 The future of electricity grids ................................................................................................... 22 The future of the electricity sector ............................................................................................ 23 Electricity sector in the European Union .................................................................................. 23 Section 2 – Current EU policies and legislations impacting the Smart Grids ..................................... 25 Timeline of policy actions with specific focus on Smart Grids ..................................................... 33 Analysis of present policies ......................................................................................................... 34 Status in the EU on Smart Meters ................................................................................................ 45 Section 3 - Pre evaluation of potential policy considerations for Smart Grids ................................... 50 Section 4 - Emerging business opportunities .................................................................................... 57 Business case studies ................................................................................................................... 57 Energy Service Companies in Europe .......................................................................................... 59 Section 5 - Lessons for India............................................................................................................ 60 Present status ............................................................................................................................. 60 Challenges specific to India ......................................................................................................... 61 Recommendations for India ......................................................................................................... 61 Drivers of effective policy formulation ........................................................................................ 67 Conclusion ...................................................................................................................................... 69 Annexures ....................................................................................................................................... 70 Annexure 1: EU vision of Smart Grid .......................................................................................... 71 Annexure 2: Decision making in the European Union .................................................................. 72 Annexure 3: Traditional v/s future electricity grids....................................................................... 73 Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“ Annexure 4: Future of the electricity sector .................................................................................. 74 Annexure 5: Smart grid Electricity market structure ..................................................................... 75 Annexure 6: Status of Cost benefit analysis of Smart Meters in EU member states ....................... 76 Annexure 7: Economics of institutions framework ....................................................................... 77 Annexure 8: PowerIt business solutions ....................................................................................... 78 Annexure 9: Non exhaustive list of legal inputs and instruments considered for the mandate on Standardization ............................................................................................................................ 79 Annexure 10: References ............................................................................................................. 80 Research papers ....................................................................................................................... 80 Reports .................................................................................................................................... 82 Presentations............................................................................................................................ 85 Annexure 11: Profiles of persons interviewed .............................................................................. 87 Annexure 12: Profile of organizations of primary interviewees .................................................... 89
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Executive summary The importance and potential of Smart Grids is now a known and accepted idea. However, for Smart Grids to translate into an established system, research institutes, business entities and various other stakeholders need to actively participate in the sector. This can happen only if an attractive environment is created so that the various stakeholders have enough confidence to participate and invest their resources in the idea of Smart Grids. The participants would seek a degree of certainty in terms of technology, return on investments in the long term as well as short term and overall environment specific to them. Smart Grids are a part of the electricity sector, which in turn is a part of the larger energy sector. The energy sector, by virtue of being highly capital intensive as well as being a strategic aspect of any nation’s development goals and economic progress is a natural monopoly. In such circumstances, the environment for Smart Grids for can be created only by serious assistance from the Government and their policies. Policy formulation is however, not an easy task. Policymakers need data and a clear understanding of the problem in hand in order to have an effective solution for the stakeholders. In the case of Smart Grids, the stakeholders would include all citizens of the nation in varying degrees of involvement. While India is in the early stages of moving to a Smart Grid based intelligent energy system, few of the developed nations have already embarked on the journey to have a Smart Grid based intelligent energy system. India cannot emulate policies and solutions of other nations since the circumstance and broad environment around Smart Grids are unique to India. In my Master’s thesis, I have researched to understand the European Union’s experience in developing policies for a Smart Grid system. Learning from the European Union, with its own unique challenges can help India to develop an understanding of the various challenges with the deployment of a Smart Grid based intelligent energy system. My research is a broad analysis of the policies required for Smart Grid systems and therefore explores business dimensions related to policies as well. Smart Grids create an opportunity for new business models to develop. This report tries to understand some of the new business ideas that are being tried and tested as a part of the Smart Grids system. The report tries to understand the business models of four young European companies that work in the Smart Grids space - YelloStrom, Dezem, Powerit Solutions and Efergy. By understanding new
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
business models, policies can be formed for a creating a vibrant environment for similar businesses to exist for the benefit of all stakeholders. The key observations based on my research are: “Smart grid is a process and not a product” 1 There is no specific ‘Smart Grid’ policy for Europe as yet however, the European Commission has issued directives that indirectly support Smart Grids Smart grids will radically change the electricity sector and add more complexity in the entire electricity value chain Stakeholders in Europe are still seeking clarity on various aspects related to Smart grids Extensive research is being conducted in Europe to formulate policy around smart grids Some of the key action points for India based on my research are: Develop a clear understanding of what Smart Grids are and what they should achieve in the Indian context Develop a time bound roadmap for the deployment of Smart Grids in India Invest in capacity building in higher education institutes (engineering, management, finance), vocational training institutes, and Government and private agencies that are part of the electricity value chain Explore areas of opportunity arising from Smart Grids where India can become a significant player in the world arena. Some of these could be Energy Consulting, IT application development for energy management, network management, manufacturing of advanced metering devices etc The policies around Smart Grids are very new and are only unfolding now. More importantly, this is an area that interferes with many other socio-economic activities touching upon numerous sectors as explained in this report. The challenge is to achieve energy efficiency without compromising on economic efficiency. In my research, I have been able to capture the recent discussions around Smart Grids among experts from various related fields. To that end, my research would be of help to policymakers, business entities and other stakeholders that seek to understand the wider implications and opportunities of Smart Grids and find a meaningful role to play in this field.
1
Ministry of Power, Government of India
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
List of figures Figure 1: Smart Grid (Eurelectric) ................................................................................................... 16 Figure 2: Case for Smart Grids (Eurelectric) .................................................................................... 18 Figure 3: Smart Grid investment vs benefits (Eurelectric) ................................................................ 19 Figure 4: EU decision making process ............................................................................................. 21 Figure 5: Ten steps recommended by Eurelectric (Eurelectric) ......................................................... 44 Figure 6: Smart meter roll-out at the end of 2010 (Eurelectric) ......................................................... 46 Figure 7: Regulatory framework – achievability of rate of return (RoR) vs. regulatory stability (Eurelectric) .................................................................................................................................... 47 Figure 8: Policy areas that need consideration for establishing Smart Grids ...................................... 54 Figure 9: The deZem system ............................................................................................................ 58 Figure 10: Authors recommendations for India ................................................................................ 62 Figure 11: EU vision of Smart Grid (Source: European Union) ........................................................ 71 Figure 12: The traditional Grid (European Commission) .................................................................. 73 Figure 13: Grids of tomorrow (European Commission) .................................................................... 73 Figure 14: Distributed generation of the future (European Commission, 2006) ................................. 74 Figure 15: Electricity sector inter-relations of the future (European Commission, 2006) ................... 74 Figure 16: Smart Grid markets scenario (Source: Miguel Angel Sánchez Fornié) ............................. 75 Figure 17 : The four level model of Williamson (1998). ................................................................... 77
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
List of abbreviations AG
Aktien Gesellschaft
AMI
AdvancedMetering Infrastructure
BEE
Bureau of Energy Efficiency
CHP
Combined Heat and Power
CIP
Competitiveness and Innovation Framework Programme
DSO
Distribution System Operator
EC
European Commission
EERA European Energy Research Alliance EII
European Industrial Initiatives
ESCO Energy Service COmpany EU
European Union
FP7
Seventh Framework Program
GmbH Gesellschaft mit beschränkter Haftung GW
Giga Watts
HVDC High Voltage Direct Current IBM
International Business Machines
ICT
Information and Communication Technology
IEE
Intelligent Energy Europe Program
JWG Joint Working Group NAPCC
National Action Plan on Climate Change
PAT
Perform Achieve and Trade
R&D Research and Development RE
Renewable Energy
RTD
Research and Technological Development
SSG
Super Smart Grid
TAM Technology Adaptation Methodology TSO
Transmission System Operator
WACC Weighted Average Cost of Capital WEF World Economic Forum
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Introduction Moving towards a low carbon economy, nations are exploring ‘Smart Grids’ as a solution to achieve energy efficiency and therefore, energy conservation. A shift to Smart grids would necessitate many changes to be made to the present systems. There is a need for specific new policies as well as changes to existing policies for a successful shift towards a Smart Grids based ‘intelligent energy’ system. In this context, this report tries to understand the efforts in the European Union with respect to policies for developing a Smart Grid system.
Shifting to Smart Grids includes the following implications:
Policy and legislative changes across the electricity value chain
A Convergence of the general business model comprising various stakeholders that include o Transmission and distribution system operators o Energy System and Component vendors o Energy Research Centers o Smart Metering Industry o Utilities o Telecom Providers
New financial products for financers of Smart Grid
Impact on market based mechanisms if companies are allowed to monetize their investments in Smart Grids through green certificates and white certificates
Impact on Renewable Energy sector with respect to Feed in tariffs and related policies
While the subject of Smart Grids is highly technologically intensive, this report has made a deliberate attempt to not focus on technological concepts. The focus of this report is mainly from the policy perspective and the aspects that need policy support. Through the course of my research, I discovered that efficient policies have the power to enable an environment where technological and economic progress can be made at a very fast rate. On the other hand, a poor policy design can lead to a collapse of a very promising idea. The policy that this report refers to is not just for setting up a Smart Grid system, but also for dealing with the consequences of a changed playing field for all in the electricity value chain, once Smart Grids are made an integral part of the electricity system.
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
The role of policymakers is vital and this has been recognized by all stakeholders in the electricity value chain. Geode2, in their position paper says that regulators have a central role to play as key facilitators of Smart Grids as “Smart Grids require Smart Regulation”. Geode further states that policy and legislation are the main drivers for Smart Grids in Europe (Geode position paper 2010)3. However, policies and legislation are not just statements and targets but are a process that evolves and adapts with the changing circumstances. Extensive research is being conducted in various institutions in Europe to develop the right policy strategy for Smart grids. Public policies will need to be adapted, firstly to make allowance for the potential gains from Smart Grids and the associated information flow, and secondly to regulate new networks and act as incentives for investors (Clastres 2011). Regulators and policy-makers will above all need information on the business model, in order to redistribute revenue and design competitive and regulatory policies on costs related to the activity and the distribution of such costs along the value chain (Clastres 2011). In their study, Eurelectric says that apart from a strong political commitment to establish the right regulatory conditions, movement towards intelligent power systems will require increased cooperation among all players in this area, including customers. The future challenges of “smartening” the electricity networks will differ greatly from the challenges faced in the past. Also, Smart Grids will not be rolled out in a single swoop. Instead, their implementation is an incremental and continuous step-by-step learning process, characterized by different starting points throughout Europe. Smart Grids are not an instant revolution, but a steady evolution which has to include the customer as well as energy suppliers and producers. Smart Grids also bring with it an aspect of electric vehicles. This report however does not discuss the policy and regulatory aspects related to electric vehicles (cars, railways etc) in the context of Smart Grids. The subject is important and requires in-depth research and understanding.
2 3
Representative group of independent distribution companies of gas and electricity in Europe. www.eurelectric.org http://www.geode-eu.org/images/stories/pdf/GEODE%20PP%20%20on%20Smart%20Grids%202010.pdf
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Indian context The Indian economy is now growing at a rate of 7% annually4. In order to sustain this economic growth, India needs tremendous amount of energy. A McKinsey report states that India's demand for electricity may cross 300 GW by 2017 5 . The current installed capacity is approximately 170 GW. While this requires tremendous increase in capacity, the electricity system has to also greatly increase its efficiency. According to the Ministry of Power, India’s transmission and distribution losses are amongst the highest in the world, averaging 26 per cent of total electricity production, and as high as 62 per cent in some states. Including non-technical losses like theft, the average losses are as high as 50 per cent. It therefore becomes necessary to have a grid that is highly adaptive (in terms of supply and demand). This builds a strong case for developing Smart Grids in India.
With this understanding therefore, the report tries to understand the policy framework that will lead to a successful Smart Grid based intelligent energy system. Specifically, this report attempts to understand the policy framework in the European Union, which as a leader in the field provides for great opportunity to learn for India. Through this study, I intend to understand from the EU experience, the policy areas that should be considered to have a successful smart grid system in India. The report has been divided into five sections. The first section introduces the reader to the essential concepts presented in the report - Smart Grids, the electricity sector and the European Union. The second section explains the present policies and legislations considered in the EU to move towards an intelligent energy system followed by an analysis of the EU policies and status on smart meters. In the third section, I conduct a pre evaluation of required policies based on my research and analysis. In the fourth section, I have mentioned four young companies that represent the new business opportunities in the future scenario in the electricity sector. Finally, in the fifth section, I present my suggestions for India to consider while developing policies for establishing Smart grids.
4 5
http://articles.economictimes.indiatimes.com/2011-12-13/news/30511978_1_growth-projection-growth-forecast-fitch http://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Power_Report_Exec_Summary.pdf
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Objectives The objective of this report is to understand and learn from the European Union experience with respect to policy design for establishing Smart Grids based intelligent energy system. The learning can then be analyzed and best practice ideas can be considered in the context of India and applied in India with relevant modifications.
Methodology In my research, I have used qualitative and exploratory research methods that address the following research questions in-depth:
What is the current scenario in Europe with respect to Smart Grids and related policy?
Who are the stakeholders, their degree of involvement and concerns in the area of Smart Grids in Europe?
What is the future scenario of Smart Grids with respect to technology and business environment around all stakeholders?
What are the policy gaps that exist?
What could be the potential recommendations for India for an effective policy framework?
Both secondary and primary research has been conducted during this research.
Literature review
Secondary research included
Exhaustive internet research of
EU policy websites
Industry associations of various stakeholders in the Smart Grid system
Online forums discussing Smart Grids
Study of papers by experts on electricity sector and Smart Grids
Primary research
Interview research scholars, policy makers and policy researchers working in the area of Smart Grids in Europe. The interviews were unstructured and open ended.
Finally, all the understanding was collated, understood and analyzed. The understanding and analysis have been presented in five sections in the report.
