20-11-2018

Written by Annelies Delnooz and Reinhilde D’hulst, VITO researchers within EnergyVille.  They investigate economic and technological aspects of the current and future energy system and offer advice and technological solutions on both short-term and long-term changes.


In the past years, the energy landscape has experienced some substantial changes. The increase of distributed renewable energy resources such as solar panels, changes in the consumption pattern of end users and technological developments such as the digital meter, pose new challenges to all stakeholders involved: end consumers, producers, BRPs (or Balance Responsible Parties), system operators and policy makers.

Digital meter

From mid 2019, a gradual roll-out of digital meters for electricity and gas will be implemented in Flanders. This digital meter could be an important facilitator to save energy (gas and electricity) by providing more and better information on the energy use. The digital meter, as documented in the concept paper[1], provides better insight into the energy consumption and the use of the distribution system by measuring and registering detailed consumption data, with a separate registration of injection and offtake. By means of a dual communication system between the digital meter and the regulated back-end, quarter-hourly values will be provided. Additionally, thanks to a more detailed registration of consumption data, more flexibility is made available on the market.

Following the distribution network operators’ current interpretation, the digital meter provides measurement data following two measurement regimes (1 or 3). In regime 1, only the aggregated measured data of the offtake and injected energy is registered. In regime 3, the same data is tracked every 15 minutes. As a consequence, measurement regime 3 provides more granularity in the measurement data, making sure that an active participation on the energy market can be realised. A quarter-hourly registration of the measurement data, aligned with the energy market set-up, is therefore the most desirable measurement frequency. A configuration based on the aggregated offtake and injected energy provides insufficient detail to deploy flexibility, and to verify and deduct the activation. From a privacy point-of-view, measurement regime 1 is applied by default.  Because of the costs related to registering the measured data at a higher frequency, measurement regime 3 can consequently only be activated for a limited group of users.

From net metering…

For recording the usage of the distribution network and the accompanying tariffs, the digital meter provides several opportunities. The distribution tariffs can be implemented more accurately, i.e. better reflecting the way the distribution system is used. This in contrast to for example the current prosumer tariff which is based on an estimation of the non-measured offtake of energy and calculated based on the capacity of the inverter. The prosumer tariff was installed because of the solidarity principle, to ensure each customer pays a fair price for using the grid. Prosumers can enjoy net-metering where only the net offtake  of electricity is charged. The net offtake is the offtake remaining when the total annual energy injected into the grid is subtracted from the total annual offtake of energy from the grid.

 

Overzicht principe digitale meter

The combination of increasing PV installations and the concept of the net-metering principle[2] for prosumers caused the total net offtake of invoiced electricity from the distribution system to decline. In 2016, the distribution level experienced a global decline of 6% of the total energy offtake compared to 2009. For the grid users connected to the low-voltage grid (households and smaller companies) this was a decline of 11% compared to 2009. Next to an increase of PV installations, the measures implemented to increase the energy efficiency (REU-actions) are most likely to play a role as well in this decline. Since the distribution tariff  is (amongst others) based on this total amount of electricity offtake, and since the costs for the distribution system operator do not proportionally decrease, a decrease in the net offtake causes a rise in the price per kWh.

Evolution of the net-electricity acquisition

Figure 1: Evolution of the net-electricity acquisition, registered at the distribution system in Flanders,  subdivided into medium-voltage and low-voltage[3].

Within this context the concept of net metering is questioned. In the clarification of the draft decree of the digital meter, the effect of the transition towards the digital meter on the net-metering principle is explained[4]. This includes the right for a 15-year compensation arrangement for prosumers (installations <10 kVA installed until 31 December 2020). For installations installed after January 2021 an alternative compensation system is proposed. The Flemish Government is currently working on the completion of a compensation arrangement for the share of electricity as such in the total energy bill. The Flemish Regulator (VREG) is responsible for the distribution tariffs. The way these distribution tariffs are calculated are written down in the tariff methodology, available on the VREG Website. The current tariff methodology, valid until 2020, dictates that end users with a digital meter should pay for the total distribution costs (in €/kWh) for the total gross electricity offtake. The reasoning can be found in the fact that the distribution tariff is based on the total usage of the network, reflected by the gross electricity offtake from the electricity grid, where a prosumer currently only has to pay for the balances of annual offtake and injection. In this case the prosumer tariff will be abolished.

The reason to go towards a gross-settlement of the distribution grid use instead of the current net settlement is the fact that with the employment of net metering for locally-produced energy no difference is made between the charged offtake from the distribution system and the actual electricity usage. Moreover, the connection of local PV production causes a higher simultaneity on the local grid. When a lot of PV energy is generated, this peak in production happens simultaneously with a peak production in adjacent PV installations. It is exactly this simultaneity in injection (or offtake) which mostly determines the costs of the distribution system.

Apart from the increasing installations of renewable, decentralised energy production, a similar trend of electrification in energy consumption can be identified, e.g. with heat pumps and electric vehicles. In the long run, this might cause the global offtake of electricity, registered by the distribution operators, to stabilise or even increase. The anticipated grow and distribution of electric vehicles (EVs) and heat pumps, and the accompanying electricity use, will go hand in hand with a rising impact on the electricity system. Especially on the low-voltage grid  problems could arise when everyone simultaneously takes electricity from the grid.

When the electricity consumption of vehicles and heat pumps does not occur simultaneously with the PV production, the pressure on the distribution system increases even more. The concept of net-metering does not provide any trigger to adjust the local electricity demand to the local energy generation. As a consequence there is no trigger to limit the costs for the distribution system operator.

