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    Regulatory analysis for the integration of Distributed Generation and Demand-Side Participation Regulatory analysis for the integration of Distributed Generation and Demand-Side Participation Document Transcript

    • PROYECTO FIN DE CARRERARegulatory analysis for the integration ofDistributed Generation and Demand-SideParticipationAUTOR: Breogán Pardo ÁlvarezDIRECTOR: David Trebolle TrebolleMADRID, Mayo 2013UNIVERSIDAD PONTIFICIA COMILLASESCUELA TÉCNICA SUPERIOR DE INGENIERÍA (ICAI)INGENIERO INDUSTRIAL
    • AUTORIZACIÓN PARA LA DIGITALIZACIÓN, DEPÓSITO Y DIVULGACIÓN EN ACCESOABIERTO ( RESTRINGIDO) DE DOCUMENTACIÓN1º. Declaración de la autoría y acreditación de la misma.El autor D. Breogán Pardo Álvarez, como alumno de la UNIVERSIDAD PONTIFICIA COMILLAS(COMILLAS), DECLARAque es el titular de los derechos de propiedad intelectual, objeto de la presente cesión, enrelación con la obra Proyecto Fin de Carrera “Análisis Regulatorio para la implementación de laGD y la Participación Activa de la Demanda1, que ésta es una obra original, y que ostenta lacondición de autor en el sentido que otorga la Ley de Propiedad Intelectual como titular únicoo cotitular de la obra.En caso de ser cotitular, el autor (firmante) declara asimismo que cuenta con elconsentimiento de los restantes titulares para hacer la presente cesión. En caso de previacesión a terceros de derechos de explotación de la obra, el autor declara que tiene la oportunaautorización de dichos titulares de derechos a los fines de esta cesión o bien que retiene lafacultad de ceder estos derechos en la forma prevista en la presente cesión y así lo acredita.2º. Objeto y fines de la cesión.Con el fin de dar la máxima difusión a la obra citada a través del Repositorio institucional de laUniversidad y hacer posible su utilización de forma libre y gratuita ( con las limitaciones quemás adelante se detallan) por todos los usuarios del repositorio y del portal e-ciencia, el autorCEDE a la Universidad Pontificia Comillas de forma gratuita y no exclusiva, por el máximo plazolegal y con ámbito universal, los derechos de digitalización, de archivo, de reproducción, dedistribución, de comunicación pública, incluido el derecho de puesta a disposición electrónica,tal y como se describen en la Ley de Propiedad Intelectual. El derecho de transformación secede a los únicos efectos de lo dispuesto en la letra (a) del apartado siguiente.3º. Condiciones de la cesión.Sin perjuicio de la titularidad de la obra, que sigue correspondiendo a su autor, la cesión dederechos contemplada en esta licencia, el repositorio institucional podrá:(a) Transformarla para adaptarla a cualquier tecnología susceptible de incorporarla a internet;realizar adaptaciones para hacer posible la utilización de la obra en formatos electrónicos, asícomo incorporar metadatos para realizar el registro de la obra e incorporar “marcas de agua”o cualquier otro sistema de seguridad o de protección.(b) Reproducirla en un soporte digital para su incorporación a una base de datos electrónica,incluyendo el derecho de reproducir y almacenar la obra en servidores, a los efectos degarantizar su seguridad, conservación y preservar el formato. .1Especificar si es una tesis doctoral, proyecto fin de carrera, proyecto fin de Máster o cualquier otrotrabajo que deba ser objeto de evaluación académica
    • (c) Comunicarla y ponerla a disposición del público a través de un archivo abierto institucional,accesible de modo libre y gratuito a través de internet.2(d) Distribuir copias electrónicas de la obra a los usuarios en un soporte digital. 34º. Derechos del autor.El autor, en tanto que titular de una obra que cede con carácter no exclusivo a la Universidadpor medio de su registro en el Repositorio Institucional tiene derecho a:a) A que la Universidad identifique claramente su nombre como el autor o propietario de losderechos del documento.b) Comunicar y dar publicidad a la obra en la versión que ceda y en otras posteriores a travésde cualquier medio.c) Solicitar la retirada de la obra del repositorio por causa justificada. A tal fin deberá ponerseen contacto con el vicerrector/a de investigación (curiarte@rec.upcomillas.es).d) Autorizar expresamente a COMILLAS para, en su caso, realizar los trámites necesarios parala obtención del ISBN.d) Recibir notificación fehaciente de cualquier reclamación que puedan formular terceraspersonas en relación con la obra y, en particular, de reclamaciones relativas a los derechos depropiedad intelectual sobre ella.5º. Deberes del autor.El autor se compromete a:a) Garantizar que el compromiso que adquiere mediante el presente escrito no infringe ningúnderecho de terceros, ya sean de propiedad industrial, intelectual o cualquier otro.b) Garantizar que el contenido de las obras no atenta contra los derechos al honor, a laintimidad y a la imagen de terceros.c) Asumir toda reclamación o responsabilidad, incluyendo las indemnizaciones por daños, quepudieran ejercitarse contra la Universidad por terceros que vieran infringidos sus derechos eintereses a causa de la cesión.d) Asumir la responsabilidad en el caso de que las instituciones fueran condenadas porinfracción de derechos derivada de las obras objeto de la cesión.2En el supuesto de que el autor opte por el acceso restringido, este apartado quedaría redactado en lossiguientes términos:(c) Comunicarla y ponerla a disposición del público a través de un archivo institucional, accesible demodo restringido, en los términos previstos en el Reglamento del Repositorio Institucional3En el supuesto de que el autor opte por el acceso restringido, este apartado quedaría eliminado.
    • 6º. Fines y funcionamiento del Repositorio Institucional.La obra se pondrá a disposición de los usuarios para que hagan de ella un uso justo yrespetuoso con los derechos del autor, según lo permitido por la legislación aplicable, y confines de estudio, investigación, o cualquier otro fin lícito. Con dicha finalidad, la Universidadasume los siguientes deberes y se reserva las siguientes facultades:a) Deberes del repositorio Institucional:- La Universidad informará a los usuarios del archivo sobre los usos permitidos, y no garantizani asume responsabilidad alguna por otras formas en que los usuarios hagan un uso posteriorde las obras no conforme con la legislación vigente. El uso posterior, más allá de la copiaprivada, requerirá que se cite la fuente y se reconozca la autoría, que no se obtenga beneficiocomercial, y que no se realicen obras derivadas.- La Universidad no revisará el contenido de las obras, que en todo caso permanecerá bajo laresponsabilidad exclusiva del autor y no estará obligada a ejercitar acciones legales en nombredel autor en el supuesto de infracciones a derechos de propiedad intelectual derivados deldepósito y archivo de las obras. El autor renuncia a cualquier reclamación frente a laUniversidad por las formas no ajustadas a la legislación vigente en que los usuarios hagan usode las obras.- La Universidad adoptará las medidas necesarias para la preservación de la obra en unfuturo.b) Derechos que se reserva el Repositorio institucional respecto de las obras en él registradas:- retirar la obra, previa notificación al autor, en supuestos suficientemente justificados, o encaso de reclamaciones de terceros.Madrid, a 31 de mayo de 2013ACEPTAFdo……………………………………………………………
    • Proyecto realizado por el alumno/a:Breogán Pardo ÁlvarezFdo.: …………………… Fecha: ……/ ……/ ……Autorizada la entrega del proyecto cuya información no es de carácter confidencialEL DIRECTOR DEL PROYECTODavid Trebolle TrebolleFdo.: …………………… Fecha: ……/ ……/ ……Vº Bº DEL COORDINADOR DE PROYECTOSProf. Dr. Fernando de Cuadra GarcíaFdo.: …………………… Fecha: ……/ ……/ ……
    • PROYECTO FIN DE CARRERARegulatory analysis for the integration ofDistributed Generation and Demand-sideparticipationAUTOR: Breogán Pardo ÁlvarezDIRECTOR: David Trebolle TrebolleMADRID, Mayo 2013UNIVERSIDAD PONTIFICIA COMILLASESCUELA TÉCNICA SUPERIOR DE INGENIERÍA (ICAI)INGENIERO INDUSTRIAL
    • IANÁLISIS REGULATORIO PARA LA IMPLEMENTACIÓN DE LAGENERACIÓN DISTRIBUIDA Y LA PARTICIPACIÓN ACTIVA DELA DEMANDA.Autor: Pardo Álvarez, Breogán.Director: Trebolle Trebolle, David.Entidad Colaboradora: Unión Gas Natural Fenosa.RESUMEN DEL PROYECTOEl proceso de liberalización y separación de actividades del sector eléctrico que empezóen la década de los 90 en la mayoría de los países europeos, ha supuesto un cambio ensu estructura. Generación, mercados eléctricos (mercados mayorista y minorista) sonactividades liberalizadas, mientras que las actividades de red (transporte y distribución),gestión técnica y operador del mercado (si existe) permanecen como actividadesreguladas.Todas las actividades del sector eléctrico se agrupan en cuatro grupos: capa física,gestión técnica, actividades económicas y marco regulatorio. Esta división es importantea la hora de entender el análisis presentado en este proyecto.En los últimos años, la concienciación del impacto medioambiental debido a laactividad humana, la dependencia exterior de la UE de materias primas (combustiblesfósiles) y la insostenibilidad de los sistemas energéticos han motivado cambios en laspolíticas energéticas. Un ejemplo de ello son los objetivos 20/20/20 para el 2020 quetratan de solucionar los problemas que se acaban de mencionar.Dentro de la demanda energética de un país, el sistema eléctrico supone una granproporción de dicha demanda. Por ello, se requiere que el sistema eléctrico se desarrollede una manera más inteligente y activa evolucionando hacia las “Redes EléctricasInteligentes”.Las redes eléctricas inteligentes son la evolución del sistema eléctrico actual, son elproceso de integración de los Recursos Energéticos Distribuidos (RED) al mismotiempo que se mejora la calidad, eficiencia y seguridad del suministro. Los RED son:Generación Distribuida (GD), Participación Activa de la Demanda (PAD), Vehículoeléctrico y almacenamiento descentralizado. Complementariamente, es imprescindibleun adecuado desarrollo tecnológico y marco regulatorio para la buena integración de losRED.Hay dos aspectos muy importantes a considerar: Las redes inteligentes son un proceso de integración de los RED, por lo que nosuponen un tipo totalmente nuevo de redes con activos de red que descarten a losactuales. Como todo proceso de evolución, las redes inteligentes tienen una hoja deruta en la que algunos RED han de integrarse antes que otros. Los RED debido a sus características, son activos que se conectarán a la red dedistribución, en consecuencia, estas redes juegan un papel fundamental en laevolución de las redes inteligentes.Actualmente, la integración de los RED está suponiendo grandes retos para losdistribuidores que suponen un impedimento para su adecuada integración.
    • IIGeneración Distribuida (GD)Se considera generación distribuida (GD) aquellos sistemas de generación eléctricaconectados a la red de distribución, caracterizados por su poca potencia y por estarconectados cerca del consumo final.Sólo bajo ciertas hipótesis, la GD puede reducir las pérdidas eléctricas, retrasar lasinversiones del Operador del Sistema de Distribución (OSD) en la red y mejorar laseguridad de suministro. Sin embargo, la realidad es otra muy distinta.En los últimos años, las Autoridades Regulatorias Nacionales (ANR) de Europa hanllevado a cabo planes de incentivos para la GD de carácter renovables. Estos incentivosse otorgaron a las energías renovables por: Alto coste medio de producción de energía: las renovables hace pocos añosestaban en sus inicios y por tanto, eran tecnologías inmaduras incapaces de competiren los mercados eléctricos. Actualmente, algunas tecnologías renovables (eólicaterrestre y geotérmica) presentan unos costes comparables a las tecnologíasconvencionales. Su naturaleza intermitente e impredecible hacen muy difícil su participación enlos mercados eléctricos.Estos dos factores unidos hicieron que la GD renovable (que supone una parteimportante de la GD) obtuviera ayudas como: prioridad de acceso y mecanismo deayudas económicas (tarifas feed-in, cuotas + certificados verdes, etc.). Lasconsecuencias de dichas ayudas han sido que: GD renovable no participe en los mercados eléctricos y el DSO no reciba ningunainformación sobre la potencia que inyecta la GD en sus redes. GD renovables pueden inyectar potencia en la red a cualquier hora del día sin teneren cuenta el estado de la red a la que se conectan.En cuanto a la planificación, el principal problema de la GD es su falta de firmeza(capacidad de un grupo generador para inyectar/absorber potencia cuando el sistema lorequiere). Por este motivo, los OSD no pueden confiar en la capacidad de la GD yplanifican redes sin tener la GD en cuenta, resultando en sistemas sobredimensionados.Respecto a la operación, la integración de la GD (cargas impredecibles y flujos depotencia bidireccional) en las redes de distribución, requiere que los OSD pasen de unaoperación pasiva a una operación más activa y flexible. La GD tiene principalmente dosefectos negativos.En primer lugar, en las redes de MT y BT, la potencia activa inyectada por la GDproduce grandes variaciones de tensión, afectando a la calidad del producto final para elcliente. Para compensar dicho efecto es necesario controlar los flujos de potenciareactiva. Sin embargo, en líneas de MT y BT el efecto de la potencia reactiva sobre latensión es mucho menor que el de la potencia activa.En segundo lugar, puede haber congestiones en el sistema (PG-PL>Pmáx) que lleven alsistema fuera de la operación segura. Como se mencionó antes, esto es debidoprincipalmente a la ausencia de incentivos para que la GD considere el estado deoperación, a nivel local, de la red a la que se conecta.