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Section 1 – Smart Grids and the European context What are Smart Grids Smart Grids mean different things to different people and groups. While there may be different perspectives, the common agreed upon part is that Smart Grids are digitally enabled electricity grids that use telecommunication technologies to understand the behavior of all actors across the electricity value chain. European Smart Grid Task Force6 and Eurelectric define Smart Grids as follows: "A Smart Grid is an electric network that can intelligently integrate the behavior and actions of all users connected to it — generators, consumers, and those that do both — in order to efficiently ensure sustainable, economic, and secure electricity supply." While the U.S. Department of Energy defines Smart Grids as: "A Smart Grid uses digital technology to improve reliability, security, and efficiency of the electric system: from large generation, through the delivery systems to electricity consumers and a growing number of distributed generation and storage resources." Both definitions recognize security of supply and the evolution towards an increasing role of renewable resources, distribution generation and energy storage by the use of ICT. Smart Grid is can be further explained as a set of software and hardware tools capable of routing power more efficiently, thus reducing the need for excess capacity (Battaglini et al 2009). Smart Grids also encompass and promote power from renewable energy sources. By virtue of their inherent nature, power from RE sources is not continuously available. This creates problems with supply and grid interaction. Smart Grids would be able to resolve this issue by the inbuilt intelligence in the system that utilizes the strengths of RE generated power while reducing the impact of the problems from RE generated power. Smart Grids thus are a
6
The mission of the Task Force Smart Grids to advice the Commission on policy and regulatory directions at European level and to coordinate the first steps towards the implementation of Smart Grids under the provision of the Third Energy Package. Details of their work can be found at http://ec.europa.eu/energy/gas_electricity/smartgrids/taskforce_en.htm
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
desired system for EU since it promotes RE and thus enhances the areas energy security as well as meets the climate change goals. In Figure 11: EU vision of Smart Grid, we can see the EU vision for Smart Grids where distributed power generation from renewable energy sources is integrated with consumers through a local communication and control centre along with energy storage facilities and value added services like forecast information through communication with satellites. Figure 1: Smart Grid (Eurelectric), highlights the Eurelectric idea of Smart Grids.
Figure 1: Smart Grid (Eurelectric) Another perspective to understanding Smart Grids is to look at the entire Smart Grid concept as composed of three aspects:
Smart Grids which looks at intelligent power grids;
Smart meters which looks at intelligent information for consumers across the electricity value chain; and
Smart markets which look at how the electricity sector functions with all the information available. This would include generation, pricing etc
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
In their position paper “Smart Grids and Smart Market”, the Bundesnetzagentur 7 strongly discourage the use of the term ‘Smart Grids’ for the idea that is being discussed, which they think shifts the focus from future energy systems to just the grid. Instead, they suggest the use of the term ‘Smart markets’ as a super term that encompasses ‘Smart Grids’. Yet another way to look at Smart Grids is to see it at two levels – technological level and business level. Technology level • Equipment layer - includes devices like sensors, measurement equipment etc • Communication layer - at the transmission, distribution and customer lavel • IT layer - refers to IT enabled control centres, data aggregation
Business level • Data aggregation and processing by different actors in the value chain will create new
business models • Potential for new business like asset management, system optimization, infrastructure optimization
We understand that Smart Grids can refer to anything from a simple smart meter to a fully integrated intelligent energy network that can control all appliances at home or industry. Since this report focuses on the policy aspects that need to be considered to move a society towards an efficient intelligent energy system, the scope for the term Smart Grids is kept very broad. This would encompass everything from a simple smart meter which is a first step to a highly integrated energy network formed for the benefit of all in the electricity value chain as well as to the society at large.
The Super Smart Grid A Super Smart Grid (SSG) would use High Voltage Direct Current (HVDC) technology to transmit renewably generated electricity over vast distances between points in North Africa, the Mediterranean, and Europe. The ‘Super’ refers to the wide area transmission network and the ‘Smart’ refers to the network being ICT enabled. The SSG proposal was initiated by the European Climate Forum and at the Potsdam Institute for Climate Impact Research (www.pik-potsdam.de) by Antonella Battaglini and colleagues in a position paper for the energy conference in Lund in 2007. This report however, does not discuss the Super Smart Grid and focuses only on the Smart Grid concept. 7
The Bundesnetzagentur, BnetzA (Federal Network Agency) is the German regulatory office for electricity, gas, telecommunications, post and railway markets. It is a federal government agency of the German Federal Ministry of Economics and Technology and headquartered in Bonn.
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Why Smart Grids? While Smart Grids are a fantastic technological idea, they cannot be implemented for their own sake, but as a possible solution to operational and societal challenges in the context of the entire value chain of the energy sector (Eurelectric report).
Figure 2: Case for Smart Grids (Eurelectric) We should expect a revolutionary change in the way the electricity sector will function in the future. Figure 2: Case for Smart Grids, presents the reasons for the changes across three dimensions: Internal market: The liberalization of the electricity sector worldwide, aimed with bringing economic efficiencies to the electricity sector has created a competitive sector with many participants. All these participants are trying to lower costs by using technology and innovation and thus be competitive. Security of energy supply: Availability of affordable and secure supply of electricity is critical to modern societies (Johann Kranz 2011). This implies production of even more energy especially from newer energy sources that can be integrated with existing technology with high technical efficiencies. Environmental concerns: The electricity sector is responsible for the largest proportion (26%) of global green house (GHG) emissions which cause global warming (IPCC 2007). With climate change issues gaining attention across the globe, nations need to take concrete steps towards reducing their negative impacts on the environment while they seek economic prosperity for their citizens. Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
These three dimensions form a strong case for integrating intelligence into the electricity system which can be referred to as a Smart Grid in a generic sense. Cost-benefit analysis for Smart Grids needs to be done for a more compelling case favoring them. But among the present available options, Smart Grids do seem to be a largely favorable solution. Eurelectric has analyzed the investments in Smart Grids and the expected benefits from Smart Grids and is represented in Figure 3: Smart Grid investment vs benefits (Eurelectric) of this report. This analysis also brings forth a strong case for promotion and development of Smart Grids.
Figure 3: Smart Grid investment vs benefits (Eurelectric) Smart Grids are thus an important option for reducing carbon emissions in the following ways while achieving favorable returns on financial investment:
Enhancing grid operation and maintenance tools and thereby achieving energy efficiency
Facilitating a higher penetration of renewable energy (e.g. wind, solar) and distributed generation (e.g. small windmill or micro-CHP plants) by making their integration with grid supported by intelligent decision making; and
Engage consumers with the market by providing them information to enhance their energy efficiency (e.g. through smart metering and “smart homes”), and also by allowing consumers to act as producers selling back their excess electricity (e.g. CHP or plug-in electrical vehicles)
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Decision making process in the EU In order to fully appreciate the policy framework and policy considerations in the European Union, we need to first understand the decision making process in the EU. The institutional setup and how the decision flows are very important for the translation of an idea to an action. The European Union, which is an economic and political union or confederation of 27 European countries (known as member states), came into existence in November 1993 after the ratification of the Maastricht Treaty 8 . Though there is no official capital of the EU, Brussels (Belgium) has become the main centre, with some important offices in Luxembourg (Luxembourg) and Strasbourg (France). As can be expected, the playing field provides for interesting political analysis with each member state trying to get their interests met. Thus, there is always a ‘race to Brussels’ among member states when it comes to promoting own ideas and interests. This is not necessarily a bad thing since multiple ideas and competition among them in a rational environment does ultimately lead to a better decision on most occasions. Institutions under the EU
8
European Commission
European Parliament
European Council
•It represents and upholds the interests of the EU as a whole. It drafts proposals for new European laws. It manages the day-to-day business of implementing EU policies and spending EU funds.
•Represents the EU’s citizens and is directly elected by them; Parliament is one of the EU’s main law-making institutions, along with the Council of the European Union ('the Council').
•The European Council sets the EU's overall political direction – but has no powers to pass laws. represents the governments of the individual member countries. The Presidency of the Council is shared by the member states on a rotating basis.
http://www.eurotreaties.com/maastrichtec.pdf
Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Figure 4: EU decision making process The EU law is divided into 'primary' and 'secondary' legislation. The treaties (primary legislation) are the basis for all EU action.
Secondary legislation – the binding legal
instruments (regulations, directives and decisions) and non-binding instruments (resolutions, opinions) – are derived from the principles and objectives set out in the treaties. The EU’s standard decision-making procedure is known as 'Ordinary Legislative Procedure’. This means that the directly elected European Parliament has to approve EU legislation together with the Council (the governments of the 27 EU countries) 9. Refer Annexure 2: Decision making in the European Union, for a detailed understanding of the European decision-making procedure. While individual member states can have their individual laws to run their country, a legislative action from the EU cannot be ignored and has to be ‘harmonized’. Harmonization is a policy to achieve uniformity and coherence in laws of member states to facilitate free trade and protect citizens as the EU seeks greater political and economic union. In the context of Smart Grid policy, or any policy for that matter, we will see that developing policies at the EU level comes with its own set of challenges. With the multiplicity of stakeholders, and with the idea of trying to be fair to all concerned actors, any policy solution requires great amount of research and understanding across several dimensions. Here, the various legislative instruments help solve any cause by taking incremental steps from ‘Green paper’ to finally, a ‘Regulation’ with the aim of achieving an institutional or systemic change in the long term. The European Union does not have a Smart Grid policy or regulation as yet. However, they are in the early stages of the legislative actions in order to finally have an intelligent energy system. In this report, we will see what is happening in the EU in the Smart Grids space. 9
http://europa.eu/about-eu/basic-information/decision-making/index_en.htm
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The electricity sector Until the 1990s, the electricity sector in the EU as well in most parts of the world was heavily regulated. The electricity industry was vertically integrated by state owned monopolies. Not only was this system wrought with severe economic inefficiencies, the system did not encourage price reduction or innovation in the electricity sector. In the 1990s, the electricity sector in most parts of the world started the process of ‘liberalization’. This led to the ‘unbundling’ of the electricity sector which meant that generation, transmission and distribution of electricity was done by different entities and accounted separately. This had an effect of creating greater efficiencies in the system and also greater transparency on pricing. The intended outcome was greater efficiency across the entire electricity value chain and better prices for consumers. While a liberalized electricity sector is an accepted idea now, it was a radical idea in the 1990s. Electricity utility companies would not have liked to dilute their monopolistic powers over such an important and powerful sector like electricity and lobbied heavily against the idea. However, this was in the best interests of world at large and policy makers pushed for it. Even today, the electricity sector is not completely liberalized and most electric utilities retain their power across the electricity value chain. However, there are multiple players now and with growing awareness and understanding of this sector; most stakeholder interests can be protected. The experience with the liberalization of the electricity sector is valuable and the learning from that process will help in formulating policy actions for Smart Grids and related sectors. The future of electricity grids With innovations in the electricity sector as well as in the ICT sector, the grids of the future are going to be very different from what it is now. This means the electricity sector as we know today will cease to exist. This also means tremendous challenges in making the most of this opportunity for all in the electricity value chain – from producers to the customers and every stakeholder in between. Figure 12: The traditional Grid (European Commission) and Figure 13: Grids of tomorrow (European Commission) compare the existing and future grids and the future
electricity sector at large10.
10
http://ec.europa.eu/research/energy/pdf/smartgrids_en.pdf
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The future of the electricity sector In the future, not only will the grids have a different nature but the sources of energy will also be different with distributed generation becoming an established system (Figure 14: Distributed generation of the future (European Commission, 2006)). The integration with two-way communication systems will also change the way electricity distribution and consumption is structured (Figure 15: Electricity sector inter-relations of the future (European Commission, 2006)), and will also develop a new business paradigm in the electricity sector. The need for new business institutions will arise with these changes and in turn will create a demand for jobs that require newer skills. Indeed, this would create new opportunity even in the higher or vocational education sector! The European Union anticipates these changes and is making efforts by way of research and innovations across various disciplines in order to make the most of this future opportunity. With electricity being both a good and a service, the economic potential of an intelligent energy system are enormous. In this sense, we can learn a lot from the mobile telecom sector. Just like mobile phones provide an opportunity to communicate, the new electricity system will be a service that provides an opportunity to use electricity. While there are distinct differences between the mobile industry and the electricity sector, this rather unique perspective can help look at the future of electricity industry in a new light. Figure 16: Smart Grid markets scenario (Source: Miguel Angel Sánchez Fornié), explains the future scenario of the electricity sector and how the Smart Grids chain will create areas for regulated activity as well as market competition. It is indeed, an exciting time for the electricity sector with new opportunities to reform and redefine a very new structure in a sector that is ass all pervasive as the electricity sector. Electricity sector in the European Union The electricity sector in the EU went through the process of liberalization as early as 1996 when the Directive 96/92/EC on the Internal Market in Electricity entered into force. In fact, even earlier, the Directive on price transparency (90/377/EG) for electricity and gas and one on electricity transit (90/547/EG) had set the direction for a liberalized electricity sector in the EU11.
11
http://documents.eu-japan.eu/altenergy/en/alten_report_liberalisation_electricity_2000.pdf
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These directives essentially establish common rules for the generation, transmission and distribution of electricity. They also specify the rules relating to the organization and functioning of the electricity sector like:
Access to the market;
The criteria and procedures applicable to calls for tender and the granting of authorizations;
The operation of systems.
By the year 2000, most European nations had opened up their electricity market either fully or at least in part. In year 2003, the Directive 2003/54/EC12 tried to give the option to customers to be able to choose their gas and electricity supplier. This directive essentially established common rules for the internal market in electricity and led to the repealing of Directive 96/92/EC. Another significant legislative action is the Regulation (EC) No 714/200913 of the European Parliament and of the Council of 13 July 2009 that establishes rules for cross-border exchanges in electricity with a view to improving competition and harmonization in the internal market for electricity. All these actions are aimed at putting a downward pressure on prices, improvement of services to customers as well as promoting innovation in the electricity sector. However, as pointed out by Max Gruenig at the Ecologic Institute, in the case of European Union, different member states have different predominant sources of power. While the Nordic countries may have hydro power, a country like Cyprus has power mostly from gas and oil. This fundamental difference leads to different agendas for the member states making the situation complex. The ability to predict how the national electricity industries will respond to these challenges and, thus, the ability to develop effective policies to direct this effort, requires a good understanding of the nature of energy systems in general, and electricity systems in particular, and a workable theory of technology choice(C. Hadjilambrinos / Energy Policy 28 (2000) 1111}1126).