… towards active participation of the network user

In recent years, a lot of attention has been given to the active involvement of the consumer on the energy market. Active demand response plays a pivotal role in the energy markets of the future, enabling consumers to offer flexibility to make sure the equilibrium between the demand and supply  of electricity is maintained. Distribution system operators also benefit from the use of flexibility in the grid operation.

Energy storage equally has a role to play in this. Energy storage systems, including batteries, can enable the integration of varying PV production and improve grid stability and reliability. This way, the correct integration of battery storage can have a strong impact on the level of self-consumption of prosumers in which the grid integration and the accompanying costs can be minimised. In certain situations grid reinforcements can be postponed or avoided.

Several studies have demonstrated the effect of flexibility on het total system costs[5] [6]. The higher the end user engagement, the lower the total system cost. This effect can be explained by the fact that the demand profile adjusts itself to the availability of low-cost technologies. Similar results have been obtained in the field of CO2 reductions, in which equally a favourable effect is registered at a higher availability of flexibility.

A closer look on distribution tariffs

The changing use of the distribution system mentioned above (PV injection, increasing electrification, flexibility, etc.) and technologic progression (digital meter and additional applications) has a significant effect on the operation and development of the distribution system. The current structure of the distribution tariff, based on the offtake of electricity (€/kWh), does not take into account recent evolutions in the energy system and the energy markets. Ideally, the distribution tariffs represent a cost reflective signal for the use of the distribution system. As a consequence the VREG has started a trajectory to reform the structure of the distribution tariffs and make sure they better respond to the posed changes. First studies show that a tariff structure taking into account the use of grid capacity instead of an energy offtake based tariff appears the better option from a societal point of view.

Important in the design of future-proof distribution tariffs is a thorough analysis of the tariff methodology and the total allowed income of the grid operators. The distribution tariffs are used to recover the costs of the grid operators. First and foremost, these costs include the construction, operation and maintenance of the distribution grid. Secondly, a number of costs (amongst others through public service obligations[7]) are imposed on the grid operators, but on which distribution system operators themselves do not have any influence. These are so called exogenous costs. The costs concerning  certificates amount to 35% of the total exogenous costs (in 2017). The costs for the public service obligation concerning the stimulation of rational energy use (REU), the action obligations concerning energy scans and social rooftop insulation projects in the form of premiums account for 8% of the total exogenous costs in 2017. The share of exogenous costs has grown in the last three years

Because of the increased pressure of the exogenous costs on the total distribution bill, charged per net use of electricity (kWh), additional pressure is put on het total electricity price. Political choices to charge the exogenous costs via the distribution tariff entail important implications on the sustainability of the energy system. Given the relatively big share of public service obligations in the distribution tariff, the roll-out of potential sustainable technologies, causing a higher electricity use, including heat pumps and electric vehicles, are slowed down.

The regulatory framework is supposed to create the necessary conditions to optimally cope with the challenges of the future, and at the same time give space to innovative solutions making use of technologic developments. As a consequence network tariffs and the way they are assembled and determined, need to be considered in the light of the transition towards a low-carbon energy provision and the associated current and future challenges. A comparative assessment needs to be made if the right support is provided for all sustainable energy technologies, given the cost of the different alternative energy sources.

 

 

Overzicht distributienettarieven

(Source: Ondernemingsplan VREG, 2018)

Conclusion

  • The digital meter can be an important facilitator to save more energy and increase the potential of flexibility on the energy market.
  • Important aspects in this regard are the envisioned properties of the digital meter and the technical possibilities with regard to data registration.
  • By means of the digital meter, distribution tariffs can be applied more accurately and replace the arbitrarily determined prosumer tariff.
  • Net metering for locally produced energy needs to be revised since no trigger is provided to adapt the local energy demand to the local energy generation.
  • Because of the increasing pressure of het exogenous costs (e.g. GSC and REU-support) on the total distribution bill, specific sustainable technologies (including heat pumps and electric vehicles) are also under pressure.
  • In the light of the transition towards a carbon-free energy provision, a holistic approach needs to be effectuated.

 

 

Want to know more? Then make sure tohave a look at our research page 'Strategies and Markets'.

 

[1] Following the initial concept paper, a draft decree and an assessment report with the functionalities was drafted. To enable the roll-out of the digital meter, the Flemish Government indicated on 18 May 2018 that, after advice of the Council of State, the Flemish Government would again principally change the Energy decree. It concerns some technical adjustments and adjustments following the advice of the Council of State. Following the advice of the Council of State, the draft decree was finally approved on 29 June 2018 and submitted to the Flemish Parliament. The Flemish Government now principally approves a decree which executes the different articles in the decree.

[2] Net-metering enables the end user to balance surpluses of locally produced energy (i.e. injection into the grid) concerning current transport and distribution rates and annual taxation, with the use of electricity coming from the electricity grid. This way the net position is determined on a yearly basis to bill the grid usage and taxes. It needs to noted that the yearly net measured value cannot go below zero.

[3]  Data from Eandis and Infrax (combined).

[5] VITO, Viegand & Maagøe, Armines and Bonn University, Ecodesign Preparatory study on Smart Appliances (Lot 33), MEErP Tasks 1-6, February 2017

[6] VITO, Study potential digital meter in the field of flexibility and energy efficiency, 2018

[7] The energy policy agreement between the Flemish Government and the electricity distribution system operators determines grid operators are obliged to buy up green certificates and cogeneration certificates from producers that are entitled to a minimum support. The minimum support is determined by the Energy Decree.