    • IIIEn lo que respecta a la forma de conexión y acceso de la GD, es necesario abandonar elmétodo tradicional de “Fit and forget” (sólo se analiza el impacto de la GD en laplanificación y acceso firme) y avanzar hacia una “Gestión activa” (considera elimpacto de la GD en la planificación y luego en la operación, puede o no tener acceso ala red) ya que es la solución más económica y eficiente.Dentro de la conexión de la GD existen los siguientes problemas: Criterios técnicos de conexión: criterios de protecciones eléctricas no adecuados, lano posibilidad de usar cargos por conexión semidirectos en vez de los cargos porconexión profundos. Ausencia de transversalidad a nivel nacional, falta de estandarización, falta detransparencia, criterios discriminatorios de algunos generadores respecto de otros.Debido al “fit and forget”, la GD tiene acceso firme a la red. Si la GD genera cuando elsistema está al límite de la operación segura, puede provocar apagones y cortes desuministro que reducen así la fiabilidad del mismo.Además de todo lo anterior, OSD necesitan integrar en sus redes las TICs para mejorarla monitorización de sus redes y establecer comunicaciones bidireccionales con la GD.Participación Activa de la Demanda (PAD).El término de PAD se usa como un concepto que engloba otros dos: Gestión Activa de la Demanda (GAD): es la implementación de todas aquellasmedidas (por parte de los OSD) que tratan de influenciar la manera en que seconsume la energía, obteniendo los cambios deseados en la curva de la demanda.Estas medidas se pueden clasificar en cuatro grupos: mejorar la eficiencia delsistema, trasladar demanda de los picos a los valles, rellenar los valles y reducir lademanda en momentos críticos para el sistema. Respuesta de la demanda (RD): se refiere a los cambios en los hábitos de consumode los consumidores finales debidos a las variaciones de las señales de precios a lolargo del tiempo.La demanda de cualquier sistema eléctrico está caracterizada por: comportamientoestacional, relación entre picos y valles, eventos especiales, dispersión geográfica de lageneración y la demanda, tipo de demanda (industrial, servicios y consumo doméstico)e inelasticidad. La inelasticidad de la demanda impide la integración de la RD. Esto sedebe a dos factores: El cliente final carece de información acerca del precio real de la electricidad. Parasubsanar esto, es necesario que el cliente final pueda recibir señales de precio. Gran parte de la demanda (pequeñas industrias, servicios y consumos domésticos)presentan tarifas reguladas con precios más o menos constantes, siendo necesariointegrar contratos que reflejen el precio de la electricidad en los mercados eléctricos.Estos dos factores hacen que el cliente final no sea consciente de los precios finales ycarezcan de incentivos para adaptar su consumo según los precios del mercado y elestado del sistema.Desde el punto de vista de la planificación, el DSO debe procurar firmeza en lademanda (reducir o parar su consumo cuando el sistema lo requiere) para poder retrasar
    • IVsus inversiones en refuerzos de red, mejorando la utilización de los activos existentes.En cuanto a la operación, la RD puede ayudar a gestionar congestiones cuando hayaexceso de demanda.Además de todo esto, la adecuada integración y coordinación de la GD y la PAD, losOSD deben desarrollar herramientas para mejorar su monitorización, previsión dedemanda, simulación y control de sus redes.Modelo regulatorio propuesto: soluciones para la integración de la GD y laPAD dentro del marco de las Redes Eléctricas Inteligentes.En la planificación, los OSD necesitan mejorar la firmeza de la demanda y de la GD.Para este propósito, las ANR deben definir los mercados de gestión de capacidadfirme para incentivar dicha firmeza de la GD y de la demanda.Dentro de los mercados de gestión de firmeza de capacidad hay dos tipos de mercados:los de firmeza de la GD y los de firmeza de la demanda. Gracias a la firmeza obtenidaen estos mercados, los OSD pueden obtener capacidad extra de la GD o reducir lacapacidad de la demanda (a través de comercializadoras y grandes consumidores) enaquellos momentos en los que la red, localmente, vaya a estar sobrecargada. De estamanera los OSD podrán retrasar las inversiones de refuerzo de la red.Estos mercados deberían ser coordinados por los OSD, ya que son los que mejorconocen el funcionamiento de sus redes. Habrá tantos mercados como áreas en las quedividan los OSD sus redes, ya que estos mercados son locales.Los OSD establecerán estos mercados con un plazo mínimo de un año, basándose ensus previsiones de demanda para ese periodo de un año. Por ello, deben determinar lasáreas y el número de horas que se espera que el sistema esté sobrecargado. El uso deeste servicio debería ser ex-post, de manera que el OSD sólo pague por este servicio a laGD, comercializadoras y/o grandes consumidores cuando haga uso de él y al precioestablecido en estos mercados. Los OSD pagarán por estos servicios (OPEX) hasta elmomento en el que investir en refuerzos (CAPEX) a largo plazo sea lo máseconómicamente eficiente.Respecto a la filosofía de conexión y acceso de la GD, los OSD tienen que evolucionarhacia una “Gestión Activa” (conexión y acceso no firmes) que busca la solución máseconómica para el corto y el largo plazo. Los OSD deberían incentivar que la GD acepteestos contratos de acceso variable a cambio de beneficios económicos en la conexión(usar cargos por conexión semidirecta en vez de cargos por conexión profundos). Estoscontratos permitirán a los OSD restringir la inyección de potencia de la GD cuando elsistema esté congestionado durante la operación.Para la conexión de la GD, las ARN deberían definir criterios de protección adecuadospara cada tecnología, evitando la desconexión de GD ante perturbaciones en la red,recomendándose el uso de estándares internacionales como las normas UNE o IEC. LasARN deberían permitir que los OSD ofrezcan a la GD cargos por conexión semidirectapara incentivar su apoyo en la operación y planificación a través de los servicios desistema (firmeza, control de tensión, compensación de pérdidas, etc.). Además, lasANR deberían establecer como obligatorio la implantación de las TICs para establecercomunicaciones entre OSD y GD.
    • VEn cuanto al acceso y conexión de la demanda, sólo destacar que en la conexión esimprescindible el establecer programas de implementación gradual de los contadoresinteligentes para todos los consumidores finales.En lo referente a la operación, las ARN deberían definir tres estados distintos deoperación del sistema: Estado normal: el sistema está dentro de los límites de operación segura. Estado de alerta: la curva de demanda acordada en el mercado mayorista puedeprovocar congestiones, variaciones de tensión y otros problemas a nivel local querequieren la utilización de servicios de sistema. Estos servicios de sistemaproporcionados por los RED, serán coordinados mediante mercados por los OSD. Estado de emergencia: el sistema ha pasado los límites de operación segura yrequiere la intervención inmediata de los OSD para solventar los problemas cuantoantes.Los OSD utilizarán los servicios de sistema para pasar de los estados de alerta oemergencia al estado normal. Las ANR deben crear dichos servicios de sistema.Además, para que OSD puedan coordinar los RED y los servicios de sistema queproporcionan, los OSD necesitan invertir en TICS, creación de los mercados deservicios de sistema y herramientas de monitorización, simulación, previsión de carga ycontrol.Las ARN deberían considerar los OPEX y CAPEX derivados de la implementación delas TICs, mercados de servicios de sistema y nuevas herramientas para los OSD. Porello, las ANR deberían desarrollar una regulación por incentivos de los OPEX y losCAPEX. Al mismo tiempo será imprescindible la definición de indicadores quecontrolen el grado de implementación y variables económicas de las nuevas solucionesen el caso de los CAPEX e indicadores de calidad, eficiencia, seguridad y variableseconómicas en el caso de los OPEX.Las ayudas para la integración de nuevas tecnologías en la GD deben procurar eldesarrollo tecnológico al mismo tiempo que se procura limitar la inserción a granescala de tecnología inmadura en los sistemas de distribución. Para conseguir esto, lasANR deberían determinar una cantidad fija de presupuestos para estas ayudas. Ensegundo lugar, deberían repartir dicha cantidad de manera que: tecnologías inmadurasreciban una menor proporción del total, pero que esa cantidad se reparta entre menosproyectos (limita el número de proyectos). Por el contrario, tecnologías más madurasrecibirán una mayor proporción del total, pero se repartirá entre más proyectos.Finalmente, las ANR tienen que decidir si las ayudas las obtienen de la tarifa de accesoo si las obtienen a través de los Presupuestos Generales del Estado. Ambas opcionestienen consecuencias negativas a corto plazo, pero son imprescindibles para lacompetitividad del país a largo plazo.Para la integración de la respuesta de la demanda hay dos elementos clave: contratosbasados en precios del mercado y señales de precios a través de contadores inteligentes.Las comercializadoras deben crear productos atractivos para sus clientes objetivo, demanera que de forma voluntaria abandonen los contratos regulados. Además, losconsumidores finales pueden obtener beneficios si trasladan su consumo a momentos demenor demanda o cuando el sistema lo requiera (incentivos de los mercados defirmeza).
    • VI
    • VIIREGULATORY ANALISYS FOR THE INTEGRATION OFDISTRIBUTED GENERATION AND DEMAND-SIDEPARTICIPATION.Summary of the dissertation.The de-regulation and unbundling process of the electrical sectors that started in the90’s in most of European countries, has change their structure. Generation, economicactivities (wholesale and retail markets) are de-regulated activities, while networkactivities (transmission and distribution), technical operation and market operator (whenit exists) are regulated activities.The activities involved in the electrical sector can be divided in four groups: physicallayer, technical management layer, economic activities and regulatory framework. Thisseparation is essential for the analysis of the smart grids presented in this dissertation.In recent years, the awareness about the environmental impact derived from humanactivities, the external fossil fuel’s dependence of Europe and the unsustainability of theenergy system have motivated changes in the energy policies of the EU. As a result ofthis tendency, new milestones such as the objectives 20/20/20 for 2020 try to solve thethree aforementioned issues.The electrical systems represent an important share of the energetic demand of anycountry; thereafter, changes in the electrical systems are required if the EU wants toachieve its objectives. In order to face these new challenges, the electrical systems mustbe developed with a smarter and more active approach. Electrical systems must evolvetowards “Electrical Smart Grids”.The electrical smart grids are the evolution of the current electrical systems, theimplementation process of the Distributed Energetic Resources (DER) at the same timethat improving the quality, security and efficiency of the system. The DER are:Distributed Generation (D.G.), Demand-side Participation (DSP), Electric vehicle andDecentralized Storage. However, the development of the technology and properregulatory frameworks are remarkably important for the proper implementation of theDER.It is important to highlight two aspects: The Smart Grids are an integration process of the DER; therefore, they are not atotally new type of networks with new lines and equipment that substitutes thecurrent one. As any evolution process there is a path that must be followed andsome DER must be integrated before some others (DG and DSP must beintegrated before decentralized storage and the electric vehicle). The DER due to their characteristics will be connected to the distributionnetworks; thereby, the integration of the DER requires the proper evolution ofthe current distribution networks to accommodate these DERs.The integration of the DER in the current distribution networks are facing severalproblems that are preventing their proper integration in such networks.
    • VIIIDistributed GenerationDistributed generation (DG) refers to electric generation systems connected to thedistribution network, which are characterized by their low power and their nearlocation to the load or consumption.Only under certain boundary conditions the DG can bring to the distribution networksthe following benefits: Lower electrical losses. Deferral of the investments required to reinforce the network. Better security of supply service.Nonetheless, the way in which DG is being connected to the network is bringing theopposite effects.Recently, the European National Regulatory Authorities (NRA) have incentivize thedeployment of Renewable Energy Sources (RES) in DG. These incentives were mainlydue to: High levelized costs of energy: at the beginning the RES were immaturetechnologies and they were not able to compete in the electrical markets. Presently,some of these technologies such as geothermal and on-shore wind power havelevelized costs comparable to those of conventional technologies. Their intermittent and unpredictable nature makes very difficult for thesetechnologies to participate in the energy markets.These two factors combined motivated that DG RES (which account for an importantshare of DG) obtain some benefits such as: priority access and economic supportmechanisms (feed-in tariffs, fees and green certificates, etc.). These benefits haveresulted in: DG RES do not participate in the energy markets and DSOs do not receive anyinformation about their schedule and dispatching. DG RES can inject power in the distribution networks at any time withoutconsidering the actual state of the local distribution network where it is connected..In the planning step, the main problem that DSOs have to face is the lack of firmness(capacity of a generator to produce/ absorb power when it is required by the system) ofDG. Because of this, DSOs cannot rely on the capacity provided by DG and they haveto reinforce the network to endure the negative effects of the DG.In the operation step, the integration in the networks of DG (non-predictable load andbidirectional power flows) requires DSOs to shift from the traditional passive approachof operation to a more active operation. The DG has 2 negative effects which lead thelocal distribution network to alert state.Firstly, in the medium and low voltage distribution networks (MV and LV networks),the active power injected by DG produce voltage variations, affecting the quality of theelectricity. To compensate this effect, it is necessary to control the flow of reactivepower. However, reactive power in the MV and LV networks has little effect onvoltage control. This situation results in problem for DSOs to accomplish their tasks.