12 13
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0054:EN:NOT http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32009R0714:EN:NOT
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Section 2 – Current EU policies and legislations impacting the Smart Grids The Smart Grids concept is not a standalone concept, but is related to various other critical areas that need to be supported by policies. This section presents the various policy measures undertaken in the EU so far that has an impact on the Smart Grid concept. European energy policy Various policy initiatives have been taken to set the European Union on a path of competitive, secure and sustainable energy. All the policy initiatives combined can be collectively referred to as the EU energy policy. As early as 2006, the European Commission published a green paper to develop an energy policy for Europe. In fact, even earlier, in the year 2000, the commission published a green paper on developing a European strategy for the security of energy supply. In 2007, the Council adopted energy goals aiming to reduce greenhouse gas emissions by 20%, to increase the share of renewable energy to 20% and to make a 20% improvement in energy efficiency. This is also known as the 20-20-20 objectives which were made ‘binding’ in the 2009 amendment of the Directive 2009/28/EC. Other legislative actions include:
Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading;
Directive 2009/28/EC on the Promotion of the use of energy from renewable sources;
Decision 406/2009/EC on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020.
In 2008, the EU set an objective to reduce the EU’s contribution to global warming and guaranteeing energy supply. At the same time, the European Union also made a deliberate decision to tackle energy and energy related issues. The historic Treaty of Lisbon that came into effect on 1 December 2009, places energy at the heart of European activity. It gives energy issues a new legal basis which it lacked in the previous treaties.
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The general objectives of the European energy policy are:
Establish the internal energy
market
o Energy efficiency
o A competitive market
o Renewable energy
o An integrated and interconnected market
Develop energy technologies
Consider the future of nuclear
o An energy public service
Reduce greenhouse gas emissions
Ensure a secure energy supply
energy
Implement a common international energy policy
The policy is also supported by market-based tools like taxes, subsidies and the CO2 emissions trading scheme. The policy also aims to develop energy technologies (especially technologies for energy efficiency and renewable or low-carbon energy) and community financial instruments. These have been discussed further in this section of the report.
Directive on energy end-use efficiency and energy services14 With the Directive 2006/32/EC, the European Union (EU) has adopted a framework for energy end-use efficiency and energy services. The purpose of the Directive is to make the end use of energy more economic and efficient by:
Establishing indicative targets, incentives and the institutional, financial and legal frameworks needed to eliminate market barriers and imperfections which prevent efficient end use of energy;
Creating the conditions for the development and promotion of a market for energy services and for the delivery of energy-saving programs and other measures aimed at improving end-use energy efficiency.
14
http://europa.eu/legislation_summaries/energy/energy_efficiency/l27057_en.htm
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Communication on Second Strategic Energy Review - EU energy security and solidarity action plan15 While this communication 16 of 2008 focuses on energy security, for the purpose of this report, we will discuss only the points that are directly or indirectly related to Smart Grids. Therefore, only the part of the communication that supports the objectives of achieving energy efficiency across the EU will be analyzed. With the intent of introducing significant changes to the energy infrastructure in the region, the six priority actions have been suggested. The areas that have a direct relation with Smart Grids are:
Connecting the isolated energy markets in Europe;
Linking Europe with the Southern Mediterranean through electricity and gas interconnections;
Developing gas and electricity interconnections crossing Central and South-East Europe along a north-south axis; and
Developing interconnections between the electric networks of the North-West of Europe so as to optimize wind energy in the North Sea.
We can see that a lot of focus is being given to electricity grid interconnections. This means the grid will get more complicated and its management will require a paradigm shift in grid management. This can definitely builds the case for Smart Grids. Regulation to aid economic recovery by Community financial assistance to projects in the field of energy Post the financial and energy crisis of 2008, with Regulation (EC) No 663/200917 in year 2009, the European Energy Program for Recovery tried to remedy the problems by providing for granting of financial assistance to the energy sector, especially for the introduction of interconnection infrastructures, energy production based on renewable sources, carbon capture and for the promotion of energy efficiency. The projects in the following three areas are to be funded: 15 16 17
Gas and electricity infrastructures; Offshore wind energy; and Carbon capture and storage.
COM (2008) 781 http://europa.eu/legislation_summaries/energy/european_energy_policy/en0003_en.htm
http://europa.eu/legislation_summaries/energy/european_energy_policy/en0012_en.htm
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A financial envelope of EUR 3,980 million is devoted to the three sub-programs. The financial instrument facilitates the financing of investments by local, regional, and, in sufficiently justified cases, national public administrations.
We can see that the EU is supporting all efforts to improve energy efficiency and consequently attaining energy security. The path has a direct relation with a case for Smart Grids and these funds too can be used for the development of Smart Grids.
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Communication on ‘Energy 2020 A Strategy for competitive, sustainable and secure energy’ Issued in November 2010, the European Commission’s energy strategy18 in the period up to 2020 is structured around the following five areas: Limiting energy use in Europe •Europe intends to limit energy use, without decreasing economic activity. The EU desires the European industry to remain competitive and therefore wishes to improve energy efficiency to achieve savings.
Building a pan-European integrated energy market •To ensure free movement of energy using internal market by building appropriate institutions. •European Network of Transmission System Operators for natural gas (ENTSO for Gas) •European Network of Transmission System Operators for electricity (ENTSO for electricity) •Agency for the Cooperation of Energy Regulators (ACER) is responsible for defining and implementing the harmonisation and standardisation requirements.
Empowering consumers and achieving the highest level of safety and security •Consumers should participate in the internal energy market. To do so, they must benefit from best practice in the area of switching suppliers, billing, complaint-handling and alternative dispute resolution schemes.
Extending Europe’s leadership in the development of energy technology and innovation •This strategy aims to support the launch on the European market of innovative new high performance low-carbon technologies. The implementation of the SET-Plan is one solution, in that it may help to shorten the distance between research and technological development. •The Commission also intends to launch new large-scale European projects concerning: •smart grids linking the whole electricity grid system; •electricity storage; •large-scale sustainable biofuel production; •energy savings both in cities and in rural areas.
Strengthening the external dimension of the EU energy market •Encourage the participation of neighbouring countries in the internal market. •Promoting a future of low-carbon energy in the world.
18
http://europa.eu/legislation_summaries/energy/european_energy_policy/en0024_en.htm
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Communication on Smart Grids: from innovation to deployment In this very important communication of 2011, the Commission proposes to focus on:19 1. Developing technical standards; 2. Ensuring data protection for consumers; 3. Establishing a regulatory framework to provide incentives for Smart Grid deployment; 4. Guaranteeing an open and competitive retail market in the interest of consumers; 5. Providing continued support to innovation for technology and systems Market-Based Instruments Community framework for the taxation of energy products and electricity20 Council Directive 2003/96/EC extended the EU's minimum rates of taxation, previously confined to mineral oils, to all energy products, including coal, natural gas and electricity. The Directive aimed to reduce the distortions of competition that existed between Member States as a result of divergent rates of tax. EU Emission Trading Scheme21 Launched in 2005, the EU ETS works on the "cap and trade" principle. Being the first and biggest international scheme for the trading of greenhouse gas emission allowances, the EU ETS covers some 11,000 power stations and industrial plants in 30 countries. The EU ETS has put a price on carbon emissions and has shown that it is possible to trade in greenhouse gas emissions. The changes to be introduced in 2013 will further enhance its effectiveness. With energy efficiency increasing with Smart Grid development and reduction in power demand and consequent reduction in emissions, the EU ETS functioning may get affected but it remains to be seen how. Various scenarios can be developed and analyzed. White certificates White certificates are an important mechanism used in EU countries to incentivize energy efficiency. A white certificate corresponds to an established amount of saved energy and it has an economic value determined by a trade market or, alternatively, by the national energy authority of each country.
19
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011DC0202:EN:HTML:NOT http://europa.eu/legislation_summaries/internal_market/single_market_for_goods/motor_vehicles/interactio ns_industry_policies/l27019_en.htm 21 http://ec.europa.eu/clima/policies/ets/index_en.htm 20
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Some of the EU countries working successfully with white certificates are Italy, France, UK and Poland. In order to get white certificates, it is essential to have intelligent technologies based on the concept of Smart Grids to achieve energy efficiency.
As Smart Grids become more integrated with the energy system and energy efficiency targets become easier to attain, the impact on the white certificates system cannot be ignored. Different scenarios need to be analyzed and anticipated to make the white certificates system coherent with the Smart Grid induced changing environment. Research and Innovation SET-Plan for the development of low carbon technologies22 The SET-Plan with an estimated budget of €71.5 billion is the technology pillar of the EU's energy and climate policy. It started with the establishment of the European Industrial Initiatives (EIIs) which bring together industry, the research community, the Member States and the Commission in risk-sharing, public-private partnerships aimed at the rapid development of key energy technologies at European level. Also, the European Energy Research Alliance (EERA) has been working since 2008 to align the R&D activities of individual research organizations to the needs of the SET-Plan priorities. Over the last decade the EU has spent about €300 million on the research and development projects for modern electricity networks. The Commission will promote coordinated approach towards the deployment of Smart Grids at European and regional level. 23
Financial Instruments Intelligent Energy Europe Programme (IEE)24 This is under the aegis of the Competitiveness and Innovation Framework Programme (CIP) that supports innovation activities (including eco-innovation) and provides better access to finance and delivers business support services in the EU region. With a budget of approximately € 730 Million between 2007 and 2013, the IEE program supports concrete projects, initiatives and best practices that are aimed at promoting energy efficiency and the use of new and renewable energy sources. 22 23 24
http://ec.europa.eu/energy/technology/set_plan/set_plan_en.htm http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/20110412_press_summary.pdf http://ec.europa.eu/energy/intelligent/
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Seventh Framework Programme (FP7) (2007 to 2013) The Seventh Framework Programme (FP7) bundles all research-related EU initiatives together under a common roof playing a crucial role in reaching the goals of growth, competitiveness and employment. With a budget of over € 50 billion, the FP7 is a key tool to respond to Europe's needs in terms of jobs and competitiveness, and to maintain leadership in the global knowledge economy. Other legislative actions In Europe, the law requires a cost benefit analysis to be done before deciding anything. Directive 2009/72/EC and 2009/73/EC (Electricity and Gas Directives), calls on Member States to ensure the implementation of intelligent (or smart) metering systems that assist the active participation of consumers. A detailed report by Eurelectric on the status of CBA in various member states can be found in Annexure 6: Status of Cost benefit analysis of Smart Meters in EU member states.
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Timeline of policy actions with specific focus on Smart Grids In the illustration below, we can see the timeline of various concrete actions taken to promote Smart Grids. • European Technology Platform SmartGrids set up to create a joint vision for European networks in 2020 2005 2006 2009
and beyond. • Directive 2006/32/EC on energy end-use efficiency and energy services • Renewables Directive (2009/28/EC, Art16) views Smart Grids as an enabler for integration of increasing renewable energy into the grid and obliges the Member States to develop transmission and grid infrastructure towards this aim. • Third energy package adopted. 3rd package for the internal energy market (Directive 2009/72/EC and
2009 2009
Directive 2009/73/EC) • Set up of EU Task Force for Smart Grids
March 2010
• Legislative proposal for a regulatory framework on smart grids.
April 2011
• Communication on Smart Grids: From innovation to deployment
June 2011
• Proposal for a directive on energy efficiency and repealing Directives 2004/8/EC and 2006/32/EC Energy Efficiency Directive.
Oct. 2011
• Set of common functional requirements of the smart meter adopted.
Dec. 2011
• Energy Roadmap 2050
Sept. 2012 June 2014
• Stricter regulation promised if plans and timetables for roll-out of smart metering systems are not sufficiently well-advanced • European Commission to review whether energy efficiency targets need to be made binding.
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Analysis of present policies While the EU has taken significant steps to promote Smart Grids based energy system, it seems to be lagging in some areas. A major reason for this could be the great deal of uncertainty in this field with respect to technology as well as with respect to the way the markets across the entire electricity sector will react to the new dynamics that will evolve once Smart Grids become an established system. One of the related industry persons says that the current policies are not sufficient for a number of reasons since they do not tackle the fundamental issues and identifies the following as the key issues:
Smart Grids are often misunderstood as just smart meters and not an intelligent energy system
The entire business model needs to be changed. Without a new business model, the profits will get negatively affected
Electricity pricing should shift towards real time pricing and not just a day and night pricing. Real time pricing will acceleratethe promotion of Smart Grids
A lot of pilot projects need to be set and that requires serious investment.
Policies cannot define a new business model, but can create an environment for the same. It is strongly felt that legally binding and mandatory targets for Smart Grid implementation is the best way. Once legally binding targets and penalties are enforced for smart meters and Smart Grids, the markets will find a way to meet them. There is also a belief that a strong push from the European Commission to push producers for real time billing will make the current stakeholders reinvent themselves and find the necessary solution. While some believe in the market finding a solution based on legally binding targets, some others believe that a regulator is needed to ensure an of effective roll out of Smart Grids based energy system. The policy actions so far have their heart in the right place; however there is very little progress in getting the Smart Grid dream accessible to all stakeholders soon. The problem at the level of policy makers is that the general awareness about Smart Grids is rather low amongst them. This leads to the discussions being rather mixed up and consequently a feeble output.
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One of the interviewees is of the opinion that the European Commission is aware of Smart Grids and is working in that space. However, the policy makers are not too well informed about Smart Grids. The reason for this is that they have seen only conceptual models of Smart Grids without a clear idea of how it should be done on the field. More information – concrete results and benefits on R&D and pilot demonstration will give policy makers more data to act on and thus expedite the policies on this subject. At present, benefits of Smart Grids are evaluated on a theoretical basis and results so far pilots are not enough for defining policy actions. As different stakeholders come together, and mostly in a competitive relationship, another area to be addressed in creating a Smart Grid based energy system is to define desired roles and responsibilities. In fact, the delay in roll-out of smart meters is attributed to a lack of clarity regarding the roles and responsibilities of individual market players. Regulatory and policy frameworks need to address this aspect for smoother functioning of this sector. This would also bring clarity to the potential investors and businesses to take forward the Smart Grid idea and convert it to a tangible form. As for the business’ response to these policies, it is strongly felt that existing businesses in this sector would not like a change in status quo and are trying to delay the changes. However, as mentioned, it depends on which business groups we talk to. There are a lot of new and old companies that see great opportunity in the Smart Grid sector and would like to invest. These would primarily be the service providers and not the electricity producers. The industry sees a lot of opportunity in the energy services but is not clear to what extent the opportunity exists. The service providers are not sure which consumers will join them to get benefits from Smart Grids and services from the energy service companies. So in this environment of uncertainty, an evolution is happening in the energy services sector. Investors and businesses are trying to understand the playing field and find opportunities for themselves.