    • IXSecondly, there can be congestions in local area of the distribution network (PG-PL>Pmax or PL-PG>Pmax) leading the system beyond the security limits. This is mainlydue to the lack of incentives for DG to consider the state of the distribution network inthe area where it is connected.Regarding the connection and access of the DG, it is necessary to move from thetraditional “Fit and forget approach” to a more “Active management approach”, beingthe more cost effective solution.Within the connection of DG there are the following problems: Technical connection criteria: bad criteria for electrical protections, no possibilityto use shallower connection charges instead of deep connection charges. Lack of homogeneous national criteria, standardization, transparency and non-discrimination.Regarding the access of DG, as mentioned before, the DG has priority access andsupport mechanisms that allow DG RES feed-in at any time. This can lead thedistribution networks to blackouts and curtailments when the security limits aresurpassed (decreasing reliability).On top of that, DSOs need to invest in the integration of ITCs to improve theirmonitoring of the network and establish bidirectional communication with DG.Demand-side ParticipationDemand-side participation is a concept that embodies two other concepts: Demand-side Management (DSM): implementation of those actions aiming toinfluence on the way that energy is consumed, obtaining the desired changes in thedemand curve. These actions oriented to influence the demand are introduced byDSOs and they can be classified in 4 categories: improve overall efficiency of thesystem, shift demand from peak to valleys, fill valleys and reduce demand in criticalmoments for the system. Demand Response (DR): involves all the changes in end-users’ normal consumptionpatterns due to variations on price signals over the time.The demand of any electrical system is characterized by: seasonal behaviour, peak-valley ratios, especial events, geographic dispersion, type of demand (industrial, serviceand household) and price inelasticity.From the demand response point of view, the most important of these characteristics isthe inelasticity of the demand. This is mainly due to two factors: Final customer’s lack of information about the actual price of the electricity. For thisaspect, the integration of the smart meters will be crucial for final customers toreceive price signals from the energy markets or their energy suppliers. A significant part of the demand (small industrial, services and householdconsumption) has regulated contracts with static prices.
    • XThese two factors combined make that final customers cannot be aware of prices andlack of incentives to modify their consumption habits when the system requires it orwhen the prices of the electrical markets are high.From a planning point of view, ensuring the firmness of demand (reduce/stopconsuming when the system requires it) can be an important tool for DSOs (DSM) toplan their networks in a more efficient way, postponing reinforcements of the networks.Furthermore, in the operation step demand response can be used by DSOs to managecongestions in the system.For the proper integration of DG and DSP, DSOs need to develop new tools that willimprove their visibility of the system and also will improve the planning and theoperation of their networks. Therefore, DSOs should invest in monitoring, simulation,control and forecasting tools.Regulatory framework model: Solutions for the integration of DG and DSPIn the planning step, DSOs need to increase the firmness of the demand and the DG. Forthis purpose, NRA should allow DSOs to integrate firm DG/ Demand and create the socalled “firm capacity management markets”.Within the firm capacity management markets there are two types: the firm DG andfirm demand capacity markets. Because of firm DG capacity markets, DSOs can obtainextra capacity from DG to postpone investments in reinforcements. At the same time,the firm demand capacity markets will enable DSOs to incentivize energy suppliers/large customers to reduce their demanded capacity in some moments when the localarea would be overloaded. Both of these markets try to use demand or DG to providethe necessary capacity without reinforcing the network.These markets should be co-ordinated by DSOs, since they are the ones who betterknow the functioning of their networks. There are as many markets as areas defined bythe DSOs because they consider the local generation and demand.The DSOs based on the expected future demand, must foresee the areas and the numberof hours in the year when the network might be overloaded. These services would bepaid by DSOs ex-post. This means that in these markets, the price of the service isestablished and only when the DSOs make use of it, the DSOs will pay to the DG/energy suppliers/ large customers.The DSOs will procure this services (OPEX) until the moment on which investing inreinforcements of the network (CAPEX) in the long-term time scale breaks even.Regarding the connection and access of DG, DSOs have to evolve towards an “Activemanagement approach” (non-firm connection, non-firm access) since it chases the mostcost-effective solution between OPEX and CAPEX. DSOs should incentivize DGdeveloper to accept non-firm access contracts in reward of benefits in the connectioncharges (use shallower instead of deep connection charges). Non-firm access contractswill allow DSOs to curtail DG feed-in when congestions occur during the operation.For the connection of DG, NRA should define proper protection criteria (stronglyrecommend UNE or IEC) for each type of technology ensuring the security of thesystem. NRA should allow DSOs to offer DG shallower connection charges for thoseDG who offer system services (firmness, DSO voltage control, losses compensation,
    • XIetc.). Additionally, NRA should define as obligatory the integration of ITCs for thecommunication between the DSOs and the DG. For the connection of the demand, themost important component is the smart meter.In the operation step, a model based on system’s states is recommended. Thedistribution system has three different states: Normal state: the system runs smoothly and no constraints are being violated. Alert state: the distribution system (locally or the whole) goes beyond the securitylimits due to voltage variations, congestions, etc. To solve these problems, the DSOwill purchase system services (services offered by the DER to the DSOs), which arebased on commercial agreements, to come back to the normal state. Emergency state: the system (locally or the whole) goes beyond the safe operationboundaries. For this case, the DSOs will actively influence on the generation/demand to solve the problems, without considering the commercial agreements, assoon as possible. Compensation criteria should be defined for this case.NRAs need to incentivize DSOs to invest in those technologies required in order tointegrate the DERs and their system services to support DSOs in their tasks. DSOsshould invest in: implementation of ITCs, creation of system services markets and tools(monitoring, simulation, control and forecasting) for co-ordination.NRA should consider the OPEX and CAPEX derived from these solutions, toincentivize its gradual integration. For this purpose, NRAs should follow an incentivebased regulation of CAPEX and OPEX at the same time that creating KPIs thatmeasure the integration level of the new technologies, the quality, the efficiency, thesecurity and economic variables considering the most cost effective solution.The subsidies for the integration of new technology in DG should be done in a way thatincentivizes the technological development, becoming more competitive at the sametime that limiting the integration of high shares of immature DG in the system. For thispurpose, NRAs should establish a fix amount of total subsidies. Then, they shouldprovide with higher proportion of the total to more mature technologies, but providingless money by project. Conversely, for less mature technologies, a smaller proportionof the total budget should be devoted, but more money per project. NRAs have todecide according to their energy policy whether the subsidies are withdrawn from theaccess tariff or the National State budget. Both options have negative effects in theshort-term time scale, although the technological development is essential forimproving the competence of the country in the long-term time scale.For the integration of the DR, there are two basic components: market-reflectivecontracts and price signals through smart meters. Energy suppliers must defineattractive products that adjust to their target customer consumption habits, motivatingtheir voluntary shift from regulated contracts to de-regulated contracts. Additionally,final customers can obtain potential benefits if they decide to shift their consumption tothose hours with lower energy market prices or when the system requires it (incentivesfrom firm demand capacity markets).
    • XII
    • XIIIIndex1. Introduction, motivation and objectives. .............................11.1 Introduction and motivation..................................................................................11.2 Objectives..............................................................................................................22. The current electrical system in Spain. ................................52.1 Physical layer .........................................................................................................52.2 Technical management..........................................................................................72.3 Economic management level.................................................................................82.3.1 Electricity markets........................................................................................102.3.1.1 Wholesale market.................................................................................102.3.1.2 Retail market.........................................................................................182.4 Regulatory framework.........................................................................................192.4.1 Structure of the electrical sector..................................................................192.4.2 Regulation of the distribution activity..........................................................192.4.3 Quality of service, Security and Efficiency....................................................203. The evolution of the current electrical system: Smart .........Grids. .....................................................................................213.1 Reasons for the change of the current electrical system.....................................213.2 Concept of Smart Grids........................................................................................244. Distributed Energetic Resources (DER).............................294.1 Distributed Generation (DG)................................................................................294.1.1 Definitions....................................................................................................294.1.2 Market accessibility......................................................................................304.1.2.1 Costs of technologies deployed in DG...................................................304.1.2.2 Priority access and support mechanisms for the integration ofrenewable energy technologies..........................................................................314.1.2.3 Objective of subsidies for new technologies.........................................33
    • XIV4.1.3 Planning .......................................................................................................344.1.4 Operation.....................................................................................................374.1.5 Connection and Access.................................................................................454.1.6 Information exchange ..................................................................................524.2 Demand-side Participation (DSP).........................................................................544.2.1 Definitions....................................................................................................544.2.2 Demand characteristics................................................................................564.2.3 Lack of demand participation in energy markets: Inelastic demand............584.2.4 Planning. ......................................................................................................614.2.5 Operation.....................................................................................................624.2.6 Technology and information exchange ........................................................645. The new role of the DSO and regulatory framework ..........recommendations..................................................................695.1 Planning...............................................................................................................695.1.1 Firmness of DG.............................................................................................695.1.2 Firmness of Demand ....................................................................................705.1.3 Firm capacity management: Firmness markets for DG and Demand. ..........715.1.3.1 Functioning of firm DG capacity markets..............................................715.1.3.2 Firm Demand capacity markets. ...........................................................735.2 Connection and Access........................................................................................755.2.1 Connection and access requirement for DSO...............................................755.2.1.1 Connection based on Active management approach. ..........................765.2.1.2 Network access based on Active Management Approach. ...................765.2.2 Connection and access requirements for DG and Demand..........................785.2.2.1 Connection requirements from DG’s point of view. .............................785.2.2.2 Connection requirements from demand response’s point of view.......805.2.2.3 Access requirements from DG’s point of view. .....................................815.3 Operation ............................................................................................................81
    • XV5.3.1 System state model and system services as tools for the DSO.....................815.3.2 Concept of system services and system services required for each state ofthe system..................................................................................................................825.3.2.1 System services definition.....................................................................825.3.2.2 System services required for each state. ..............................................835.4 Regulation of OPEX and CAPEX for DSOs .............................................................895.4.1 CAPEX regulation..........................................................................................895.4.2 OPEX regulation. ..........................................................................................905.5 Integration of DER into the market......................................................................905.5.1 DG ................................................................................................................905.5.2 Demand Response .......................................................................................926. Conclusions ...........................................................................94References ...................................................................................98
    • XVIIndex of FiguresFigure 1: Simplified single line scheme of the electrical system...........................................5Figure 2: The product and service electricity model.............................................................9Figure 3: Concepts included in Costumers bill. Source: Own..............................................9Figure 4: Structure of the electrical market. Source: Own .................................................10Figure 5: Offer and demand curve construction ................................................................12Figure 6: Supply curve [2]...................................................................................................12Figure 7: Demand curve [2]. ...............................................................................................13Figure 8: Marginal Price [2]. ...............................................................................................13Figure 9: Marginal prices of the energy for each hour of a certain day [3]. .......................14Figure 10: Daily and intra-day market sessions [1].............................................................15Figure 11: Adjustment services markets. ...........................................................................16Figure 12: Volatility of prices in the wholesale market. .....................................................18Figure 13: Capacitys evolution of the electrical system depending on the criterion .........23Figure 14: Necessary components of Smart Grids and objectives. Source: Own...............25Figure 15: Possible smart grids’ route integration. Source: Own. ......................................26Figure 16: Levelized Energy Cost for different technologies [4] .........................................31Figure 17: left net capacity curve / right monotonous capacity curve of transformer .......35Figure 18: curves of the cogenerator .................................................................................36Figure 19: curves of the transformer..................................................................................36Figure 20: Thevenin equivalent at the connection point of DG..........................................39Figure 21: voltage profile depending on the length and network conditions. ...................41Figure 22: representation of the extra-cost in the access tariff due to system services co-ordination...................................................................................................................43Figure 23: DER access and connection approaches. Source: [7].........................................47Figure 24: Mechanisms of Demand-side Participation ......................................................55Figure 25: Demand profile of the different groups. [8] ......................................................56Figure 26: seasonal behavior of demand. Own based on data from .................................57
    • XVIIFigure 27: Dispersion of the generation and the demand [8].............................................58Figure 28: Inelastic and elastic behavior of demand. .........................................................59Figure 29: End-users electricity bill....................................................................................60Figure 30: Possible distribution network topology and the monotonous demand curve forthe transformer during a year. ...................................................................................71Figure 31: Bids of firm capacity of DG producers connected to a certain area. .................72Figure 32: Possible network topology of a certain area with few DG and its monotonousdemand curve................................................................ ¡Error! Marcador no definido.Figure 33: Functioning of the firm capacity of demand market. ........................................74Figure 34: Concept of System Service. ...............................................................................83Figure 35: Difference between the cost of producing energy with a certain technology andthe marginal price of the whosale market according to its experience curve. ...........91
    • XVIIIIndex of TablesTable 1: Characteristics of the different distribution networks [1] ......................................6Table 2: Electrical activities involved in the electrical sector..............................................20Table 3: Support mechanisms according to different criteria [5] .......................................32Table 4: Typical values for R/X relation for different voltage levels ..................................39Table 5: connection and access approaches. Source: Own ................................................45Table 6: voltage levels and its typical generation technologies..........................................49Table 7: Connection and access approaches. .....................................................................75Table 8: System Services. Source: own and [7]...................................................................88
    • XIX
    • XX
    • 11. Introduction, motivation and objectives.1.1 Introduction and motivationIn Europe recently, the population awareness about the environmental impact togetherwith the high dependence of natural resources from geopolitical unstable countries, hasmotivated changes in the European energy policy. For this reason, future intentions suchas the objectives 20/20/20 are motivating new tendencies in the energy systems of thedifferent European countries.The effect of this policy on the electrical system, especially in Distribution networks, isthat EU countries have incentivized the connection to the network of small generationgroups close to the load (Distributed Generation). The consequences of DG can beextremely positive for the efficiency of the electrical system. Additionally, if animportant share of the DG is renewable technologies, the environmental impact can bedramatically diminished compare to systems entirely based in fossil fuel technologies.Nevertheless, the effect of DG in those networks with high share of DG is becoming theopposite of the desired. Due to the EU regulatory framework, DG: Has priority access to the network, being able to inject power to the networkwhenever they produce it without participating in the electrical markets. Therefore,distribution network operators miss much information from the DG connected totheir network. DG has no obligation to produce when the load peaks or when the system requires aback-up (no firmness of DG). Therefore, distribution network operators cannotconsider DG when designing their networks in the long-term (planning). The monitoring level of Medium and Low voltage distribution networks is deficient.Moreover, DG has priority access and does not participate in the electrical markets.All these factors make that DNOs have no information during the operation aboutthe actual state of the system. The connection of DG produce changes in the operation conditions of the system(Voltage variation, reverse power flows, etc.). Nonetheless, DG has no obligation tosupport DNOs in the operation of the areas where DG is connected. All these counterproductive factors make necessary changes in the currentregulatory framework, in order to about these problems and properly integrate DGin the distribution system.The traditional approach when expanding the distribution networks together with theconsumption habits of final customers, result in over-sized systems. The demand ofelectricity is not constant along the time. It has peaks and valleys but the electricalnetworks are designed to provide the required capacity when the load peaks. However,these peaks represent a small proportion of hours over the total amount of hours in ayear. Consequently, the system is inefficient.
    • 2In order to avoid over-sized and inefficient distribution networks with high investmentsin capacity, there is the need to change to a new paradigm. The new paradigm “demandfollows supply” in contracts with the traditional one “Supply follows demand” requirethe implementation of the Demand-side participation.The aim of the demand-side participation is to motivate the necessary changes in thedemand curve so that the capacity of the electrical system can be used more efficiently.However, the current regulatory framework does not allow the actual participation ofthe demand in the electrical market. It can be said that the demand is inelastic tovariations of the price. This is mainly due to the lack of information of final customersabout the real price of the electricity.It is necessary changes in the regulatory framework to provide final customers with thenecessary information so that they can participate more actively in the electrical market.Derived from this, the demand will manage more actively their consumption. Thisactive management will allow DNOs to use more efficient the already installed capacityand assets.Both, Distributed generation and Demand-side participation are two of the fourDistributed Energetic Resources (Distributed Generation, Demand-side Participation,Decentralized Storage and Electric Vehicle) which constitute the Electrical Smart Grids.The aim of the Smart Grids through the implementation of these four DER is to improvethe efficiency and sustainability of the system while reducing the environmental impact.All this keeping the quality of the product and security of the service at the minimumcost.To conclude, Smart Grids are the evolution of the current electrical system. The successof this evolution highly depends on the integration process of the Distributed EnergeticResources. This integration process requires important changes in the present regulatoryframework and this is the motivation of this dissertation. Regulatory recommendationsbased in a sustainable model constitute the basis for the already on-going integration ofthe Smart Grids.1.2ObjectivesThe main objective of this dissertation is to create and define a proper regulatoryframework which integrates the Distributed Generation and Demand-side Participation.This regulatory framework must protect the economic interests of all the agents involvein the electrical system at the same time than ensuring the quality of the product and thesecurity and efficiency of the system.In order to achieve this aim, it is necessary to accomplish a series of partial objectiveswhich constitute the basis of this main objective. These partial objectives are:
    • 3 Define and characterize the Electrical Smart Grids. Identify the key elements for the proper integration of the Distributed Generationand Demand-side Participation. Identify the role of the DSOs and barriers they face for the proper integration ofDistributed Generation and Demand-side Participation. Analyse the regulatory and economic aspects that need to be modified for theproper integration of Distributed Generation and Demand-side Participation.The structure of the dissertation is as follows:In the chapter 2, the four activities involved in the functioning of any electricalsector that has suffered a de-regulation and unbundling process are described. Theseactivities are: the physical layer, technical management layer, economic activitiesand regulation framework. In this chapter there is a special emphasis in the electricalmarkets and the regulation of DSOs.In recent years, due to the new tendencies of the energy policies in the EU, changesin the energy systems are occurring. In the case of electrical system and especiallyin distribution networks, the result has been the connection of a high share of RESDG. However, the connection of the DG is the first step towards the connection ofother distributed energetic resources to the distribution networks. To face these newchallenges, the distribution networks must evolve towards the smart grids.The development of the smart grids for the future integration of the distributedenergetic resources is crucial. Therefore, in chapter 3 the concept of smart grid andcertain characteristic associated to them are explainedThen, Chapter 4 analyses the current economic and regulatory barriers thatdistributed generation and demand-side participation are facing for a properintegration in the distribution networks. This analysis is divided into different partsthat have to be considered to properly integrate the distributed energetic resources inthe distribution networks: definition, market accessibility, planning, connection andaccess, operation, information exchange, etc.Subsequently, chapter 5 define possible regulatory solutions to the problems of eachDER diagnosed in chapter 4. Therefore, chapter 5 creates and defines a regulatoryframework which integrates the Distributed Generation and Demand-sideParticipation. This regulatory framework must protect the economic interests of allthe agents involve in the electrical system at the same time than ensuring the qualityof the product and the security and efficiency of the system.
    • 4To conclude, in chapter 6 all the regulatory recommendations required to implementthe solutions presented in chapter 5 are summarised.
    • 52. The current electrical system in Spain.The electrical system has a complexity which goes beyond the physical layer, in fact,the electrical system comprises four different layer: physical layer, technicalmanagement, economic management and regulatory framework. Subsequently, a moredetail analysis about the four different layers that constitute the electrical sector, will setthe basis of how this industry runs.The most important aspect in the current electrical sector was the liberalization processthat has taken place. In 1982, Chile was the first country which separated the differentactivities of the electrical system into regulated and de-regulated activities. In thefollowing years, this trend extended to many other countries.The liberalization process has different characteristics depending on the country.However, all of these processes have in common: Separation of regulated and de-regulated activities. Creation of a wholesale market in which generators compete. Access to third parties to the transmission networks through toll payments. Freedom of clients to choose their energy suppliers.2.1Physical layerThe physical layer refers to the transformation of a primary energy into electricity andthe transmission of it to the final consumers through the electrical network. This layercan be seen as the hardware of the electrical system.A simplified single line scheme of the electrical system is depicted in Figure 1:Figure 1: Simplified single line scheme of the electrical system.
    • 6The distribution network connects the transmission network with the final costumers.The distribution networks can be divided into three different categories depending ontheir voltage level: High voltage networks (HV). Medium voltage networks (MV). Low voltage networks (LV).The features of each category can differ from one country to another. However, thegeneral characteristics are presented in Table 1.Type ofdistributionnetworkTopology OperationNumberclientsAmount ofequipmentOperationflexibilityMonitoringlevelHV MeshedMeshed/ringFew Several Medium HighMVMeshed/ringRing Several Many Few MediumLVMeshed/ringring Many Many A few LowTable 1: Characteristics of the different distribution networks [1]High Voltage Distribution NetworksHigh voltage distribution networks present a meshed layout, which improves thereliability of this level. Only few clients which demand high power requirementsconnect to this network (for instance: industries, long distance trains and trains andspecial regime).The number of clients connected a type of network is a very important factor. Thehigher number of clients the more difficult to monitor and operate the network.Moreover, many clients connected demands high investments in facilities andequipment.Medium Voltage Distribution NetworksThe typical topologies of medium voltage network are ring or meshed.The topology ofthe medium voltage network depends on the geographical location of customers. Themeshed level is direct related to the level of service continuity that wants to be offeredto the costumers.
    • 7In the medium voltage networks DNOs have a medium monitoring level but not realtime operability. Typically, the SCADA systems responsible for the medium voltagenetworks control only the substations which are located on the border (either with otherdistributors or with high and low voltage distribution networks).Typically, the SCADA systems can: Monitor the measurements. Maneuver. Protection. Visualization of equipment’ state.However, at the moment DNOs only monitor the limits of the medium voltage networks.Therefore, they cannot visualize the real-time conditions of this networks.Low Voltage Distribution NetworksThe low voltage network starts at the medium voltage substations and finishes at theGeneral Protection Box (GPB). Beyond this point, the network belongs to the clients.The large amount of costumers and equipment connected to this network makesunfeasible to set real-time measurements. The enormous amount of clients makesnecessary high installation and maintenance investments.The monitoring level is deficient and this is why in most of the cases, when costumerssuffer blackouts, distributor are not aware of it. It is only through telephone calls fromthe final clients that they realize there is a fault.2.2Technical management.Technical management is the responsible for the proper functioning of the physicallayer. The technical management activity is carried out by the operators of the electricalnetworks.In distribution networks, the main responsibilities of distribution network operators are: To keep electrical parameters of the system within the security limits (For instance:voltage variation, temperature of active components, maximum current, etc.) Maximize service continuity. Maximize quality of the product for final customers. Minimize system losses.These responsibilities must be achieved by DNOs under any circumstances. These tasks,as any other activity involving the DNOs, are defined and established by NationalRegulatory Authorities.
    • 8Depending on the country, the operation of distribution networks can be performed bydifferent agents. In the concrete case of Spain, the distribution network is managed bymany distribution network operators such as (Endesa, Iberdrola, E.ÓN, Gas NaturalFenosa, etc.) which are responsible for different parts of the system.2.3 Economic management level.The economic management refers to all the activities related to the purchasing andselling of electricity. At this point it is very important to distinguish the electricity as aproduct [MWh] and the electricity as a service [MW or MWh].Electricity as Product (Energy)Electricity as product (energy). The product electricity is manipulated by de-regulatedactivities whose aim is to satisfy the energy needs of costumers.The price of the electricity as a product can be fixed by different mechanisms. The bestof these mechanisms are the markets ruled by the offer and demand law. These marketsare the best mechanism because they ensure the balance between the interests of theoffer and the demand.Electricity as a Service (Energy)The electricity as a service (power or energy). The service of transmission, distributionand delivering of the product is performed by the regulated activities. Their aim is toguarantee the security and quality of the supply service.Final customers pay for this service through the access tariff, which is the regulated partof their bills. However, part of these services is ruled by the offer and demand markets.This is the case of the adjustment services (technical constraints markets, ancillaryservices, deviation generation-consumption) which are markets ruled by the offer anddemand law but used to ensure the security of supply when there are constraints in thesystem.The concepts of electricity as a product and electricity as a product are depicted inFigure 2.