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Standards Common standards have to be developed for the Smart Grid components and that is something which can be done only after some level of technological confidence is achieved. The European Commission understands the importance of standards and has issued a Standardization Mandate 25 under the Smart Grid mandate in March 2011. The CEN26/CENELEC/ETSI Joint Working Group (JWG) on standards for Smart Grids worked between June 2010 and March 2011 on the production of a report addressing standards for Smart Grids27. Work is also being done on developing standards for smart metering. Annexure 9: Non exhaustive list of legal inputs and instruments considered for the mandate on Standardization, mentions some of the policy efforts so far. It is understandable that policy makers give attention to an idea only when sufficient interest has been generated amongst them with expectations of greater public good like creation of jobs, financial savings etc. But the policies need to create a direct or indirect push towards development of standards or the Smart Grid dream may get stuck in a roadblock. Pilot projects EU policymakers can help to accelerate the development of Smart Grids by facilitating financing options for Smart Grid projects. As mentioned earlier in this section, pilot projects provide concrete data points on which policy makers can base their decisions and also lead to positive externalities for all Smart Grid actors. Pilots should also be tested on a larger scale once they have shown results in a small project. The pilot projects will provide continuous input to adjusting regulatory, market and technical solutions in such a way as to support the efficient balancing of the network and customer participation (Eurelectric). In this context, funding of Smart Grid demonstration projects, as proposed within the European Electricity Grid Initiative, is especially vital. Another issue is that Smart Grid projects are not uniformly distributed across Europe. Most of the projects and investments are located in EU15 countries, while EU12 Member States still lag behind. The uneven distribution of projects and the different pace, at which Smart Grids are being deployed across Europe, could make trade and cooperation across national borders more difficult and jeopardize the timely achievement of the EU energy policy goals (Giordano et al 25
http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/2011_03_01_mandate_m490_en.pdf European Committee for Standardization 27 http://www.cen.eu/cen/Sectors/Sectors/UtilitiesAndEnergy/SmartGrids/Pages/default.aspx 26
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2011). This is indicative of different member states being in different stages of smart grid development even at the early stage like pilot projects. Pilot projects too, evolve over time as understanding of the subjects becomes clearer. In Europe, the earlier projects were on monitoring and controlling of peak loads and protection of instruments. The focus of projects has now shifted to monitoring and controlling of the electricity market. So there is now a shift from monitoring physical infrastructure to monitoring the markets. With pilot projects being an important factor in the Smart Grids idea, an issue that arises is that of evaluation of pilot projects. With the criteria for evaluation of pilot projects not being clear, the task of policy makers becomes especially difficult. Pilot projects are not an end in itself but a means to achieve an intelligent energy system. The policymakers should therefore encourage a broad dissemination of results and best practices gained through Smart Grid demonstration projects (Eurelectric). Financing Most projects related to Smart Grids still concentrate on technological development and do not focus on the economic dimension (Brenck 2008). The cost uncertainty of Smart Grids is therefore, still high and should be subject to further research (Battaglini et al 2009). “According to figures from the International Energy Agency, the investment needs in the European distribution network will amount to 480bn Euros up to 2035.” While this figure refers to the investment needed in a key area like distribution network, raising of funds for investment depends on the profitability of the sector or rather, on the returns that the investment can generate. Orgalime28 believes that the modernization of energy networks and smart grids should also be given a priority in negotiations on the future multiannual Financial Framework of the EU (2014-2020) which will decide on budgets for the funding of infrastructure programmes and R&D programmes as well as large scale demonstration projects29. Eurelectric has done an elaborate study on the issues of investments and return on investments from the perspective of DSOs. According to their study, in Germany there is a 28
Orgalime is the European federation representing the interests at the level of the EU institutions of the European mechanical, electrical, electronic and metal articles industries as a whole. (http://www.orgalime.org) 29 http://www.orgalime.org/Pdf/PP_Smart%20Grids_Jul10.pdf
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delay of three to seven years between investments and the integration of the resulting capital expenditures within the revenue cap, making it impossible for DSOs to achieve the expected rate of equity. Provided investment incentives such as the investment premium are without effect due to the restrictive interpretation by the regulatory authority. In the Netherlands, revenues are on average delayed by four years. According to Eurelectric, both suboptimal rates of return and regulatory instability are hampering smart investments in distribution grids. A fair rate of return is an essential requirement for Smart Grid investments (for example ICT investments) along with the recognition that these investments should be accepted in the Regulatory Asset Base 30 with the particularity that they will have a shorter payback period. The Eurelectric study highlights the issue of financing which can be a bottleneck in the progress of Smart Grids. Though the Eurelectric study is from the DSOs perspective, the point to be understood is that heavy investments will have to be made across the electricity value chain. The return on these investments needs to be attractive enough for the funds to come by. For the policymakers, it means extensive study and in-depth understanding of the electricity sector from the finance perspective before they can structure the policy and legislation around financing for Smart Grids. They need to ensure that their policy and legislative framework have the following outputs: o Allow for profit making for the businesses o Allow for a fair rate of return for the businesses o Encourage multiple business participants in the sector while discouraging monopolistic tendencies by removing policy and legislative bottlenecks from the system o Provide regulatory stability Another aspect of looking at issues of financing is to look at smart devices and financing of these devices in the transmission and distribution sides separately. The transmission side needs ‘super devices’ which is technology that is expensive and critical for the entire electricity system. In the case of these devices, there is no scope for having an ‘economies of
30
Regulatory Assets are those assets under control of a government entity, normally a utility, controlling access to the asset base as well as ascribing fees for gaining access to the use of the regulatory asset base being regulated.
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scale’ concept that would bring down costs. So if costs in this area become a bottleneck, ways to reduce the costs will have to be devised. On the other hand, in the case of distribution, cheaper devices are needed in larger quantities. It is possible to achieve economies of scale here and bring down costs and consequently the market price. Data security A key issue in the development of Smart Grids is the issue of data security. Since Smart Grids combine electricity with data, the issues of data ownership and security need to be addressed before the Smart Grid concept can get institutionalized. To this end, the first exercise on data protection is still going on in the EU. There are many questions in this area that need to be addressed and the teams working on this are seeking clarification. It is a desired scenario that the consumer as the owner of the data remains aware at all times about who has their information and what is being done with it. Also, legislative and policy framework needs to be established to define what can the grid operator and other actors do with the data under legislation. Regulatory reforms needed In the EU framework of regulations, there is a need for developing proper framework for a regulatory environment in all nations trying to move towards Smart Grids. Eurelectric conducted a survey on the status quo of economic regulation related to Smart Grids in their report ‘Regulation for Smart Grids’31.The survey reveals that while positive examples of smart regulation exist in some EU member states, severe shortcomings remain in many countries. Regulatory systems need to be reformed for a new energy data management and new services will evolve as Smart Grids become more integrated with energy system we are used to. Regulatory changes will be needed in financial regulation, electricity regulation, telecom regulation and cyber security regulation to name a few. With respect to financial regulation, regulators should thus allow enough commercial space for investment in future technologies that can improve the networks. They should introduce a stable long term regulatory framework that will provide network operators with a reasonable rate of return for cost-efficient grid investments as well as incentives to increase efficiency, 31
http://www.google.co.in/url?sa=t&rct=j&q=eurelectric%20survey%20on%20the%20status%20quo%20of%20economic%20regulation%2 0related%20to%20smart%20grids&source=web&cd=1&ved=0CCIQFjAA&url=http%3A%2F%2Fwww.eurelectric.org%2Fdownload%2Fdown load.aspx%3FDocumentFileID%3D66894&ei=FUM6T4O1D8Tesga37rzkBg&usg=AFQjCNEr3GWokTAyWliF7m3jaCy0P661qQ
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foster market integration and ensure security of supply. At the same time, a clear line needs to be drawn to distinguish which business should be regulated and which should be marketdriven. Smart metering deployment and grid automation, for instance, must be tariff-finance (Eurelectric). Eurelectric recommends that regulation should become more flexible and focus more strongly on long-term needs, thereby promoting long-term regulatory stability rather than narrow, short-term optimization. Grid infrastructure Another issue about Smart Grids right is that it is highly related to the electricity grid and telecom infrastructure. Development of both infrastructures is associated with a number of hurdles. As EU seeks to have a common market for electricity, cross border grid development is another factor specific to the EU. Cross-border grid development has been slow. This is attributed to a lack of regulatory harmonization and a lack of mechanisms to deal with growing public opposition to infrastructure projects. The lack of harmonized market rules in the different Member States can also lead to market segmentation and higher transaction costs, even in regions where interconnection exists (Giordano et al 2011). While the electricity grid in Europe is aging and they need to need to develop new infrastructure, the designing, planning and implementation takes a lot of time due to multiple factors. These reasons could be environmental reasons, issues with getting the right of way, social reasons, or even just the sheer complexity of the entire exercise. A survey by Eurelectric found that sub-optimal rates of return and regulatory instability are also hampering investment in smarter distribution grids. Based on the survey results, Eurelectric considers efficient regulation at national level to be the key tool for driving the European development of a highly modernized grid. To ensure investments in Smart Grids, national regulators should focus more strongly on long-term requirements and provide a fair rate of return. This will imply revising the regulatory models of certain EU Member States. Also, it is not clear to what extent a telecom operator should invest in the underground power cables along with the electricity grid operators. More studies and scenarios have to be analyzed to get clarity on the best way forward in this issue.
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Distribution System Operator concerns Smart Grids imply a huge cultural change in the way electricity is distributed, touching upon issues from long-term network planning to real-time network operation. DSOs, currently responsible for transporting electricity from the transmission system to customers (excluding supply), will be at the heart of the new, intelligent electricity system (Eurelectric). The current regulatory framework does not encourage investments in distribution grids. It is important for the regulatory framework to evolve for the new order. Regulation will play a key role in incentivizing a smart allocation of resources by DSOs over the next 40 years (Eurelectric). The Eurelectric study has revealed that three quarters of the 45 European DSOs surveyed in 2007 showed a lower return on invested capital in 2007 than their weighted average cost of capital (WACC) – regulation is leading many DSOs to destroy, not create economic value. The current regulation provides DSOs with incentives to improve their cost-efficiency by reducing operating expenses. After many years of ongoing endeavor to reduce those expenses, DSO managers are increasingly concerned that the current financing model will severely undermine the profitability of their companies. A rethink of the current regulation is urgently needed (Eurelectric). Another aspect to regulations related to DSOs is that energy regulators in several EU Member States do not recognize Smart Grid investments in the Regulatory Asset Base of European DSOs. In other member states regulators follow a narrow approach in their cost benefit analysis for smart meters and Smart Grids, thereby dismissing the rationale for Smart Grid capital expenditures and excluding the benefits that will accrue to all actors of the electricity value chain. As a consequence, DSOs (who are ‘natural monopolies’ and hence rely on a favorable regulatory framework, are reluctant to invest in smarter grids. They replace the grids, but often do not upgrade them towards what we think is “smart”. Regulators are blamed for taking a narrow view when evaluating cost efficiency, penalizing extra expenditure on R&D or Smart Grid pilot projects and encouraging business-as-usual expenditure instead (Eurelectric). A fair rate of return is an essential requirement for Smart Grid investments, along with the recognition that these investments which should be accepted in the regulatory asset base with an understanding that they will require a shorter payback period. This regulatory revision
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must be made in line with the needs of an energy-efficient power system and a low-carbon economy (Eurelectric). This criticism does not imply that all European regulatory schemes are regressive. There are also some best practice cases emerging in Europe.
The Italian energy regulator has launched a competition-based procedure to incentivize Smart Grid/demand response projects. The selected projects will be granted an extra WACC (+2 percentage points) for a period of 12 years (Eurelectric).
In the UK, an Innovation Funding Incentive was introduced in 2005 allowing up to 0.5% of annual revenue to be spent on innovation. More recently in 2010 the Low Carbon Networks Fund was set up to allocate £500m over the period 2010-2015 for trialing new DSO initiatives to prepare for smarter electricity networks.
Telecom policy Presently, efforts are going on in finding the synergies between the telecom and power sector in order to reduce time and costs (for example, looking at ways in which infrastructure can be shared or reused). This also needs a change in regulatory framework for allowing cross investments. In October 2011, the European Commission looking at adopting a plan for a €50 billion boost to Europe's transport, energy and digital networks under the ‘Connecting Europe Facility’ program. Targeted investments in key infrastructures will help to create jobs and boost Europe's competitiveness as well as build a digital network infrastructure that will be of use in interconnecting the energy sector as well. Various stakeholders from the telecom sector are still researching and discussing the possible ways in which to work on the Smart Grids subject. If the idea gets through, the money would be available by 2014. A small part of this would be given away as grants but a large part will be used to fund projects. Other efforts include the second workshop on ‘Electricity utilities and telecom companies’ organized by the European Commission in October 2011, brought together many stakeholders from the telecom industry to discuss issues and ideas 32. In their study, Eurelectric has recommended ten steps to achieve a Smart Grid based intelligent energy system by 2020 (Refer Figure 5: Ten steps recommended by Eurelectric). 32
http://ec.europa.eu/information_society/activities/sustainable_growth/events/2nd_workshopsmart_grids_telecom_utilities/index_en.htm
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Industry representatives also stresse that policymakers need to consult the industry as well as all stakeholders while formulating the policies. Even if all policies are set even nearly perfectly, the issues of implementation will arise. The system has to be enabled by policy and legislation to make implementation easy and effective. A good starting point would be for all member states to develop a national road map for planning and implementation of Smart Grid systems. The European Commission should also explore the areas around which it can issue specific directives around Smart Grids.
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Figure 5: Ten steps recommended by Eurelectric (Eurelectric)
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Status in the EU on Smart Meters Very important actors in the Smart Grids landscape are Smart Meters which do the measurement of energy consumption and transmit the data to another entity. Smart Meters (AMI) are measuring devices which send consumption information to the utility using communication technology at pre-programmed intervals 33 . The introduction of smart metering systems in Europe has received an important regulatory push by the European Union’s Third Energy Package that provides for smart meters to be rolled out to 80% of consumers across the EU by 2020, and 100% by 2022. The Annex explicitly asks Member States to assess the roll-out of intelligent metering systems as a key step towards the implementation of Smart Grids and to roll out 80% of those that have been positively assessed (JRC report 2011). A document called ‘Set of common functional requirements of the smart meter’ has also been published by the European Commission in October 2011 with the aim of having a commonly agreed definition of Smart Meter, based on a set of minimum or optional functional requirements which could be used in their Cost-Benefit analysis34. Deployment of Smart meters along with establishment of the telecom and electricity infrastructure goes hand in hand in the efforts to promote an intelligent energy system. In their January 2012 position paper, Eurelectric says that the DSOs are already engaged in the roll‐out of smart meters according to timelines defined by the 3rd Electricity Directive (Directive 2009/72/EC) and the associated national regulation, i.e. 80% of customers who have been positively assessed by a cost‐benefit analysis must be equipped with smart meters by 2020. However, the financial and operational challenges linked to a large‐scale roll‐out of smart meters need to be carefully taken in consideration by the European Commission. Eurelectric has done an extensive study on the status of smart meter roll out in the European Union as well as done detailed analysis on some of the indicators that help understand the smart meters scene.
33 34
http://www.worldenergy.org/documents/ee_case_study__smart_meters.pdf http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/2011_10_smart_meter_funtionalities_report_full.pdf
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Figure 6: Smart meter roll-out at the end of 2010 (Eurelectric) In Figure 6: Smart meter roll-out at the end of 2010 (Eurelectric), we can see that Italy, Sweden and Finland are the three countries with the current highest penetration of smart meters. It is said that in Italy, the driver for Smart meters roll out was the high amounts of electricity theft that led to massive losses for the utilities. In order to check the losses, there was a deliberate attempt to roll out smart meters. Since 2006, all Italian electricity providers have to mandatorily have smart meters as per Regulatory Order No. 292/06. The idea behind this regulation was to reach a market penetration of 95% by 2011. In addition, the Italian regulatory authority established minimum functional requirements and introduced incentives for the adoption of advanced metering features related to quality of supply. There have also been deliberate policy actions by the Italian government to establish smart meters by even evolving the tariff policy. In 2005, Italy introduced an hourly-based tariff system that was flexible and adaptable, allowing customers to select a supply contract tailored to their needs. Another lesson from Italy is that the replacement of traditional meters with smart meters is closely related to the ownership of the meters by the energy provider and not by the customer. This expedites the process since energy providers get authority to replace meters without having to ask any permission from the customers. UK is one of the laggards in the AMI penetration area, but they do have a plan to have smart meters for every household by 2020. UK’s energy regulator Ofgem has even conducted a large scale trial between 2007 and 2010 to understand the customer’s response to improved energy consumption information made available through smart meters. Another interesting case is that of Germany being a laggard in the area of smart meter penetration. The Third EU Directive 2009/72/EC that directs member states to conduct an economic assessment of the long term cost and benefit of smart meter implementation has not Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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been carried out yet in Germany. Therefore, there is no mandatory requirement for either the customers or the DSO’s to install smart meters. In Germany it is up to the customers to choose the metering operator to offer the service. DSOs are also reluctant to roll out smart metering which is capital intensive on a large scale basis. Unlike Italy, ownership of the meters is not clear in Germany. The issue in Germany is the lack of clarity on the benefits of smart meters. Since stakeholders have not seen the benefits from smart meter in its entire set of functionalities, the motivation to have them installed is not strong enough. This issue can be tackled with information dissemination on the benefits of smart meters. And this will happen once a common understanding is reached on smart grids and smart meters. As mentioned earlier in this report, there are no clearly defined roles and responsibilities for the various tasks in setting up Smart Grids. In Europe, while Italy, Sweden, Finland, UK and Spain have a clear legal mandate for the smart meter roll-out, in most other countries the responsibility and financing for the smart meter roll-out has not yet been assigned or the legislation is still being developed. In fact, the mandatory cost benefit analysis is also not complete in most countries and hence a delay in progress. Interestingly, due to the specific nature of the UK market design, energy suppliers rather than DSOs will be responsible for the roll-out of smart meters.
Figure 7: Regulatory framework – achievability of rate of return (RoR) vs. regulatory stability (Eurelectric)
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Figure 7: Regulatory framework – achievability of rate of return (RoR) vs. regulatory stability (Eurelectric), shows that the climate for smart meter investments is only positive in Finland, Sweden, Italy and Slovenia. In most other countries the cost recovery for smart meters and their installation is either uncertain, as in the Netherlands, Norway, Poland, France and the Czech Republic, or not given at all, as in Denmark, Germany, Portugal or Slovakia. We can see from the Eurelectric study that the roll‐out of smart meters in Europe is currently hampered by two factors at member state level:
The lack of clarity on who is responsible for the roll‐out; and
Uncertainty in cost‐recovery conditions
Both these issues have to be addressed before any targets can be set since these are bottlenecks in the path to a smooth and quick roll‐out of smart meters in Europe. A study by VaasaETT Global Energy Think Tank, stresses on the importance of proper regulation for a number of reasons:
Would allow a fair allocation of benefits across utilities as well as consumers.
Without proper regulation, smart meters would not benefit the environment
Would deal with the basic conflicts of interest caused when a utility which earns off of electricity sales, is asked to lower those sales through helping consumers lower consumption
Would keep the price of smart meters affordable 35
Would address the impact of smart meters and dynamic tariffs on various social segments
In their study36, VaasaETT Global Energy Think Tank has analyzed the Smart Meter policy in Sweden. Swedish smart metering policy is considered a success with respect to data handling practices between retailers and network companies. However, the report argues that regulation has underperformed when it comes to environmental programs and customer services. This finding of the report by VaasaETT Global Energy Think Tank makes the playing field for Smart Grids rather tricky with the environmental and social aspect of the ‘sustainability’ 35 36
While the European Union is generally a developed region, there are vulnerable sections in parts of Europe that need to be su pported. http://www.worldenergy.org/documents/ee_case_study__smart_meters.pdf
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of Smart Grids getting severely undermined and weakening the case for Smart grid based intelligent energy system. The study therefore acts as an alarm early on in the journey of establishing smart grids on what regulation and policy can do to make the entire effort worthwhile. For, though there may be many idealistic scenarios for what electricity and telecom together can achieve, the bottlenecks need to be identified and be dealt with.
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Section 3 - Pre evaluation of potential policy considerations for Smart Grids
“The central, continuing responsibility of legislatures and regulatory commissions is finding the best possible mix of inevitably imperfect regulation and inevitably imperfect competition.” Alfred Kahn, ‘The Economics of Regulation: Principles and Institutions (1988)’
Various policy areas need to be addressed to have a successful Smart Grid based energy system. A lot of inter disciplinary research is being conducted in Europe to understand the impact of various factors on Smart Grids. Based on my research, I have categorized the policy areas that need to be addressed with specific focus on Smart Grids. (Refer Figure 8: Policy areas that need consideration for establishing Smart Grids) •
Unified definition of Smart Grids First, a clear understanding of what Smart grids are is needed. One of the biggest obstacles to the development of Smart Grids is the lack of a unified perspective at the EU level on what a Smart Grid is and what it should achieve. As we saw in Section 1 of this report, multiple definitions of smart grids exist. It will however be helpful to have a common understanding at the EU level on a Smart Grid definition, benefits of smart grids and on technology rollout.
Policies need to be developed in the following areas: •
Energy policy The energy policy will be the main driver for establishing Smart Grids since Smart Grids are a means to an end and not an end in itself. Smart Grids seek to ensure energy security as well as efficiencies in the entire energy value chain.
•
Renewable energy policy The future electricity sector has a lot of input from renewable energy. Renewable energy generation is distributed generation with its own issues of variability of supply. The grid has to be equipped to integrate renewable energy into mainstream energy systems. If the grid is ‘smart’ then the renewable energy generation will get a boost with investors finding renewable energy generation economically attractive. Also, in the long term, this may have an impact on the following areas for which scenario analysis needs to be done: Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Feed-in-tariff system of promoting renewable energy.
Impact on the utilities generating electricity from traditional energy sources which may see losses or negative growth. Policies need to be well thought out in this field with not a focus on protecting them but how to phase out the plants that have negative impact on efficiency and environment. In this context, the Merit order effect 37 on the energy prices and energy system as a whole needs to be understood.
•
Electricity policy The electricity policy specifically will have to address majority of the strategic as well as operational issues that will arise from Smart Grids. As mentioned earlier in this report, a thorough understanding of the electricity sector in its present form and how it will transform in the future is needed in order to have a policy framework that makes the task of establishing of Smart Grids as smooth as possible.
•
Tariff policy Under the electricity policy, is the tariff policy that will have the greatest impact on the electricity sector. The evolution of the electricity sector will greatly depending on whether the tariffs are strictly regulated, partially regulated or liberalized (based on real time, time of day, time of use). Various scenarios can be developed to understand the impact of tariffs. Presently, there is a regulation to install digital meters in all new establishments. However, the regulation does not specify what the digital meters should do – or, how ‘smart’ they should be. Also, many powerful utilities would be reluctant to shift towards dynamic tariff since it is a complete change from the way they are used to working. The case for dynamic tariff and smart meters is however, rather strong. It is estimated that the cost of installing smart meters in the EU is €51 billion, and that operational savings will be worth between €26 and €41billion, leaving a gap of €10–25 billion between benefits and costs. Smart meters can fill this gap because they enable the provision of dynamic pricing, which reduces peak demand and lowers the need for building and running expensive peaking power plants. The present value of savings in peaking infrastructure could be as high as €67 billion for the EU if policy-makers can overcome
37
The merit order is a way of ranking available sources of energy, especially electrical generation, in ascending order of thei r short-run marginal costs of production, so that those with the lowest marginal costs are the first ones to be brought online to meet demand, and the plants with the highest marginal costs are the last to be brought on line.
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barriers to consumers adopting dynamic tariffs, but only €14 billion otherwise(A. Faruqui et al. / Energy Policy 38 (2010) 6222–6231). A liberalized tariff regime will no doubt create new business opportunities for energy services companies. In fact, even utilities can diversify to provide services in order to compensate for revenue loss from reduced consumption brought about by energy efficiency. •
Grid infrastructure policy While the aging grids are replaced and new grids are setup in order to access renewable energy from the North Seas or to get better interconnections, grid infrastructure policy will also play a key role in the establishment of Smart Grids. New grid architecture is a key enabler for the penetration of new technological applications (EC, 2011b; Battaglini et al., 2010; WEF Report, 2009; Eurelectric Report, 2007, 2009; US DOE Report, 2009; Wolfe, 2008). In the present scene, there is no incentive for upgrading the grid for the transmission companies. Also, there is no clarity on how the task would be coordinated and who would be in charge. The issues that policy and regulation can address would be related to financing, investments, data management, electricity supply and control to name a few.
•
Cyber laws and data protection policy With data available on the internet or even in a closed network, threats of cyber security and attack from hackers and terrorist groups also need to be considered. Apart from dealing with these issues through technology, a legislative framework also needs to be developed on data protection and overall security of the Smart Grid.
•
Consumer policies Very strong consumer protection policies will be needed to protect consumers from the complicated scenarios that arise from a smart energy system. Consumers need to be protected for their energy consumption data that is captured. Ideally, the consumers should be the owners of the data and should be aware as to who has their data at any point of time. With utilities getting the power to remotely control electricity supply to any consumer (residential or industrial); the vulnerable consumers need to be protected as well. Even as the liberalization of the electricity sector has converted electricity from a ‘public good’ to a ‘commodity’, the positive impacts of access to electricity on all sections of the society cannot be understated. Policy will therefore need to specifically Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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consider the case for vulnerable sections of the society. Apart from this, Smart Grids will also be able to capture electricity theft. Appropriate legislative framework needs to be established to penalize the guilty parties. The theft is generally (but not always) performed by vulnerable sections and this subject has to be well understood for a proper policy or legislative framework. •
Telecom policy What makes the electricity grid smart is the property that it is ICT enabled. The telecom policy is therefore as important as the energy and electricity policy for the successful transition to a smart energy system. The telecom policies with regard to tariffs, infrastructure, cost and revenue sharing and financing would be significant issues that policy can assist with.
•
Competition policy Liberalization of the electricity sector created a competitive playing field in the electricity sector thus bringing about efficiencies in price and services. With Smart Grids bringing in more player and newer responsibilities for existing players, the competitive landscape will become more intense. Possible system-level downsides and distortions of the Smart Grid proposition need to be tackled from an early stage, such as privacy concerns, dominant position of electricity service providers, inducing behavioral changes for consumers (V. Giordano, G. Fulli / Energy Policy 40(2012)252–259) . An appropriate competition policy will ensure a healthy environment with various players – established powerful utilities and new players especially in the energy services sector achieve the desired effect of better pricing and services for consumers. Apart from this, a good competition policy is also essential for promoting and maintaining competition between the numerous players in the electricity sector. This will lead to creation of jobs, innovation in products and services and will create overall economic value for society at large.
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Energy policy Renewable energy policy
Telecom policy Niche market support and protection policy
Electricity policy
Investment and financing policies
Tariff policy
Smart Grid policy
Grid
Research and innovation policy
infrastructure
policy
Competition policy
Consumer policies
Data management policies
Cyber laws and data protection policy
Figure 8: Policy areas that need consideration for establishing Smart Grids (Authors recommendation) Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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•
Research and innovation policy Smart Grids brings with it a whole world of opportunities for new products and services. Significant support is needed for the technology research in this field. Apart from technological research, smart grid demonstration projects (or pilot projects) also need to be worked on to understand the various scenarios of a Smart Grid based society. Proper support for research and innovation has to be put in place in order to find new solutions to the energy and climate change problems.
•
Investment and financing policies This is perhaps the most complicated and important area that need to be addressed for a successful transition to a smart energy system. The financing support by way of support instruments or grants and loans with a fair and attractive rate of return are desired to get more players interested in this sector is vital. Extensive studies will have to be done to get the near perfect policy framework to promote and mobilize investment and financing in the smart grids space. Market forces should be mobilized within the boundaries of energy policy goals to contribute to the massive investments that are required to fulfill the Smart Grid vision (V. Giordano, G.Fulli/Energy Policy 40(2012)252–259).