    • 9Figure 2: The product and service electricity model.Due to the concept of electricity as a service and as a product, final costumers’ bill ismade up of two different parts: the energy consumption (electricity as a product) and theelectricity service. The price of the energy depends on the contracts between finalclients- energy suppliers or directly the price of the wholesale market.In Figure 3, the breakdown of final customer’s electricity bill is presented:Figure 3: Concepts included in Costumers bill. Source: OwnDue to the unbundling process the regulated activities are not the same in all the country.In all the cases, the regulated activities include investment and maintenance of theElectricity billNetwork(service)Regulated: access tariffEnergy(product)De-regulated( Energy marketprice signals)Price signalsMarket-reflectivecontracts(ToU, CCP, Real-timepricing)Regulated Static prices
    • 10transmission and distribution network, but other concepts depend on the country. In thespecific case of Spain, the access tariff covers the cost shown in figure 22.3.1 Electricity marketsWhen describing the electricity as a product, it was claimed that the best mechanism tofix the price for the electricity was the markets ruled by the offer and demand law. Inthis section, the markets of the electrical system will be presented.In all countries on which a process of liberalization took place, the structure of theelectrical market is structured as illustrated in Figure 4: Structure of the electricalmarket.Figure 4: Structure of the electrical market. Source: Own2.3.1.1 Wholesale marketThe wholesale market is where large amounts of energy are sold and purchased.Through a series of market sessions, the generators and demand come to an agreementabout the amount and the prices of the energy that is going to be consumed each hour ofa certain day “D”. It is not until that day D that the electricity is actually delivered tofinal customers.The agents involved in the wholesale market are:Electrical marketWholesale market(Generators↔Energy suppliers/Largecustomers)Long-termmarketFinancial tools(no physicaldelivery)Short-termmarketIntra-day marketAdjusment ServicesMarketsDaily market(physical delivery)Retail market(Energy suppliers↔Finalcustomers)
    • 11 Producers: they are the ones who generate the electricity (Nuclear power plants,hydro power plants, etc.) and offer it in wholesale markets. They are the offer. Large customers/ energy suppliers: they are the ones demanding the electricity inthe wholesale markets. Therefore, they are the demand.The short-term markets within the wholesale market are sometimes characterized by thevolatility of its prices (spot market). This means that the prices of the energy are verychangeable along the time. This volatility involves economic risks, in terms of incomes,for generators and large customers/ energy suppliers. Thus, both parts try to avoid thisrisk using different economic tools. These economic tools can be established days,months and even years in advance to the actual delivery of the electricity in day D(long-term markets).Therefore, the wholesale market is made up of: short-term and long-term markets.A. Short-term marketsThe short-term market comprises: Daily market: economic activities that take place the day before the physicaldelivery (D-1). In this market is where offer and demand purchase and sale theenergy for each hour of the day D.In any market structure, the daily markets are there reference to establish the priceof the electricity. In all those countries where a liberalization of product relatedactivities, in order to operate and manage the daily market, there is a marketoperator. However, there can be immature markets where there is no such marketoperator.The daily market works as follows:In the daily market, generators and consumers send their offers and bids (energy[MWh] and price [€/MWh]) to the market operator for each hour of the followingday (see left side of Figure 5). Besides the offer and demand bids, the operatorreceives the international exchanges and in the case of structured and matureelectrical market, the market operator also receives bilateral agreements (explainedin long-term markets section).As mention above, the supply and demand bids are for each single hour of thefollowing day; this means that there are 24 different products for each day.After the market operator gathers the bids, the market operator places in ascendingprice order the supply offers and in descending price order the bids offered by thedemand for each hour (see right side of Figure 5).
    • 12Figure 5: Offer and demand curve construction [2].Controllable power controllableSubsequently, the market operator creates the supply and demand curves asrepresented in Figure 6 and Figure 7 respectively.Figure 6: Supply curve [2].
    • 13Figure 7: Demand curve [2].Finally, these two curves are overlapped and the point where the supply anddemand curve match, establishes the amount of energy [MWh] and the price[€/MWh] for that energy that is going to be consumed for that hour (see Figure 8).Figure 8: Marginal Price [2].As mentioned above, this curve is done for each hour of the day so for the wholeday there are 24 different prices, as represented in Figure 9.
    • 14Figure 9: Marginal prices of the energy for each hour of a certain day [3].Inspecting the supply curve it can be noticed that the curve starts at 0 €/MWh. Thisis the energy that the nuclear power plants generate. The reason for this is that thenuclear power plants are very stable and changing the working conditions isdifficult. In this way, they make sure that the energy produce by means of nuclearpower plants will be always in the pool. In contrast, some other technologies whichare more flexible on their operational status (cogeneration, renewable energies, etc.)offer higher bids than nuclear power plants and other conventional technologies.Furthermore, it is necessary to underline that all generators which are beyond thematching, will not supply energy to the network. The offers are higher because theiroperational costs are higher than the fixed price established in the wholesale market.At this point is where the competence between generators plays and essential role.In other words, those generators who offer the lowest prices are the ones thatprovide the energy and receive the money. Conversely, if the cost of generatingelectricity is higher than the pool price, it is not profitable to provide the energy andthose generators will not participate in the pool.Changing the perspective to the demand side, the demand curve starts at 183€/MWh. By law, this is the highest price that can be offered in the pool. This isdone because in this way, demand make sure that the vast majority of the energy(around an 80%) they have to supply to the final clients will be provided.In the specific case of Spain, the market operator is OMIE (responsible of the dailymarket not only in Spain but also in Portugal). It guarantees a legal and transparentadministration of the daily market. Intra-day market: those activities during the day of the physical delivery (D).Once the daily market is closed, during day D offer and demand can change theelectricity they purchased/ sold in the daily market.
    • 15Once the daily market is closed and in the following 24 hours there are 6 intra-daymarket sessions on which the generators and demand can change their deals aboutpurchase-sale (see Figure 10). The agents and market operator involve in thismarket are the same as in the daily market and it works in a very similar way.Due to its proximity in time to the actual delivery of the electricity, the volatility ofthese markets is higher than the daily markets and that is why any agent tries toavoid participating in these markets as much as possible.Figure 10: Daily and intra-day market sessions [1].This market is a consequence of the necessity to keep continuously the equilibriumbetween generation and consumption. The consumption is foreseen by energysuppliers, but this forecast may differ from the actual consumption. Therefore,energy suppliers may need different energy requirement. These sessions helpgenerators and demand to manage the deviation from the actual consumption.Sometimes it may occurs, as it happens in the daily markets, that the agreements ofthe daily market are in conflict with the technical constrains of the system. Theseconflicts are solved by the System Operator through adjustment services markets. Adjustment services markets: additionally, during the day D there are othermarkets which are used to ensure the security of the system and the equilibriumbetween generation-demand. These markets are the adjustment services markets. Thesemarkets include: technical constraints markets, ancillary services and deviationgeneration-demand management.
    • 16Figure 11: Adjustment services markets.Source: OwnTechnical Constraints ManagementThe daily market is just based on offer and demand laws, economic laws. Nonetheless,the electrical system has technical constrains and the most important, the electricitydoes not follow economical laws but physical laws (Ohm and Kirchhoff).The generation and the demand are scattered all around the national geography and theyare connected through the transmission and distribution networks. Therefore, there canbe technical constrains, for instance overload of lines and substations. Thus, some areasof the electrical system might be congested affecting some of the generation plants thatwere supposed to inject power.To solve this problems, after each session of the daily and intra-day market and takinginto account bilateral agreements, the System Operator execute a process to manage thetechnical constraints. For this purpose, the system operator analyses the scheduledproduction of generation plants and expected international exchanges. With thisinformation the SO can operate the system to solve the constraints and guarantee thesupply of electricity.Ancillary ServicesAs in the technical constrains study performed after the daily market, there is real-timemonitoring of the system. The Ancillary services are those tools necessary to ensure thesecurity, quality and reliability of the electricity supply service. Some of the ancillaryservices are frequency-active power (primary, secondary and tertiary) regulation,voltage variation-reactive power generation and others.Deviation Generation-Demand managementAdjustmentservicesTechnicalconstraintsmanagementAncillary ServicesFrequency- ActivePower regulation.Voltage- ReactivePower regulationOthers.Deviation generaton-deman management
    • 17Additionally to all the mechanisms mentioned above, in order to solve the differencesthat may appear minute to minute between supply and demand, the System Operator hasmechanisms to solve the deviations. Only in the exceptional case that the differencebetween supply and demand is higher than a defined threshold, the System Operator canconvene a “deviation management market”. In this market, the SO can increase orreduce the energy agreed in the daily and intra-day market.These three services are normally controlled and operated by the System Operator. Theway to make the modifications is through markets on which these services are providedto the SO by the generation groups.A. Long-term markets and risk aversionThe long-term market (before D-1) includes all the economic activities which areperformed before the day of the physical delivery (before D-1).When describing the short-term markets, it was mentioned that they are sometimescharacterized by the volatility of the prices. This volatility represents a risk in terms ofincomes for demand and generation. Therefore, in organised and mature markets it isvery common that the different agents establish bilateral agreements days, months andeven years in advance to the actual delivery of the electricity in the daily markets.Therefore, when the agreements are created, there is not physical delivery of theelectricity (financial products related to the electricity).The objectives of the long-term markets are:1. Allow generation and demand to manage their economic risk.2. Facilitate the development of retail market, increasing the competence on it.These bilateral agreements are established directly between generators and largecustomers/ energy suppliers. Thus, these contracts are not organised by any regulatedand centralised institution.Some of the financial tools used to prevent the economic risk are: SWAP: financial contract established a certain time “t” before day “T” where thereis the actual delivery and cash-flow. This contract determines the energy and theprice of this energy day T.When day T comes, the energy is provided by the generator. The fixed priced of thecontract is compared with the price of the daily market. If the fixed price of thecontract is below the spot market price, demand pays the spot price market andadditionally gives the difference to the generator. Conversely, if the fixed price ofthe contract is above the spot market price, the demand will pay the spot market
    • 18price but the generator will provide the difference. This cash-flow is depicted inFigure 12.Figure 12: Volatility of prices in the wholesale market.Source: Own Options: provide the owner the right, but not the obligation, to purchase or sell acertain amount of asset (energy) at a specified strike price on or before a specifieddate. The seller receives then a premium from the buyer [6].There are two types of options: CALL and PUT. A CALL option is an option ofpurchasing and a PUT option is an option of selling. In the moment the option isestablished, the one acquiring the option pays a premium. The option can be“exercise” (buy or sell the asset) by its owner at any time before the end of thespecified date. The cash-flow is equal to the difference of the strike price of theasset and the premium already paid.2.3.1.2 Retail marketThe retail market is that one on which the energy suppliers sell the energy they boughtin the wholesale markets to final customers who do not participate in the wholesalemarket.Before the liberalization of the electrical sector, final customers could not choose theirenergy supplier. The energy supplier was the same as the DNO controlling that area.After the liberalization, final customers can choose the energy supplier which best suitstheir needs.The possibility of the final customers to choose their energy supplier motivates a fiercecompetence between energy suppliers trying to attract new customers.
    • 192.4 Regulatory frameworkAccording to Tenenbaum, 1995, regulation is a “system (of laws and institution) thatenables a Government to formalize and institutionalize it compromises of protectingconsumers and investors in a certain industrial sector”2.4.1 Structure of the electrical sector.Due to the liberalization process, there are activities on the structure of the electricalsector which are regulated while some other activities are de-regulated. The regulatedactivities are network activities (transmission, distribution), technical operation andorganized market operation. The de-regulated activities are generation, wholesalemarkets and retail markets and they are ruled by the offer and demand law.A perfect comprehension of the structure of the electrical sector is critical to fullyunderstand the regulatory framework. In Table 2, there is a schema comprising all theactivities involved in the electrical sector. In yellow the regulated activities and in greende-regulated activities.The network activities (distribution and transmission) are considered as naturalmonopolies. This is because there is no sense in constructing new lines in parallel toallow the competence between different companies. Therefore, distribution is aregulated activity. There are two main aspects within the regulation of the distributionactivity: Cost based or incentives based regulation and the control of the quality of theservice.2.4.2 Regulation of the distribution activityThere are two ways to regulate the distribution activity: Cost of service and regulationthrough incentives.Cost of Service has been the traditional regulation method for natural monopolies in theelectrical sector. According to this method, the National Regulatory Authorities (NRA)establishes the remuneration for the company according to justified costs plus the returnon the invested capital (ROI).The main problem with this regulation is that the companies do not have any motivationto reduce costs and make more efficient their networks. To solve this problem, there isanother type of regulation, incentives based regulation.Incentives based regulation. The NRA fixes a defined amount of money for a certainperiod of time (4 or 5 year). With this method, DNOs try to minimize their costs inorder to obtain higher revenues.When the period of time finishes the NRA supervise the cots and investments. Theresult of this supervision is a new formula that limits the prices or the incomes of thecompany.
    • 20The main problem with this method is that together with the reduction of costs, DNOsmay incur into less quality service. For this reason, NRA must control and define aminimum quality for supply service.Activities within the electrical sectorGeneration Network Transactions Ordinary regime: all theclassical generationtechnologies. Special regime:All the technologieswhich have lessenvironmental impact orbetter energeticefficiency. Adjusment services. Transmission Expansion planning Construction Maintenanceplanning Maintenance Transmissionoperation Distribution Expansion planning Construction Maintenanceplanning Maintenance Distributionoperation Wholesale market Retail market Energy suppliers Complementaryactivities Settlement. Billing. Metering.Coordination Technical operation of the electrical system Organized market operation ( if it exists)Table 2: Electrical activities involved in the electrical sector.Source: own2.4.3 Quality of service, Security and Efficiency.Another important factor within the regulation of the distribution activity is that NRAskeep the control of the three main tasks of DNOs: Good service quality: maintain voltage and frequency within acceptable values. Security: continuity of the service in the short-term scale. Efficiency: electricity supply with the minimum cost.There are different measures to keep control of these factors and although they mayvary from one country to another, in all the country these three aspects are regulated.