•
Niche market support and protection policy The Smart energy system is a young idea with benefits for all in the long term. In the short term, there may be actors (like utilities) who do not see benefit in Smart Grids and may delay certain changes to the policy and legislative framework to suit their short term objectives. However, with the case for Smart Grids being strong, policy makers need to protect this idea. Just like the wind energy sector in Europe grew from a niche idea to now a massive force, the Smart Grid sector too will need a niche market support and protection in its early years.
•
Data management policies A Eurelectric survey reveals that besides the smart meter roll-out, in the future Smart Grid development process, data management will be especially challenging. Certain types of data may be relevant to more than one party; therefore the deployment of smart meters prompts decisions at national level about clear roles and responsibilities for data management:
The requirements of the various market participants, The nature of data (individual or aggregated); and How data flows should be managed
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Decisions in this area will have an impact on national market structures and industry systems, as well as the commercial and customer services that smart meters will enable (Eurelectric). Some of the other areas that need policy intervention are:
Smart Grid standardization
Inter regional transmission requirements
Retrofitting of existing establishments
Pricing policies across the value chain
Impact on entities (generators, transmission lines, distributors) that may not remain viable after Smart Grids develop and allow only the most efficient unit to survive
Institutional structures developed within the electricity system and factors considered
Collaboration with sectors like transport and ICT
Regulations for last mile access to the energy system
Regulatory instruments to remove identified bottlenecks in the Smart Grid value chain
Liberalization of metering market
Support instruments like subsidies, white certificates etc for the promotion of smart meters
Technology adaptation and acceptance
Changes to higher education and vocational training for developing a workforce with needed skills
Based on my research, there are many areas that need policy intervention for any country to shift to a smart energy system. A Eurelectric survey revealed a lack of consistency in national regulation and the overall European energy policy. A lack of focus from the establishment (political and policy) can derail this idea. It is essential that regulators identify potential bottleneck facilities, as well as regulatory barriers to new Smart Grid concepts at an early stage, and find remedies to overcome them (Perez-ArriaGa 2009, ERGEG 2010, Hempling 2022). While there is a whole lot of uncertainty and lack of clarity in the Smart Grids case, over a short time, a desired scenario should be developed and all policy actions should be aimed at achieving the desired scenario.
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Section 4 - Emerging business opportunities We all expect the future of the electricity sector to be radically different from what it is now. There will emerge new business players and new business models that will redefine the electricity sector for society at large. However, as already discussed earlier in this report, the future and the path to the new order of things are uncertain. In this environment of uncertainty, new business ideas are being tested. Many will explore, innovate, try and test ideas, some of which will succeed and many will fail. In this section, I discuss the various ideas that are currently in progress. Business case studies Yello Strom One of the most well known pioneers in this new and uncertain electricity sector is the German company Yello Strom38. YelloStrom GmbH is a subsidiary of EnBW39 AG Energy Company. YelloStrom does not produce electricity, but is in the business of selling energy and energy related services to residential and commercial users. However, what distinguishes Yello Strom from other energy services company is their business model of intertwining of energy and home broadband connections. Having produced their own Smart Meter, Yello Strom manages its smart meter service directly via its customers’ broadband connection. There are two main advantages of using home broad band connection
It is that it is much cheaper than building a network ; and
It can make the data available faster to the consumer
The Yello Strom idea is unique as it is the only utility that develops and sells its own smart meters. Called the Sparzähler meter (or “savings meter”), it is built off of Microsoft Windows CE, and has both a small web server and client inside. In 2009, as a pilot project, Yello was the first European utility to offer its customers access to Google’s energy management tool PowerMeter 40 along with Cisco as a network operator. Powermeter however did not catch on the way Google expected it to and subsequently Powermeter was retired by Google in September 201141.The Google PowerMeter allowed
38
http://www.yellostrom.de/ Energie Baden-Wuerttemberg 40 http://www.google.com/powermeter/about/ 41 http://googleblog.blogspot.com/2011/06/update-on-google-health-and-google.html 39
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Yello smart meter customers to see their up-to-the minute energy consumption in their online Yello account and on their personal iGoogle account. Dezem Founded in 2003, Dezem 42 is a German energy services and consulting company. Their clients are mainly commercial from many different business areas and geographic regions. Dezem technology helps their clients understand their energy consumption patterns and creates transparency, clarifies saving potentials and highlights the relation between production output, costs and energy consumption. They have a comprehensive system (Refer Figure 9: The deZem system) for energy controlling and environmental monitoring. Dezem claims that the investment can pay off in the first year itself.
Figure 9: The deZem system Powerit Solutions Founded in Sweden, Powerit Solutions' combines hardware and software to build products that provide services to automatically increase energy efficiency, cut peak-rate usage, and respond to utility demand response and real-time pricing signals43. With over 2500 clients, the company has been named as one of the top 100 Cleantech companies 44. Their products are mentioned in Annexure 8: PowerIt business solutions.
42 43 44
http://dezem.de http://www.poweritsolutions.com http://www.poweritsolutions.com/upload/file_20100211092727/global_cleantech_100_091509_final_proof.pdf
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efergy efergy 45 is a global manufacturer of energy saving products. Their wireless electricity monitors and other energy saving products help understand how much energy to use and to save money on energy bills. Their products include electricty monitors, energy saving products like remote controlled sockets and showertime which helps monitor water consumption, and other accessories like Jackplug sensor to monitor energy consumption. Energy Service Companies in Europe ESCOS are going to be a significant player in the future electricity sector. The European Commission has been promoting ESCOs, through a number of direct and indirect Recommendations and Directives. According to a research by Bertoldi et al, the European market potential has been estimated to be at least 5-10 billion EUR per annum and 25 billion EUR in the long term. Investing in energy efficiency with the help of ESCOs is a profitable business in any European country; however, actual profitability depends on many factors and can be curbed by a wide array of barriers. ESCOs are profit oriented businesses and should not be expected to intervene in areas that are too risky or do not offer profit 46. Some of the barriers identified by the European ESCO status report 2005, are lack of awareness and understanding, small size of projects with high transaction costs, high percieved technical and business risk, absence of clear legal and regulatory framework, administrative hurdles, lack of motivation and limited government support. In this section, I have presented different business possibilities in the Smart Grid space as well as briefly discussed the potential for Energy Service Companies in the generic sense. These companies and ideas are young and yet to prove themselves, but they have enormous potential for the future. Whichever idea succeeds, the idea behind these businesses is to make profits while serving a greater purpose. Policy makers need to develop a future scenario at the early stages on whether the Smart Grid opportunity will lead to multiple participants in a vibrant market which encourages operational and economic efficiencies for the benefit of these businesses as well as related consumers; or if there would be few players dominated by large established companies which display monopolistic tendencies and therefore get higher bargaining power. This is where regulation can play a role in having a path where, on one hand, entrepreneurship can be encouraged while on the other hand, the skill and experience of established businesses can also be utilized for greater efficiencies in planning and execution. 45 46
http://www.efergy.eu http://energy.eu/publications/LBNA22927ENC_002.pdf
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Section 5 - Lessons for India "Smart Grid is not a luxury, but a necessity for India." - P. Uma Shankar the Secretary of Power Ministry India (GridWeek 2011, Washington DC, USA)
In order to draw lessons for India from the European experience, we need to understand the present status in India with respect to Smart grids specifically as well as the electricity sector at large. Present status Major electricity sector reforms in the past decade $900 billion investment in Electrical Infrastructure by 2020 India has been gradually shifting to a single synchronous national grid Indian Smart Grid task force set up in 2010 India Smart Grid Forum47 set up which includes eight working groups Indian Smart Grid Task Force to implement eight Smart Grid projects across India Restructured Accelerated Power Development and Reform Program with the aim of reducing the losses by application of IT and Automation National Mission on Enhanced Energy Efficiency under the NAPCC IBM and BEE have partnered to set up a smart grid project in India.
We see that there is intent in India to move to a Smart Grid based intelligent energy system. According to P. Uma Shankar, Indian Smart Grid will have following 6 guiding principles: 1. Based on Indian model and will be indigenous 2. Focused towards Power Shortages 3. Prevent theft and other losses 4. Provides power in rural areas 5. Development of alternative power sources 6. Affordable and enables sustainable production of power
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India Smart Grid Forum will be a non-profit voluntary consortium of public and private stakeholders with the prime objective of accelerating development of Smart Grid technologies in the Indian Power Sector.
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Challenges specific to India
Policy and regulation related to smart grids are at a nascent stage
Electric infrastructure is not consistent across the nation
High costs of implementation of smart grids will be passed on to consumers but India needs low cost solutions
Attractiveness of the sector for businesses to enter the Smart Grid sector
Technology maturity andrisks48
Consumer awareness and acceptance needs to be built
Access to finance – private investment
Need for skilled manpower
Impact on vulnerable sections have to be considered
Pricing of electricity in India remains a concern
Recommendations for India
Have a clear understanding on what Smart Grids are India needs to have a clear understanding of what Smart Grids are and what they should achieve in the Indian context. Without this understanding, the communication between various stakeholders will not be effective in establishing a Smart Grid system.
Develop a national road map to move towards Smart Grids India needs to develop a national roadmap for transitioning towards a Smart Grids based energy system. The road map should have targets and timelines that need to be attained. The ten steps recommended by Eurelectric can be a good reference towards this end. (Refer Figure 5: Ten steps recommended by Eurelectric)
48http://www.iemr.in/userfiles/SMAR%20GRID%20CHALLENGES.pdf
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Have a clear understanding on what Smart Grids are Develop a national road map to move towards Smart Grids International co operation on R&D and implementation Grid development in synch with Smart Grid deployment Collaborate with stakeholders from the industry Identify bottlenecks.
Plan for Advanced Metering Infrastructure(AMI) deployment Define clear roles and responsibilities
Look for local understanding and appropriate solutions Promote innovation in product design as well as R&D
Encourage more players in the electricity sector Technology adaptation
Promote local businesses Institutional reform
Figure 10: Authors recommendations for India
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International co operation on R&D and implementation With a whole lot of uncertainty associated with Smart Grids, in this globalized world, it is essential for India to forge international partnerships. The international co-operation should not be confined only to technology, but also to policy research and understanding and business ideas and business models. India could leverage its membership in the International Partnership for Energy Efficiency Cooperation (IPEEC) 49 which it joined in 2009, even before the European Union which joined in 2010.
Grid development in synch with Smart Grid deployment With grid development getting significant help from the national government, the development should happen with a deliberate Smart Grid based focus. Issues like the sharing of responsibility of investment in electricity grid as well as telecom grid are as much a concern in Europe as in India. To this end, PowerTel50 is a great idea that should accelerate India’s effort to digitally connect the length and breadth of the country.
Collaborate with stakeholders from the industry India should bring together all the stakeholders like TSO, DSO, electronics and electrical engineering companies and listen to the ideas and suggestions from all quarters. It will not be easy to accept every idea and the stakeholders will need to work out a win-win situation. However, good policy cannot be formulated without this effort.
Identify bottlenecks. In the early stages of India’s journey on the path of establishing Smart Grids, potential bottlenecks should be identified and planned for. Only those policy measures should be taken where the bottlenecks can be tackled. For example if an idea has a potential for creating competition for resources (like subsidies etc) between States, though the idea is noble to create competition and promote efficiency, it may not be successful in the Indian context where nationalistic feelings at the state level may hinder a rational negotiated understanding between the State players. Such a path should be avoided since it will delay all efforts to develop a Smart Grid system. In such a case, a market based instrument may be developed and used to promote an idea or initiative.
49 50
http://www.ipeec.org/ http://www.powertelindia.net/powertel.htm
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Plan for Advanced Metering Infrastructure(AMI) deployment India can definitely learn from the experience of EU states like Sweden, Italy, UK and Finland on how to spread the use of AMI. Like India, Italy too faced issues like electricity theft. However, Italy has now succeeded in achieving almost 100% smart meter penetration thus solving the electricity losses due to theft. An important lesson from Italy’s experience is to address the issue of ownership of the smart meters. The fact that the AMI was owned by the energy providers and that expedited the process may be studied to see if the idea can work in India as well.
Define clear roles and responsibilities As per the Eurelectric survey, the EU lacks clear designation of roles and responsibilities across the entire electricity value chain across various functions like data ownership, investment, decision making, AMI ownership etc. These issues are relevant to India as well.
Look for local understanding and appropriate solutions While there may be lessons drawn from the European experience, we must acknowledge the differences between India and Europe in institutional structures in the electricity sector, business environment, technological capabilities and cultural environment.
Promote innovation in product design as well as R&D India is not ahead in the technological capabilities with most of the innovations in engineering and business happening in Europe and USA. What makes the western nations innovate more is definitely the great amount of investment in research and development. This report mentions the various financing schemes in the European Union to promote R&D in the Smart Grids space. Lessons can be drawn from the European Union on how to best fund and promote R&D. This also brings about a need for capacity building as well as training a skilled workforce for the new markets and technology. Appropriate changes need to be made to the education sector as well.
Encourage more players in the electricity sector While India liberalized its electricity sector in the 1990s, there are still very few players in the electricity sector with most utilities being state owned. To bring in efficiencies in Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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the electricity sector with respect to price and quality of service, India needs to encourage more businesses to enter the electricity sector. Moreover, with newer opportunities coming up in the energy services sector, appropriate regulatory, legislative and policy framework can be developed to attract entrepreneurs to enter the business.
Technology adaptation Smart grids bring with it a change in consumer behavior and electricity consumption patterns. Europe is conducting research to understand the technology adaption methodology to find the best and most effective way to bring about a transition to Smart Grids. India too should make a deliberate attempt to research the best way to bring about a positive acceptance of the changes brought about by Smart Grids among all stakeholders in the electricity value chain and related sectors. Here, India could also learn from the UK experience of making water meters acceptable by a large part of the population.
Promote local businesses Transitioning to Smart Grids will create a lot of economic activity. Depending on how the journey unfolds, India will either take much help from foreign players or will be self sufficient enough to help other nations. In either case, this transition will create an opportunity for India to promote local industry as well. Lessons can be drawn from Spain’s wind power program which used the local content requirement strategy to promote local industry by encouraging foreign commercial presence with local content. Spanish firms like Gamesa, benefitted from such support policies. By 2002, Spain ranked second in the world in terms of wind turbine operations51. Some of the areas that India can develop expertise in:
51
Smart devices with simpler technology for distribution,
Smart devices with superior technology for transmission,
Software for energy management, and
Energy service consulting
http://www.wto.org/english/res_e/reser_e/climate_jun10_e/background_paper2_e.pdf
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Institutional reform With the electricity sector expected to change radically, we will have to seek new institutional structures as well. The following text from a paper by C. Hadjilambrinos explains the importance of institutional structures in the context of energy policy: “The study of energy policy focusing on the political and societal structures within which energy systems are imbedded has a long history which traces at least as far back as Mumford (1934). This theoretical perspective considers energy systems to be essentially political structures, in that they are social organizations which distribute authority and control over essential resources. Energy policy analysis informed by the socio-political perspective focuses on the organizational characteristics of energy industries, the institutional and political setting within which policy decisions are made, and the political traditions (e.g., the distribution of political power in a society) which drive this process (Nye, 1990; Goldemberg et al., 1988; Winner, 1986; Byrne et al., 1983; Hughes, 1983; Lovins, 1977). Energy policy is perceived as a political process, even when it does not take place in the arena of formal politics (Winner, 1982). The core argument of this perspective is that energy policy choice is constrained by existing institutional structures and political traditions. As a result, energy systems having characteristics that do not match the prevailing institutional and political frameworks are difficult to establish and face serious challenges in their growth. The implication such arguments have for policy making is that energy choices which depart substantially from the status quo may require extensive social change if they are to be successful (C. Hadjilambrinos / Energy Policy 28 (2000) 1111-1126).”
Refer Annexure 7: Economics of institutions framework, for a framework suggested by Williamson for understanding the evolution of institutional structures over a millennia.
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Drivers of effective policy formulation India can choose what path they want to take as they transition to a Smart Grid based intelligent energy system. To borrow a concept from Solomon (et al 2011), my view is that India can chose one of the three paths mentioned below as a key driver for effective policy formulation:
Policy driven Would India’s transition be driven only by policy that includes regulatory and legislative frameworks along with various support instruments?
This would be by the creation of regulation across sectors like electricity, telecom, finance etc that are directed towards a successful Smart Grids system. This would also mean the creation of support instruments aimed specifically at promoting Smart Grids. These support instruments could be:
Subsidies for Smart Grid related AMI
Modification of the PAT 52 scheme in order to encourage more participants and not just designated consumers to benefit from achieving energy efficiency
Financial incentives for ESCOs and other new businesses, to encourage greater participation
Data sharing policies that help customers to achieve energy efficiency and impact energy consumption behavior in the long term
By stake holders support
Would India’s transition be driven by stakeholder involvement and driven by creation of jobs and other benefits of economic activity, much like the European wind power industry? In such a scenario, a basic legislative action to allow Smart Grid systems to exist would be needed followed by the various stakeholders making use of the opportunity and participating in greater numbers, and developing a self regulated system. Here, the stakeholders would have to see benefits for themselves and conduct themselves in a manner that does not destabilize the system.
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Nationalistic ambition Would India’s transition be driven by nationalistic ambition, much like France’s nuclear power program and Brazils biofuel program?
In such a path, all Indian citizens would need to understand the purpose and benefits of the Smart Grids system and their respective roles in the system. For such a path to succeed, massive information dissemination exercise will have to be conducted. Also, this calls for technology adaptation as well as drastic change in consumer behavior based on an emotional platform of national progress while achieving energy efficiency and energy security. This also requires great deal of trust in the national government as well as the nations systems - the Executive, the Legislative and the Judiciary. The citizens should not feel shortchanged for their efforts in achieving energy efficiency and should receive the benefits for their efforts by way of reduced prices and better quality of electricity and related services.
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Conclusion It is now an acknowledged fact that ‘Smart Grids are a process, not a product’1. Policy and regulation will play a vital role in expediting the transition to the new energy system. However, various aspects need to be considered by policy makers in order to develop an effective energy system that will be based on Smart Grids. Global experience has shown that it is possible to transition between major energy sources within a few decades if Government recognizes a national imperative (Solomon et al 2011). And this learning can be applied to Smart Grids as well. With the multiplicity of stakeholders in the electricity sector and complexity in the new order of things, the businesses will need enough incentives to find the idea attractive enough to invest time, money and resources. What therefore becomes critical for policymakers to consider are:
Enable legislation that allows for stakeholders to profit
Create a path for consumers to benefit from the energy savings and profits achieved by businesses
Develop a win-win situation since many views and stakeholders exist
But a stated ambition is not enough and an idea has to be nurtured through a combination of RTD and deployment of policies over a sustained period (Solomon et al 2011). However, this is easier said than done. Policy has to consider all the aspects that are affected by Smart Grids as identified in this report, and provide enough support for related stakeholders. We can then hope for a quicker and better transition to an intelligent energy system, not only in India, but in any other nation. It is important to understand the electricity sector and its dynamics and prepare it for a world of Smart Grids. Without a deep understanding of the electricity sector in its entirety, correct or nearly correct policy decisions will not come by and may have a negative impact on this sector. Since one of the drivers for Smart Grids is energy efficiency and its direct relation with the environment and climate change issues, delays or setbacks in the implementation of Smart Grids is not only undesirable, it is also not an option.
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Annexures
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Annexure 1: EU vision of Smart Grid
Figure 11: EU vision of Smart Grid (Source: European Union)
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Annexure 2: Decision making in the European Union Different legal instruments are available in the EU system to achieve the higher aims as set out in the various EU treaties. Any new idea usually starts with a Green paper.
Green paper •A document by the European Commission is a discussion document intended to stimulate debate and launch a process of consultation, at European level, on a particular topic. It may be followed by a white paper, an official set of proposals that is used as a vehicle for their development into law. White paper •A document that contains a set of proposals for action by the Community in a particular field. They sometimes follow on from Green Papers, the purpose of which is to launch a consultation process at European level. If a White Paper is favourably received by the Council, it can lead, if appropriate, to an EU action programme in the field concerned.
Non Binding Instruments Recommendations •A "recommendation" is not binding. A recommendation allows the institutions to make their views known and to suggest a line of action without imposing any legal obligation on those to whom it is addressed. Opinions •An "opinion" is an instrument that allows the institutions to make a statement in a nonbinding fashion, in other words without imposing any legal obligation on those to whom it is addressed. An opinion is not binding. It can be issued by the main EU institutions (Commission, Council, Parliament), the Committee of the Regions and the European Economic and Social Committee. While laws are being made, the committees give opinions from their specific regional or economic and social viewpoint.
Binding Instruments Regulations •A "regulation" is a binding legislative act. It must be applied in its entirety across the EU. Regulations are the most direct form of EU law - as soon as they are passed, they have binding legal force throughout every Member State, on a par with national laws. National governments do not have to take action themselves to implement EU regulations. Directives •A "directive" is a legislative act that sets out a goal that all EU countries must achieve. However, it is up to the individual countries to decide how. They are addressed to national authorities, who must then take action to make them part of national law. Decisions •A "decision" is binding on those to whom it is addressed (e.g. an EU country or an individual company) and is directly applicable.
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Annexure 3: Traditional v/s future electricity grids
Figure 12: The traditional Grid (European Commission)
Figure 13: Grids of tomorrow (European Commission)
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Annexure 4: Future of the electricity sector
Figure 14: Distributed generation of the future (European Commission, 2006)
Figure 15: Electricity sector inter-relations of the future (European Commission, 2006)
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Annexure 5: Smart grid Electricity market structure
Figure 16: Smart Grid markets scenario (Source: Miguel Angel Sánchez Fornié)
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Annexure 6: Status of Cost benefit analysis of Smart Meters in EU member states
Refer http://www.eurelectric.org/Download/Download.aspx?DocumentFileID=72033 for more details.
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Annexure 7: Economics of institutions framework
Figure 17 : The four level model of Williamson (1998).
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Annexure 8: PowerIt business solutions
Spara Energy Management System
An online predictive energy management system that allows commercial and industrial users to reduce utility costs through demand management, price response, and energy efficiency.
Spara Demand Control
Predicts when spikes in energy use are about to occur and takes automatic action to reduce consumption at that time while maintaining strict control over operations. Demand response (DR) is when a user turns down their electricity use when their provider is in short supply. It is risky to attempt this by manually turning equipment down. Spara Demand Response eliminates risk and guesswork by implementing pre-defined control schemes to coordinate tightly with these externally triggered events. Allows users to benefit from real-time and day-ahead pricing rates by automatically adjusting power usage based on the price of electricity.
Spara Demand Response
Spara Dynamic Pricing Energy Efficiency
Helps create on-going energy efficiency by lowering consumption through a variety of activities such as using variable speed drive control, scheduling, and room temperature control.
Spara Konnect ®
This wireless technology allows capture and transmission of both digital and analog data in a wireless sensor network and helps monitor and direct plant or facility loads without the prohibitive implementation costs that can be associated with cumbersome electrical wires and pipes.
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Annexure 9: Non exhaustive list of legal inputs and instruments considered for the mandate on Standardization
Directive 2004/22/EC on measuring instruments (MID);
Standardization Mandate M/374 of 20th October 2005 as base for developing standards for utility meters;
Directive 2006/32/EC on energy end-use efficiency and energy services
Directive 2004/8/EC for the promotion of cogeneration in the internal energy market
RenewablesDirective (2009/28/EC, Art16)
Directives 2009/72/EC and 2009/73/EC (‘Third Energy Package’)
Standardization Mandate M/441 of 12th March 2009 on development of an open architecture for utility meters
Standardization Mandate M/468 of 29th June 2010 concerning the charging of
Electricvehicle
European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR)
The Treaty on European Union (TEU, art. 6)
Data Protection Directive (Directive 95/46/EC)
Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications) as amended by Directive 2009/136/EC (November 25, 2009)
Data Retention Directive, (Directive 2006/24/EC) – (telecommunications data)
Directive on a Community framework for electronic signatures (1999/93/EC December 13, 1999)
Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection law
Directive 2004/108/EC on Electromagnetic Compatibility
Directive 1999/5/EC on Radio and Telecommunications Terminal Equipment
Communication COM (2010)245 on a Digital Agenda for Europe
This text has been taken from http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/2011_03_01_mandate_m490_e n.pdf Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Annexure 10: References Research papers Audinet, P., 2002. Electricity Prices in India.ENERGY PRICES AND TAXES, 2nd Quarter 2002. Battaglini, A., Lilliestam, J., Haas, A., Patt, A., 2009.Development of SuperSmart Grids for a more efficient utilisation of electricity from renewable sources. Journal of Cleaner Production 17 (2009) 911-918. Elsvier. Bayod-Rújula, A.A., 2009. Future development of the electricity systems with distributed generation. Energy 34 (2009) 377-383. Elsvier. Bouffard, F., Kirschen, D.S., 2008.Centralised and distributed electricity systems. Energy Policy 36(2008) 4504-4508. Elsvier. Bronstein, Z., 2009. Industry and the smart city. Bruns, E., Ohlhorst, D., Wenzel, B., Köppel, J., 2011. Renewable Energies in Germany's Electricity Market: A Biography of the Innovation Process .Springer. Clastres, C., 2008. A surplus and welfare analysis of asymmetric regulation. Clastres, C., 2011. Smart grids: Another step towards competition, energy security and climate change objectives. Energy policy 39 (2011) 5399-5408.Elsvier. Domanico, A., Liberalisation of the European Electricity Industry: Internal Market or National Champions? EU Commission Task Force for Smart Grids report, 2010. Expert Group 1: Functionalities of smart grids and smart meters. Farrel, J., 2010. A Smarter Grid through Smart Policy. Faruqui, A., Harris, D., Hledik, R., 2010. Unlocking the €53 billion savings from smart meters in the EU: How increasing the adoption of dynamic tariffs could make or break the EU’s smart grid investment. Energy Policy 38(2010)6222–6231. Elsevier. Fontaine, P., 2006. Europe in 12 lessons.
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Giglioli, E., Pazacchi, C., Senni, L. (McKinsey & Co report), 2010. How Europe is approaching the Smart Grid. Giordano, V., Fulli, G., 2011. A business case for Smart Grid technologies: A systemic perspective. EnergyPolicy 40(2012)252–259. Elsevier. Giordano, V., Fulli, G., Jiménez, M. S., 2011. Smart Grid projects in Europe: lessons learned and current developments. Jacson, J., 2010. Improving energy efficiency and smart grid program analysis with agent based end-use forecasting models. Energy Policy 38(2010)3771–3780. Elsevier. Kranz, J., 2011. Studies on Technology Adoption and Regulation of Smart Grids .epubli GmbH, Berlin. Kϋnneke, Rolf W., 2008. Institutional reform and technological practice: the case of electricity. Industrial and Corporate Change, Volume 17, Number 2, pp.233–265. Morgan, G.M., Apt, J., Lave, L.B., Ilic, M.D., Sirbu, M., Peha, J.M., 2009. The many meanings of "Smart Grid".Department of engineering and public policy Carnegie Mellon University. Núñez, A., Liberalisation of the electricity sector in the European Union: present state and some open questions. Petersen, J. L., 2010. Smart Energy Policy Begins With Ethical Resource Policy. Ringwald, A., 2009. Smart Buildings Meet Smart Grids. Rosenfeld, A. H., 1999. The Art of Energy Efficiency: Protecting the Environment with Better Technology. Annu. Rev. Energy Environ. 1999. 24:33–82. Santiso, C., 2002. The reform of EU development policy improving strategies for conflict prevention, democracy promotion & governance conditionality.CEPS working document no. 182. Similä, L., Ruska, M., 2011. Electricity Markets in Europe – Business environment for Smart Grids. VTT research Notes 2590.