    • 213. The evolution of the current electrical system: SmartGrids.3.1 Reasons for the change of the current electrical system.In recent years there are three main factors that are determining the energy policy inEurope. These three factors are: Reduction of environmental impact. Improve security of raw materials supply. Sustainability of the power systems.This is why in order to lessen the environmental impact and fossil fuel dependence, in2008 Europe decided to set new milestones in its energy policy for 2020. The attemptgave as a result the objectives referred to as 20/20/20 for 2020: Reduction of greenhouse gases emissions by 20% of those in 1990. A 20% of the total energy consumption produced with renewable energies. Reduction of 20% of the total energy consumption enhancing the energeticefficiency.Environmental ImpactIn recent years society has witnessed a consciousness-raising about the environmentalimpact and the crucial role that human activities play on it.The environmental impact is due to the gas emissions originated in factories, vehicles,fossil fuel power plants, etc.Some of these gases only affect to the local environments (gases such as NOx and SOx),however the emissions of CO2 affect to the global greenhouse effect. The CO2 is one ofthe gasses that appear in the exhaust of the combustion of fossil fuels.Fossil fuels are currently indispensable in human activities such as industry andtransportation. The main problem with CO2 is that it is released to the atmosphere inhigher amounts that what can be naturally.The awareness about this problem resulted in a search of alternative energy sources thatpollute less than fossil fuels. The consequence is the development of renewable energies.Renewable energies enclose all those technologies which use local resources which arevirtually inexhaustible. Nevertheless, the renewable energies are characterized by theirintermittent and unpredictable nature (the wind blows when it wants and the sunshines when it wants). These characteristics introduce new and big challenges in theelectric system because unlike conventional generation plants, renewable energies arenon-controllable technologies.
    • 22Security of SupplyRegarding the security of supply, fossil fuels constitute the basis for Europeanenergetic system. Most of these fossil fuels are imported from countries outside Europewith unstable political background, decreasing European energetic independence. Thus,it is a must for Europe to find alternative energy sources to be more independent fromexterior energy supplies and improve its security of supply.Due to this dependence, Europe has to introduce changes in its energy policy in order touse more efficiently its own resources while it shifts from fossil fuels to other forms ofenergy which reduce its external dependence. With the aim of contributing to thereduction of fossil fuel dependence, the electrification of the transportation can be theperfect option.Nonetheless, the current electrical system is not prepared for the integration of electricvehicles. Still, there is the need to improve the technology but also to define the properregulatory background for their future integration in the electrical system.Sustainability of the electrical systemRegarding the electrical system, the objective of reducing 20% of the total consumptionimproving the efficiency is inherently linked with its sustainability. This reduction ofthe energy consumption cannot only be based in a reduction of each final customer oftheir consumption. Europe must be able to reduce the energy consumption developingmore efficient electrical system which improves the utilization of the electricity.For instance, In Figure 13 the evolution of networks’ capacity is depicted. The traditionalmethod used to supply the growing demand has been increasing the capacity of thesystem. The method is based on the idea that the electrical system must be able tosupply energy in the worst case that all consumers, at the same time, require themaximum power contracted.The result of this conception is that systems are designed for a capacity which is onlyused few hours a year. Therefore, the electrical systems in most of the cases are over-sized systems. This situation is unsustainable because large investments are required toprovide that capacity which only few hours along the years.In the past (left part of figure 1), conventional generation released its energy to thetransmission network and all based on a centralized control (System Operator). Thetransmission network was connected to the distribution network with a passive control.
    • 23However, there was a time when distributed generation started to be connected to thedistribution network.Figure 13: Capacitys evolution of the electrical system depending on the criterionProyecto Fenis.Currently (central part of figure 2), the problem that the electrical system is facing isthat distributed generation has a very strong presence on distribution networks.However, this distributed generation is connected to the distribution network as anintermittent generation (lacks of security of supply and firmness). Hence, distributedgeneration is substituting to the conventional generation in energy [MWh], but notcapacity [Mw].Subsequently, the installation of every MW of distributed generation involves anotherMW of conventional generation, in order to maintain security of supply. This situation itis unsustainable and that is the reason why a different perspective needs to be taken toaddress this situation more efficiently.Distributed generation needs to be properly integrated in the network. Furthermore,demand side participation has a very important role to achieve the active managementof the network (right part of figure 1). On top of that, the efficiency of the overallsystem requires bidirectional communication between transmission and distribution
    • 24network operators. Only changes on this direction can reinforce the efficiency of thesystem.The problems of the electrical system demonstrate that if the electrical system wants toplay an important role in the reach of the three main objectives, new solutions are to beconsidered.The integration of new technologies that help to achieve the 20/20/20 objectives is aprocess which in many countries has been called as “Smart grids”. The smart grids willrepresent the evolution towards a more efficient, secure and environmental friendlysystem. This evolution will improve the quality of the product (electricity) and theefficiency and sustainability of the service.3.2 Concept of Smart GridsSmart grids are those electric networks that enable the integration of the DistributedEnergetic Resources (DER) in an efficient way, maximizing the quality of the service atthe minimum cost.The DERs are:1. Distributed Generation (GD).2. Demand side participation.3. Electric vehicle.4. Decentralized storage.It is crucial to comprehend that smart grids are neither something physical (no smartmeters, no TICs, no new topologies on the networks, etc.) nor a revolution orcompletely new system that discards the present one.The smart grids are a process, an evolution of the current electric system that willenable the integration of the DER enhancing the quality, efficiency andsustainability of the electrical service and product.The success of this process compels the proper technological development and theconvenient regulatory framework. Both of them are fundamental for a convenientintegration of the DER and therefore, the proper implementation of the smart gridsprocess.The NRAs through regulation have to ensure: Protection of the interest of all the agents involve in the electric system. To ensure the security, efficiency and quality of the electricity service andproduct.
    • 25 To set the proper policies to facilitate the development and maturity that newtechnologies becoming profitable and therefore competitive enough to be integrated intothe electrical markets.The different DERs that constitute the smart grids, together with the complementaryelements (new technologies and regulatory framework) and the objectives, are depictedin Figure 14.Figure 14: Necessary components of Smart Grids and objectives. Source: OwnSince the smart grids are an evolution, they need to introduce step by step each of DER.Each DER requires first the integration of other DER, new technologies and adequateregulatory rules to be successfully integrated into the system.As a consequence and as any other process, the smart grids require several steps to beintegrated within the system. A possible route could be as represented in Figure 15.
    • 26Figure 15: Possible smart grids’ route integration. Source: Own.Presently, distribution networks are functioning in very good conditions but DNOs needa much higher level of monitoring and operability of their medium and low voltagenetworks. DNOs receive scarce real-time data from these networks what means thatthey are unable to supervise their actual state. Other requirements such us more remotemanagement systems, more tools to help the operation of the grids and better regulatoryframeworks are indispensable to achieve the optimum working condition of distributionnetworks.In parallel the evolution towards integration of DG is occurring. The main problemsabout the integration of the DG is that there is no the proper background to incentivizeDNOs to integrate DG in their networks.Subsequently, the expansion of remote management systems (smart meter among others)with bidirectional communication will be the technological gateway to integrate thefollowing DERs.Afterwards and not earlier, the demand-side participation will be possible. The demand-side participation, involves demand-side management and demand response.Additionally, the introduction of electric vehicles will require more advancedtechnologies and it will play an important role within the demand-side participation. Ofcourse, all these changes must be accompanied by adequate regulatory rules.Finally and after all these steps, the optimization and the coordination of all DERsintegrated within the system must be performed. It is only after completing this route,when the electrical system will be provided with benefits such as:
    • 27 Self-regenerative: networks will be provided with components able to check,analyse and diagnose in order that they can identify and fix those devices which aredamaged or in bad operative conditions. As a consequence, the quality of thesupply will increase. System focus on consumers: consumer will be well aware of their consumptionand prices and based on this, they can modify their habits. This change will help tothe reduction of electricity utilization in peak hours, when the prices of theelectricity are higher. At the same time, it would be possible to shift part of thedemand of the peak hours to the valley hours, obtaining a more stable demandcurve. Quality improvement of the service: consumers will be able to choose the qualitythey need attending to different prices. Moreover, the use of signal actuators basedon power electronics will prevent perturbations (harmonics and flickers) fromequipment. Facilitate interaction between agents in the electrical markets through a securenetwork that allows the aggrupation of many costumers and distributed generation,facilitating their aggregation and communication. The interaction between offer anddemand side is crucial to achieve resource’s efficiency because there will be abetter agreement in terms of capacity and energy available at any moment. Optimized use of facilities and their operation: due to the information that clientshave, the consumption will be more equilibrated along the day and the utilization ofthe network will be better. This motivates a flatter demand curve, allowing betterdesigns of the network, resulting in fewer costs.All these characteristics can be understood as a more efficient and sustainable systemwith a better quality of electricity product and a superior electricity service.In next chapter, DG and Demand-Side Participation are described. Also an analysisabout the technological and regulatory issues affecting each of them is carried out. Thisdissertation focuses on these two DERs due to their proximity in time and already on-going process of DG integration.The integration of the other two DERs (electric vehicle and decentralized storage) arefurther in time but many of the conclusions of this dissertation can be used for theirfuture integration.In next chapter, DG and Demand-Side Participation are described. Also an analysisabout the technological and regulatory issues affecting each of them is carried out. This
    • 28dissertation focuses on these two DERs due to their proximity in time and already on-going process of DG integration.The integration of the other two DERs (electric vehicle and decentralized storage) arefurther in time but many of the conclusions of this dissertation can be used for theirfuture integration.
    • 294. Distributed Energetic Resources (DER).4.1 Distributed Generation (DG).4.1.1 Definitions.Distributed generation (DG) refers to electric generation systems connected to thedistribution network, which are characterized by their low power and their nearlocation to the load or consumption.These three characteristics are very important because not every generation unitconnected to the distribution network is DG. DG must be of small size and it has to beclose to the consumption, providing with benefits to the system which are going to beexplained in next sections.Apart from this conceptual definition of DG, in the different European countries thereare two other concepts that are related to DG but represent different things.One of them is a normative concept. This concept gathers all those technologies whosecapacity is below a certain level, established by law (different in each country). Thetechnologies covered by this normative concept present different incentives trying tomake them economically efficient. For instance, in Spain this normative concept isreferred to as “Special Regime” and it includes technologies whose capacity is lowerthan 50 MW.The other important concept is the Renewable Energy Sources (RES). Renewableenergies include all those energy sources which are obtained from natural resourcesvirtually unlimited (either because they exist in enormous quantities or because theyregenerate by natural processes faster than they are consumed by human activity).According to this definition, these renewable energies are: wind, solar, geothermal,wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases, etc.Some of these technologies such as wind and solar are account for an important share ofthe DG technologies.When determining whether a technology is renewable or not, it is crucial to consider thewhole life cycle of the equipment deployed to produce energy with that technology. Thewhole life cycle involves: manufacturing, transportation to the installing point,installation, energetic production cycle and recycling of the equipment. Theenvironmental impact during the whole life cycle must be reduced as much as possiblewhile producing during the energetic production cycle more that the energy used in therest of the life cycle of the equipment.These three concepts (DG, normative concept and RES) can be easily mistaken and it isimportant to understand how each concept relates to each other.DG ↔ Normative concept
    • 30 All DG is covered by the normative concept: distributed generation technologiesare clustered in groups so that their total capacity is under the limit defined by thenormative concept.DG ↔ RES Not all DG is RES: DG comprises other technologies which are not renewable(cogeneration, internal combustion engines, steam turbines, micro-turbines, etc.). Not all RES is DG: a wind power farm which comprises several windmillsproducing 200MW connected to the transmission network, is not DG.Normative concept ↔ RES The normative concept does not only includes RES: SR comprises othertechnologies which are not renewable and whose capacity is under the regulatorylimits (cogeneration, internal combustion engines, steam turbines, micro-turbines,etc.). All RES are the normative concept: all renewable technologies are gathered so thattheir capacity does not exceed the limits, being within the normative concept andobtaining incentives.4.1.2 Market accessibility4.1.2.1 Costs of technologies deployed in DG.The main target of this section is to determine the cost of producing each MWh withdifferent technologies deployed in DG. The lower this cost, the more competitive theyare and vice versa.The characteristics of each technology can be very heterogeneous (capacity, efficiency,utilization factor, investments and operation costs, etc.), especially when comparingtechnologies which use different sources, making necessary to establish a measure thatallows the comparison. The measure used is the “Levelised Energy Cost”.NREL defines the Levelized Energy Cost as:Levelized Energy Cost (LEC) is the price at which electricity must be generated from aspecific source to break even over the lifetime of the project. It is an economicassessment of the cost of the energy-generating system including all the costs over itslifetime: initial investment, operations and maintenance, cost of fuel, cost of capital, andis very useful in calculating the costs of generation from different sources [Referencial aNREL website].Therefore, to compare the competence of the different technologies it is necessary tocompare the LEC of each technology. In Figure 16, there is such comparison.