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Solomon, B.D., Krishna, K., 2011.The coming sustainable energy transition: History, strategies, and outlook. Energy Policy 39(2011) 7422-7431. Elsvier. Spencer, T., Korppoo, A., Hinc, A., 2011. Can the EU budget support climate policy in central and Eastern Europe?.FIIA Working Paper. Stromback, J., Dromacque,C., 2010. Evaluation of residential smart meter policies.VaasaETT Global Energy Think Tank. vonStiphout, M., 2011. EU energy policy and the role of smart grids. Wagner, G., 2010. Providing Energy Services in a Changing Industry.2010 Energy Policy Forum. Wirth, T. E., Gray, C. B., Podesta, J. D., 2003. The future of energy policy. Zio, E., Aven, T., 2011. Uncertainties in smart grids behaviour and modelling: What are the risks and vulnerabilities? How to analyze them? Energy Policy 39(2011) 6308-6320. Elsevier. Reports BNetzA Position Paper. 2011. ‘Smart Grid’and’Smart Market’ - Summary of the BNetzA Position Paper. DENA - German Energy Agency, DENA Grid Study II – Integration of Renewable Energy Sources in the German Power Supply System from 2015 – 2020 with an Outlook to 2025. Electric Power Research Institute report, 2011.EPRI Smart Grid Demonstration Initiative. ERGEG CEER report, 2011. Summary of Member State experiences on cost benefit analysis (CBA) of smart meters. Ref: C11-RMC-44-03. EU Smart Grid Secretariat.European Smart Grid vision. EU-Japan Centre for Industrial Cooperation, 2000. Analysis of the Electricity Sector Liberalisation in European Union Member States pursuant to Directive 96/92/EC on the Internal Market in Electricity. Eurelectric position paper. 2012. The Role of DSOs on Smart Grids and Energy Efficiency. Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Eurelectric report. 2011. 10 steps to Smart Grids. Eurelectric report. 2011. Regulation for Smart Grids. Eurelectric report. 2009. Smart Grids and Networks of the Future - EURELECTRIC Views. European commission Directive, 2009. DIRECTIVE 2009/72/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC. European commission report, 2006. European Technology Platform Smart Grids: Vision and Strategy for Europe’s Electricity Networks of the Future. European commission report, 2009.ICT for a Low Carbon Economy Smart Electricity Distribution Networks. European commission report, 2009.COMMISSION RECOMMENDATION of 9. 10. 2009 on mobilising Information and Communications Technologies to facilitate the transition to an energy-efficient, low-carbon economy. COM(2009) 7604 final. European commission report, 2011. A joint contribution of DG ENER and DG INFSO towards the Digital Agenda, Action 73: Set of common functional requirements of the SMART METER. European commission report, 2011. Energy infrastructure: priorities for 2020 and beyond ─ A Blueprint for an integrated European energy network. European commission report, 2011. The structuring and financing of energy infrastructure projects, financing gaps and recommendations regarding the new TEN-E financial instrument. European commission report, 2011.Permitting procedures for energy infrastructure projects in the EU: evaluation and legal recommendations. European commission report, 2011.Electricity utilities and telecom companies (Second workshop). European commission White paper, 2009.Modernising ICT Standardisation in the EU - The Way Forward.COM(2009) 324 final.
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European commission JRC and Institute of environment and sustainability report. 2007. 'Latest Development of Energy Service Companies across Europe - A European ESCO Update'. Geode position paper. 2010. GEODE Position Paper on Smart Grids. Geode positionpaper. 2009. GEODE Position Paper on Smart Metering. German Commission for Electrical, Electronic & Information Technologies of DIN and VDE in co-operation with E-energy, 2011. The German Roadmap E-Energy / Smart Grid. Gobble, Mary Anne M, 2011. Building the Smart Grid in Europe (Views and News of the Current Research-Technology Management Scene).Editor. Gupta, N., Jain, A., 2011. Smart Grids in India.AkshayUrja Volume 5, Issue 1 (MNRE report). International Energy Agency report, 2011.Technology Roadmap Smart Grids. International Environment Reporter, 2011. German Plans for Smart Grid Expansion Bump Up Against Privacy, Security Concerns. News report. McKinsey & Co report,.Powering India - The road to 2017. Ministry of Power (GoI),Infosys and CSTEP report, 2008. Technology: Enabling the transformation of Power Distribution Roadmap and Reforms. Orgalime position paper. 2010. Smart Grids: a vision and recommendations from technology providers. Privacy & Security Law Report, 10 PVLR 750 (May 16, 2011), 2011. EU Data Protection: German Smart Grid Plans Raise Consumer, Business Privacy, Cybersecurity Challenges. Report byEnergynet DK,. Smart Grid in Denmark. SRU (German Advisory Council on the Environment). 2011. Pathways towards a 100% renewable electricity system (Special report).
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Presentations Battaglini, A., 2010. SuperSmart Grid a roadmap to 2050.Smart EnergyDialogue Berlin, 9 June 2010. Behrendt, F., 2010. Field Trials Of Electric Vehicles in the German Capital Region. Smart EnergyDialogue Berlin, 9 June 2010. deRidder, W., 2010. Boosting electric vehicles to boost smart grids. Smart Energy Dialogue Berlin, 9 June 2010. Dörsam, B., 2010. E-Energy Project Model City Mannheim - Integrating smart buildings into smart grids. Smart Energy Dialogue Berlin, 9 June 2010. Ecogrid - a pilot project (A proposal under EU´s FP7-Energy-2010-2-TREN), 2008. EcoGrid EU: A Prototype for European Smart Grids. Fornié, M. A. S., Smart Grids: Challenges and Opportunities. González, J. M., 2010. The German National Smart Grid Standardization Strategy. Smart Energy Dialogue Berlin, 9 June 2010. Klusmann, B., 2010. Smart energy is renewable energy. Regulatory framework for a 100% renewable energy supply.Smart EnergyDialogue Berlin, 9 June 2010. Nabuurs, P., 2008. The importance of markets for the emergence of Smart Grids. Nabuurs, P., 2010. How will the energy transition effect future system of electricity?.Smart EnergyDialogue Berlin, 9 June 2010. Narayan, A., 2010. Smart Grid In India. PresentedAt: EE 402A. Nieße, A., 2010. The Role of ICT in Smart Distribution Grids.Smart EnergyDialogue, Berlin, June 9th, 2010. Paesler, T., 2010.eMobility on Track – Lessons of 100 Years of Smart Electric Mobility. Smart Energy Dialogue Berlin, 9 June 2010. Peiskar, D., 2010. Energy in FP7: Successful R&D in Europe, European Networking Event. Riegel, G., 2010. Energy Efficiency through Transparency.Smart EnergyDialogue Berlin, 9 June 2010. Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Schmitt, F. R., 2009. E-Energy-Project Mannheim model city - Realization of an Energy Marketplace in the Rhine-Neckar Metropolitan Area.SmarterCities, 23 – 24 June 2009, Berlin. Siefkes, T., 2010.Intelligent Energy Management, Supply and Consumption in the Railway Industry.Smart Energy Dialogue Berlin, 9 June 2010. Stantcheva, M., 2011.Smart Grid Communications for Europe.European Commission. Tongia, R., 2010. Smart Grid in Europe: Policy, Standards, and More.
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Annexure 11: Profiles of persons interviewed Dr. Dörte Ohlhorst is a professor at Freie Universität’s Environment Policy Research centre (FFU) in Berlin. She is also an external research associate at the German Advisory Council on the Environment (SRU) since March 2009. Her key research areas are energy policy, environmental and innovation policy, multi-level governance, sustainability strategies and
social
participation.
Konstellationen,
Sheistheauthorofthebook
Dynamiken
und
‘Windenergie
Regulierungspotenziale
im
in
Deutschland:
Innovationsprozess
(Energiepolitik und Klimaschutz)’publishedby VS Verlag für Sozialwissenschaften in 2009. She has also co-authored the book ‘Renewable Energies in Germany's Electricity Market: A Biography of the Innovation Process’ that has been published by Springer in 2010. (Personal interview conducted on January 17, 2012.) Mr Max Grünig is an economist and Fellow at Ecologic Institute where he focuses on the transformation of the transport and energy sectors, covering smart grids and electric mobility as well as consumer behavior. He also works on environmental reporting methods and indicators and has extensive knowledge of the economic evaluation of costs and benefits associated with climate change and environmental goods. Max Grünig coordinates EU research activities within Ecologic Institute (7th Framework Programme (FP7) and Horizon 2020). He is a founding member of the European Institute for Sustainable Transport (EURIST) and a member of the Consumer Research Network run by the German Federal Ministry of Food, Agriculture and Consumer Protection (BMELV).(Personal interview conducted on February21, 2012.) Mr Koen Noyens is Advisor in the Networks Unit of Eurelectric, the European electricity industry Association. Within EURELECTRIC, Koen Noyens is responsible for several working groups of the Networks Committee, including the DSO Coordination for Smart Grids Deployment, WG Smart Grids and the WG Distribution Customers & Operation. Besides that, he is intensively following and coordinating the development of Smart Grids research and demonstrations throughout Europe. Prior to joining EURELECTRIC in 2010, Koen worked as a Business Consultant for the Resources Group of Accenture Belgium in Brussels.(Telephonic interview conducted on 6 Feb, 2012.)
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Mrs Antonella Battaglini is program director at Smart Energy for Europe Platform (SEFEP), mainly dealing with the power sector and, in particular, with grid expansion and renewable energies integration. Ms. Battaglini is also a senior scientist at the Potsdam Institute for Climate Impact Research (PIK) where she leads the Super Smart Grid (SSG) process, a concept she developed to reconcile different approaches to renewables. She is the executive director of the Renewables-Grid-Initiative, which bring together transmission system operators (TSO) and environmental NGOs in support of grid expansion and full integration of renewable energy sources in the European grid. The SSG concept was first developed by Antonella in 2007. (Telephonic interview conducted on 25 January, 2012.) Ms Elena Scheiber works in the office of Ms Ingrid Nestle who is Member of Parliament and spokesperson for Energy - Parliamentary Group. Elena Scheiber has deep interest in the energy sector having received her Master’s in Energy and Environment Management from University of Flensburg in Germany. (Personal interview conducted on February 1, 2012.) Ms Mercè Griera-I-Fisa is Project Officer at the European Commission’s DG Information Society and Media ICT for Sustainable Growth. She entered the Commission in 1993 in the area of Research Networking and then she moved to High Performance Computing and Networking and to Communications Technologies. (Telephonic interview conducted on 22 February, 2012.) Mr Martin David Ledwon is Vice President (Government Affairs) at Siemens AG, where he is responsible for Corporate Communications of Siemens Smart Grid. In that role he also works around regulatory affairs related to Smart Grids. (Telephonic interview conducted on 2 March, 2012.) Dr David Jacobs is Director of Renewable Energy at IFOK Gmbh. He has also co-authored the book ‘Powering the green Economy – the feed in tariff handbook’ published by Routledge in 2009. Dr David Jacobs is a frequent speaker at international conferences. He has an academic background in International Business and Cultural Studies. (Personal interview conducted on 26 March, 2012.) Ms Parimita Mohanty is Fellow, Team Leader and Area Convenor for the Energy Environment Technology Development Division at The Energy & Resources Institute (TERI) and is working on Smart grids. (Telephonic interview conducted on 2 June, 2012.)
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
Annexure 12: Profile of organizations of primary interviewees Freie Universität’s Environmental Policy Research Centre (FFU) is one of the world’s leading research institutes in the fields of comparative and international environmental and sustainable energy politics and policy. The FFU conducts both academic and policy-oriented research. The FFU is well-known for its research on environmental leadership and policy diffusion, ecological modernization and innovation, policy integration and evaluation, indicators, and environmental assessments. Energy research at the FFU is focused on renewable energies and energy efficiency. The FFU advises the German and international governments and organizations. It cooperates with numerous research institutes, universities and non-governmental organizations in Europe, Asia, North America and South America. Ecologic Institute is a private not-for-profit think tank for applied environmental research, policy analysis and consultancy with offices in Berlin, Brussels, Vienna, Washington DC, and San Mateo CA. An independent, non-partisan body, Ecologic Institute brings fresh ideas to environmental and sustainable development policies. Ecologic Institute's work program focuses on obtaining practical results. It covers the entire spectrum of environmental issues, including the integration of environmental concerns into other policy fields. Ecologic Institute ranks 6th among Environment Think Tanks in the prestigious 2011 Global "Go-To Think Tank Index" of the University of Pennsylvania. Eurelectric is the sector association which represents the common interests of the electricity industry at pan-European level, plus its affiliates and associates on several other continents. EURELECTRIC's mission is to contribute to the development and competitiveness of the electricity industry and to promote the role of electricity in the advancement of society. To that end it also acts in liaison with other international associations and organizations, recognizing the specific missions and responsibilities of these organizations. Within the European Union, Eurelectric represents the electricity industry in public affairs, in particular in relation to the EU legislative institutions in order to promote the interests of its Members at a political level. Potsdam Institute for Climate Impact Research (PIK) is a research institute based in Berlin that specializes in the fields of global change, climate impact and sustainable development. Researchers in the natural and social sciences from all over the world work closely together to study global change and its impacts on ecological, economic and social systems. Researchers examine the earth system's capacity for withstanding human Neena Sekharan, 1013MPS, MBA(Business Sustainability), TERI University
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Major Project report - “Smart Grid policies in the European Union and lessons for India“
interventions and devise strategies and options for a sustainable development of humankind and nature. Interdisciplinary and solution-oriented approaches are a distinctive characteristic of the institute. The institute is a member of the Leibniz Association. PIK generates fundamental knowledge for sustainable development primarily through data analysis and computer simulations of the dynamic processes in the earth system, but also of social processes. Ms Ingrid Nestle is a German politician in the Greens Party. She is since 2009 member of the German Bundestag where she is the spokesperson for the energy group of the Green Party, a member of the Economic Committee and deputy member of the Committee on Transport, Building and Urban Affairs. European Commission DG Information Society and Media ICT for Sustainable Growth Unit aims to make sure ICTs (Information and Communication Technologies) contribute to the development of a more sustainable Europe and is, therefore, focusing on Energy Efficiency, Water Management and Climate Change Adaptation. Siemens AG is a German multinational conglomerate company headquartered in Munich, Germany. It is the largest Europe-based electronics and electrical engineering company. Smart Grids are a division within Siemens. Siemens Smart Grid supports its customers like power producers, grid operators, industries, multi utilities, cities and rail operators in expanding intelligent transmission and distribution energy grids as well as in integrating centralized and decentralized power generation. Siemens Smart Grids is involved in software and end-to-end solutions from enterprise IT all the way to smart metering. IFOK GmbH is a market leader for communication and strategy consulting on the subject of participation. They are experts in the topics concerning today’s society: Energy, the environment, sustainability, science, education, employment, corporate responsibility, and diversity. In 2009, IFOK was named one of the most innovative companies in Germany and awarded the “Top 100” seal of quality. The Energy and Resources Institute (TERI) is a leading Indian non government organization (NGO), a global think tank conducting research and analysis in the genres of energy and environment, with a vast focus that ranges from micro organisms to global climate change.
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