    • 31Figure 16: Levelized Energy Cost for different technologies [4]From Figure 16 it can be concluded that: Conventional technologies (Nuclear power plants, Coal power plants andcombined cycles, hydropower) have a very low LEC mainly due to theirtechnological development and maturity. Newer technologies (Biopower, geothermal systems, offshore wind power) havehigher LEC but not so distant from those of the conventional technologies. Onshore wind power is a recent technology which has experimented a rapidlydevelopment in recent years. Due to the efforts deployed in this technology, theLEC are comparable to those of the conventional technology. However, the maindrawback of this technology is its intermittent and unpredictable nature. Solar technologies (Solar photovoltaic and concentrating solar power) bear by farthe highest LEC of all the technologies represented in Figure 16. This means thatpresently is not a competitive technology requiring more technologicaldevelopment.4.1.2.2 Priority access and support mechanisms for the integration ofrenewable energy technologies.
    • 32In order to compensate the differences in cost between RES and conventionaltechnologies, most of European countries in recent years have developed new energeticpolicies incentivizing the integration of RES. In Europe, this integration has beenfacilitated using two elements: priority access and support mechanisms.Priority access: the European Directive established that RES must be provided withpermanent access to the grids, what means that they can inject electricity when theywant. The priority access is used with the objective of incentivizing the energy supplyfrom renewable energies.Additionally, in most of European countries support mechanisms to incentivize theintegration of RES have been created. The support mechanisms can be classifiedaccording to two criteria: If the regulatory actions intervene on the price or the quantity of generated poweror energy. If regulatory actions affect the initial investment or the electricity generationstage.Combining these two criteria, there are four different possibilities:Regulated prices Regulated quantityBased on initialinvestmentInvestment grantsTax reliefAuctionsBased ongeneration stageRegulated tariffs (FIT) Fee+ Green CertificatesTable 3: Support mechanisms according to different criteria [5]In Europe, the two mechanisms used are the feed-in tariffs (FIT) and the greencertificates. Therefore, only these two mechanisms are analysed in this section.a) Feed-in tariffs: RES producers have the right to sell all their production whoseprice is fixed by regulatory authorities. The price can be fixed for the whole production(total regulated tariff) or partially fixed (a regulated incentive that is added to themarginal price of a KWh in the wholesale market).This prices or incentives are fixed and they are differently for each renewabletechnology (wind power, photovoltaic, biomass, etc.). This is because this tariff tries totake into account the maturity of each technology.Another important aspect of this tariff is that the fixed price or incentive can be thesame over the time or variable. In those cases where feed-in tariffs vary over the time, itis important to define the conditions of these variations to provide clarity for investors.
    • 33b) Fees and Green Certificates: This mechanism legally impose on consumers,suppliers or generators, depending on the cases, that a certain percentage (whichtypically increases along with the time) of their electricity supply or production must begenerated by RES.After finishing each established period (normally a year), the agents obligated by thelegal imposition, must provide a certification to the National Regulatory Authority toshow that they have accomplished the established amount of green certificates. A greencertificate is equal to a MWh generated by RES.The Green Certificates are previously provided by the National Regulatory Authority toRES generators. The green certificates have fixed prices, so this mechanism istechnically neutral. They boost the development of the most competitive technologies,undermining the development of new renewable technologies. To avoid this, sometimessome modifications are made to take in account the different technologies.Whit this mechanism, generators cases obtain benefits for selling commodities in twodifferent markets. One due to the electricity sold in the wholesale market and the other,due to the green certificates.4.1.2.3 Objective of subsidies for new technologies.Due to this grants, RES have witnessed an important growth within the share of the totalenergy production. Nevertheless, the results of these incentives in many cases did nothave the desired aims.These energetic policies have resulted in the integration of an excessive share ofimmature technologies into the system. This immaturity causes new problems to DNOsduring the planning and operation of the distribution networks. Therefore, DNOs haveto face new challenges if they want to meet their obligations, to keep the quality,security and efficiency of the distribution networks.The aim of any proper system of incentives has to be the gradual technologicaldevelopment so that immature technology become more competitive, being able toreduce their costs below the marginal price of the wholesale market. In this way, theycan compete against other technologies and take advantage of economies of scale.Because of this, when regulators develop grants for new technologies they have toconsider two important factors: Technological maturity: the stage of the technology that is going to be subsidised. Penetration of each technology: share of the total energy that each technologyaccounts for.Regulatory authorities must consider these two factors, because the implementation of ahigh share of immature and non-competitive technologies can result in:
    • 34 Operation and planning problems for DSOs. Increase of electricity price, due to the introduction of technologies with grants thatrepresent an extra cost on the final price of electricity.4.1.3 PlanningPlanning refers to the long-term decisions that the DNOs have to make in order toprovide enough capacity (generation) for the expected future demand (around 15 yearsahead), under secure conditions, considering quality of supply requirements and tryingto minimize the costs. Hence, DNOs invest on those assets that allow the supply of thefuture demand with the minimum cost.Traditionally, the growth of the demand was easily predicted by DNOs. Nevertheless, inrecent years the recent connection of DG in the distribution network makes moredifficult for DNOs to predict the behaviour of the future grids. DG supposes a bigchange on the traditional passive approach of the distribution step, because not onlydemand is connected to the distribution network but also generation.The effects of DG on the distribution network can be very positive if it fulfils the threemain characteristics presented in DG concept in section 4.1.1. Since distributedgeneration is small and located next to the load, part of the energy coming from thehigher voltage levels is not necessary. This reduces the electrical losses of the system.Additionally, due to the reduction of power flows coming from higher voltage levels,DNOs can postpone the investment needed to reinforce the network and supply thegrowing capacity demand. These investments could be postponed until the moment thatDG would not be the optimal solution.Furthermore, most of the technologies deployed in DG are renewable energies (Windpower, solar-photovoltaic, etc.) or technologies with much higher efficiency(Cogeneration for instance) than conventional technologies. As these technologiessubstitute conventional ones, the environmental impact of the electric system will bealleviated.Nonetheless, the actual scenario that DNOs face presently on those networks with highshare of DG is totally different due to two main reasons.First, the different governments around Europe have incentivized the implementation ofthese new technologies by providing them with priority of access contracts. Thismeans that in most cases, they can generate when they want and as much as they wantwithout considering the local demand-supply equilibrium. As a result of this policy, theeffects of DG in the electric system are the opposite of the ones abovementioned: Higher electrical losses. More reinforcement of existing assets. Risk for security of supply service.
    • 35The second important factor is the firmness of DG. The firmness is defined as theavailability of a generator to produce when the system faces peaks of demand or there isa lack of generation. In other words, firmness is capacity of a generator to produce whenit is required.The main problem that DNOs presently face is that DG that is being connected lacks offirmness. For this reason is that DNOs to ensure the security of the system, install amegawatt of conventional generation for each megawatt of DG. Therefore, DG isreplacing conventional generation on energy but not on capacity, resulting in oversizedand underutilized systems.In order to show how the firmness of DG influences the DNOs in the planning step, thefollowing example is presented:In Figure 17: left net capacity curve / right monotonous capacity curve of transformer,the annual net and the monotonous curve of a transformer 132/45 kV 30MVA arerepresented.Figure 17: left net capacity curve / right monotonous capacity curve of transformerFrom the net curve (includes the inverse generation), the maximum power that thetransformer supplies is 28MW, hence the transformer is not overloaded.This transformer has a cogeneration group within its grid with the following annualproduction curves:
    • 36Figure 18: curves of the cogeneratorThe cogeneration supply curve is predictable, stable, regular and it behaved more or lessaccording to the demand habits (it decreases it production during weekends, August,eastern and Christmas). The maximum power output is roughly 12 MW.In the gross curve of the transformer depicted (Figure 19):Figure 19: curves of the transformerIt can be seen that if conventional generation and the capacity of the cogenerationgroup are used, the transformer is overload. So at this point, the following questionarises: Can the DNO rely on the firmness of this generator and stop using theproportional part of conventional generation? The current answer is no, the DNOcannot rely on the firmness of the cogeneration group. Therefore, in this particular case,the DNO in order to solve the overloading issue integrated a second transformer(reinforcement) to decrease the overload of the original one.
    • 37This example can be extrapolated to many other cases on which if a proper regulatoryframework existed, the DNO could postpone its investment and reduce the powercoming from conventional generation. But the uncertainty about the DG leads DNOs toinvest earlier that they would do if this cogeneration group did not exist.For this reason is necessary to create contracts which incentive firm DG. Firm DG production contracts.Firmness of DG refers to the capacity of a generator to produce when it is necessary fordistribution system (normally, when load peaks).Firm contracts are a type of access contract which incentivizes the installation of firmDG. Because of this contract, .DNOs can obtain benefits in the planning and operationstep: Operation: DNOs knows more precisely which capacity they can rely on. Planning: DNOs can analyse more accurately the DG capacity installed and thenecessary future DG or network investments. Subsequently, they can foresee when theDG curtailments are less cost-effective than new reinforcements.The way to incentivize this type of contracts is further analysed in chapter 5.4.1.4 OperationOperation refers to the short-term decisions that the DNOs make in order to ensure thesecurity and quality of supply in the near future (1 year ahead to real-time operation).Traditionally, the operation of the distribution networks is characterized for: Being passive: the demand is easily predicted by DNOs. Low monitoring level: due to a very predictable load, there was no need tosupervise what is happening in real-time, especially on the medium and low voltagegrids. Network topologies and designs based on unidirectional power flows fromtransmission grids to the end-users.Now, due to the connection of the DG to the distribution network this task hascomplicated significantly. The current way of connecting DG to the grid, introducesbidirectional power flows and continuous variations on the functioning of the system.The distribution grids are not network any more, they are systems which require theDNOs to create monitoring tools and implement ICTs to supervise the real-time or closeto real-time operation of the system.Effects of DG on distribution systemsThe connection of DG to the distribution system introduces three main challenges forthe operation of the system:
    • 38 Local power quality due to voltage variations, fault levels and systemperturbations such as harmonics and flickers. Growing local congestion due to higher local generation than demand, resulting insupply interruptions. Longer restoration times after faults on the network.Remarkably important on the operation of grids with high share of DG are the voltagevariation and congestions. The two main drivers used by DNOs to monitor theseproblems are: Voltage: threshold values that determine the maximum and the minimum limits ofthe voltage, define the secure area on which the system can be operated undersecure conditions. Current: the most important factor that limits power flow in a system is thethermal limit of the active elements (components through which current iscirculating, for instance: electrical lines and equipment).But the heat is strongly related with the current. Due to Joule’s effect (P=I2·R), whenthe current circulates through the system it produces heat. Hence, current must bemaintained under certain boundaries if thermal limits do not want to be surpassed.In other words; controlling the current, power flow and heat are subsequently restricted.As mentioned above, the DG can force the distribution system beyond the secure regiondue to voltage variation or/and congestions.Voltage variationThe voltage control in electrical networks is essential because the good functioning ofall equipment connected to the network depends on the correct voltage profile. Thus, thevoltage is a fundamental parameter for DNOs to measure the quality of the service andthe product delivered to the final clients.The connection of DG produces voltage variation. These voltage variations are due toDG’s injection of active power in the MV and LV levels and also due to reverse powerflows.a) Injection of active power: the injection of active power of DG on thedistribution networks leads to voltage profile modification. Overvoltage on theconnection points of DG is the most common problem.In order to solve this issue, voltage-reactive control is one of the most importantsystem services for DNOs and generators. The objective of this service is:o To keep voltage values close to the rated voltage (To avoid voltage variation).o To optimize the reactive power flows through the network.
    • 39At the moment, DNOs control the voltage profile using the following components:o Generators: elements which participate actively on voltage control and provide witha dynamic voltage control.o Passive compensation/ Condenser and inductance: elements which participateactively on voltage control and provide with a static but not dynamic voltagecontrol.o Electric lines: they consume and produce reactive power depending on theirfunctioning state.o Transformers: components which participate actively on voltage control.In order to carry out a proper voltage control, DNOs need to understand how DG affectsto the voltage profile. To comprehend such influence, the scheme represented on Figure20 will be considered. The grid is represented by its Thevenin equivalent (Vr, R, X) andthe generator is represented as an active and reactive power injection.Figure 20: Thevenin equivalent at the connection point of DG [6].According to [6] the relation between the injected active and reactive power and thevoltage on the connection point are strongly related by the parameter k= (R/X).This parameter is next to zero for very high voltage levels and its value is significant forMV and LV grids. Typical values are represented in Table 4.Table 4: Typical values for R/X relation for different voltage levels [6].One of the results of [6] is that the lower the value of parameter k=(R/X), the lessinfluence the active power has on voltage control. Conversely, the higher the value ofthe parameter k=(R/X), the more important the effect of active power on voltage control.
    • 40DG injects active and reactive power, but from the previous result, it can be concludedthat the active power is the main driver of voltage variations for the DG connected toMV and LV (high value of k). This provokes that due to the active power injected byDG on the connection point, the voltage in that point increases. This negative effect ofDG in MV and LV networks must be compensated through reactive power absorptionto maintain voltage levels within the specified values predetermined in absence of DG.For HV distribution networks, the parameter k is not so significant. Hence, the reactivepower is more important than the active power injected by DG on this voltage level.The operation of HV grids is more similar to the one on transmission networks andpower-frequency tools are used. Nevertheless, HV networks are out of the scope of thissection because the vast majority of DG is expected to be connected to the MV and LVgrids.Furthermore, in [6] is conclude that the higher the parameter k=(R/X), the less influencethe reactive power has in voltage variation. Because of this, to compensate a certainvoltage variation motivated by a certain amount of active power, a higher amount ofreactive power needs to be absorbed. Hence, the voltage control of DG in MV and LVgrids absorbing reactive power is not effective, because much more capacity would benecessary, being in some cases the required reactive power twice the installed activepower capacity.As a result, it is necessary to incentivize DNOs to install reactive power compensationto guarantee quality of supply at the same time that installing new DG. Theseinvestments could be for instance on: Passive compensation installation (condensers and reactances). On-load tap changers transformers. Centralized voltage control system.Notwithstanding these investments, the best solution is to encourage innovation so thatnew technological solutions to this problem can be found.b) Reverse power flow: reverse power flows may occur when the local DGproduction exceeds local demand. The more local generation surpass local demand, theworse the impact because the voltage profiles of the final consumer will be worse andthereby, the quality of the service and the product will worsen.In Figure 21 the reverse power flow effect is depicted. The tap-changer transformerkeeps a certain voltage value where it is connected. The voltage drops along thenetwork. If the feed-in of the DG downwards the transformer is higher than the burden,the voltage in that transformer rises. The problem comes when the voltage variation is
    • 41higher than a certain value. The tap-changer transformer cannot compensate the voltageprofile next to the load.In Figure 21 the voltage variation in the load transformer in represented for fourdifferent situations.Figure 21: voltage profile depending on the length and network conditions. [7]CongestionsThere can be congestions in the network when the DG force the system beyond itscapacity limits (PG-PL>Pmax). These congestions may lead to emergency situationswhere interruptions in supply might be necessary to ensure the security of the system.Moreover, there can be situations when there is an excessive demand (PL -PG >Pmax)leading to outages. These situations may occur in the future when the electricity vectorbecomes even more essential and high loads such us electric vehicles, heat pumps andheating ventilation and air-conditioning (HVAC) become a reality.Solution for congestions: State system operationThe above mentioned instability situations are becoming more and more frequent inthose grids with high share of DG. In the near future, these situations are expected toappear more often depending on: Type of technology use in DG (especially intermittent technologies). Their geographical location: DG located in inconvenient points of the system. Their voltage level of connection.
    • 42To solve these problems it is necessary to create a field where the DSOs cancommunicate with DG and suppliers/ large customers and benefit from their flexibility.This field should be supervised by the DSOs and it will allow them to influence thedemand4and the generation when the constraints of the system are surpassed. The bestmethod to organize and manage this field is through a market mechanism, where offerand demand can send their bids and purchases.The functioning of this distribution market would be as follows:The DSO would receive the demand curve one day in advance from the nationalenergy market (dairy and intraday markets). Based on the expected demand, DSOs areable to analyse whether the agreements of the energy market result in local congestionin some area of the distribution system (the agreements of the national market do notalways match with the local constraints of the network). Therefore, this market referredto as distribution market, will behave differently depending on the state of the system.Three different possible states in the system are:1) Normal State: The demand curve does not violate any constraint of the distributionsystem and the system will function smoothly.2) Alert State: Because of the demand curve agreed in the national energy market,there can appear local congestions in the distribution system, endangering thesecurity of part of the system. Generation and demand flexibility are used in thesesituations.3) Emergency State: when the congestions cannot be solved using the flexibility of theDG and the demand during the alert state or other types of severe faults whichaffect an important part of the system occur.Although, DG is connected to the distribution network, it would participate in thenational energy market as any other producer. The figure of an aggregator of DG couldhelp DG to compete against larger power plants.This distribution market would represent an extra cost in the electricity price. This extracost is the same as other services already included in the final product price andprovided by the TSO and the system operator. Figure 22: representation of the extra-cost inthe access tariff due to system services co-ordination. represents the price of the electricity as aproduct and the extra costs due to the services provided by DSOs and TSOs.4Influencing the demand is the objective of demand-side management (DSM), includedwithin the concept of demand-side participation (DSP). This is analysed in section 4.2.
    • 43Figure 22: representation of the extra-cost in the access tariff due to system services co-ordination.Source: OwnNormal StateIn the normal state, the distribution network runs smoothly. The DSOs act as operators,supervising the security and quality of the supply service. This task is performed bymonitoring in real-time the conditions of the distribution network.When the system is in normal state, the distribution market is not operating. Thedistribution market is just a system service to help DSOs to coordinate and control thebalance between generation and demand, ensuring the quality of the service and usingthe system more efficiently.DG Regulatory authorities must define DSOs as regulators of the distribution market. Better communication of DSOs with the wholesale market, obtaining informationabout the demand curve ant the established agreements. Furthermore, it is very important to incentivize the firmness of DG to avoidinefficiencies and possible local blackouts.Alert StateWhen the agreements of the national energy market are not compatible with the localconstraints of the distribution network (congestions), the DSOs opens the distributionmarket. The distribution market functions in a similar way to the national energymarket. DG and supplier/large customers send their bids and purchases to the DSOs,who gather the offers and match the energy and the final price of the electricity.In these situations DSOs, thanks to this system service, provided by regulatoryauthorities, can either obtain changes in:Total product costProduct costTSO servicesDSO services
    • 44 The generation schedule of DG or/and The demand (DSM) through energy suppliers.Due to this flexibility, DSOs can obtain changes in part of the power flows previouslyset in the national energy market, alleviating congestions that would appear on certainpoints of the system. All this ensures the security and quality of the supply service.This market would be regulated by DSOs but it would be ruled by the offer and demandlaw. DSOs need to receive the information from the national energy market, not only ofthe demand curve but also of the expected capacity provided by DG. This is vitalfor DSOs to analyse and identify possible congestions in the distribution system. It is necessary to create contracts for these situations when the DG has to change itsproduction profile. Non-firm access contracts can play an important role in thesesituations. Proper regulatory framework that provides DSOs with system services(Distribution grid codes and ancillary services) that allow the communicationbetween DSOs and DG. Again, the firmness of DG is crucial, because for those cases when more generationis needed and therefore more DG capacity is required, DSOs must know in whichDG groups they can rely on. For this purpose, it is very interesting to: Implement services and the technology which allow the DSOs to check in real-time or close to real-time the availability of the DG connected to thedistribution system. Incentivize firm DG production contracts so that DSOs can increase theirreliability on DG.Emergency StateIn these cases, and only after all the possibilities of the alert state have been taken intoaccount, the DSOs have to modify themselves the working conditions of the system.The actions taken by the DSO could be: Burden connection or disconnection DG curtailment or force generation.The DSOs would be in this cases system actuator since they directly modify the loadand/ or the generation (DG) in order to avoid that a fault spreads to the rest of thedistribution network. There should be contracts which refund DG producers, the energy that should havebeen delivered but actually was not, because of the emergency situation. DSOs need the proper distribution grid codes to be able to act directly on the finalcustomers and DG.
    • 45 Additionally, DSOs should implement the required technology to modify the DGand final customers.4.1.5 Connection and AccessThe access and connection criteria are very important for the planning and operation ofthe network. Depending on these criteria, the capacity of the system and its flexibilitywill behave differently. Thus, there are different approaches on how to connect the DGand how the access is provided.When there is firm connection for DG, it means that all DG applying to be connectedto the distribution network is directly connected connect as long as it fulfil certaintechnical requirements. If the connection is non-firm, not all the DG is directlyconnected to the grid. Reader must be aware that firmness of connection is a totallydifferent concept than firmness of the DG.When there is firm access for DG, it means that all DG already connected to thenetwork can inject power into it at any time. This is the typical priority access contractsprovided to certain new technologies to incentivize their implementation. Nevertheless,non-firm access means that despite being connected to the network, the DG can injectpower only when the market and the security of the system allow it.Combining all these options, there are four different approaches presented in Table 5,about how to integrate new generation into the system. However, it is not possible anapproach that ensures firm connection and access at the same time.AccessFirm Non-FirmConnectionFirm X Only operationapproachNon-firmFit and forgetapproachActive managementapproachTable 5: connection and access approaches. Source: OwnThe three different philosophies or approaches to provide connection and access to theDG are: Fit and forget (Passive distribution networks).This is the current approach and it results in oversized networks. In this approach,the effect that the connection of certain DG has on the grid is studied only in theplanning step. This approach is only valid for those networks with easilypredictable load, which do not require monitoring tools.
    • 46Nonetheless, this method is not valid as DER penetration increases because thenetwork is more dynamic and network load is less predictable. With this approach,it is needed to reinforce the network to endure higher requirements, resulting inhigh expenses for the DNOs. Thus, this approach is not economically efficient fornetworks with a minimum integration of DER. Only operation.This approach is used currently in those countries with high share of DG. With thismethod, in the planning step everything is connected to the grid with no limits. It isin the operational step when all problems are solved by DNOs. This solution is onlypossible on systems with high monitoring levels and multiple system services.The main drawbacks of this method are: It limits DG power injections in many hours during the year due to congestions. It involves high costs for the system, because DG has to be physicallyconnected to the grid and the system needs to be reinforced to endure the newconditions. Intensive work from DSOs, due to continuous congestions and unstablesituations which require the system operator to manipulate the network moreoften. Active management (Active network management).It is a combination of the two previous perspectives.First, in the planning step (long-term decisions) DSOs have to decide whether isconvenient to connect more DG or if it is better to reinforce the network using thepower coming from upper voltage levels.Subsequently and complementing the decisions taken on the planning step, duringthe operation (short-term decisions) and thanks to the integration of ICTs(Information and Communication Technologies), DSOs are able to supervise real-time or close to real-time monitoring of the system. In this way, DG only injectspower when the market and the constraints of the distribution network allow it.This approach enables DSOs to: Optimize future functioning of the distribution system. Avoid frequent curtailment of DG, making the best of the installed capacity. Solve operation contingencies in real-time due to a more flexible managementof the distribution system. Provide ancillary services (similar to those of the TSO on transmissionnetworks).
    • 47As a result, DNOs could analyse with more precision if it is convenient to delay theinvestment to reinforce the existing assets or to connect more DG.This is the best approach of all three because it: Is the most economical and efficient. Helps to integrate the DER into the system. Enhances the security of the system. Evolves towards more active networks management.Nevertheless, the reader must be aware that this approach demands first an intensiveinvestment to implement the ICTs into the system. The integration of these ICTstechnologies is one of the main problems that DNOs presently are facing.Figure 23: DER access and connection approaches. Source: is a representation of this threeapproaches and it represents how they relate to each other.Figure 23: DER access and connection approaches. Source: [7].a) Connection:It is the physical connection of the DG to the distribution network. DG highlyinfluences on voltage variations and congestions in the MV and LV networks. Becauseof its influence it is very important that the DG accomplish certain technical criteriawhich are essential for the planning and operation of the distribution network.Technical connection criteria for DGThe technical connection criteria are different in each European country; however, theessential technical criteria are:1) The voltage level where DG is connected depends on its installed power. Thehigher the installed power of the generator, the higher the voltage level. In Table 6:
    • 48voltage levels and its typical generation technologies there is a representation ofthe typical technologies that are connected in each voltage level.2) A maximum voltage variation (fixed as a percentage of the voltage level) isallowed in the connection point of the generation. This is directly related to thevoltage variation control explained in section 4.1.4.3) Harmonic distortions injected by DG must be reduced as much as possible. Thishelps to maintain within certain limits the quality of the product.4) The power factor must be limited to a certain range (between lagging and the unit).This helps to maintain within certain limits the quality of the product.5) The installed power of the DG is limited to a certain percentage of the short-circuitpower of the connection point.6) Proper protection criteria or coordination of DG electrical protections. Theelectrical protections of new DG technologies (such as onshore wind parks, PV, etc.)actuate when they detect perturbations on the network. When the protectionsactuate, DG is disconnected and there is a local drop of voltage that might bedetected by the protections of nearby DG. As a result, close DG also disconnectsresulting into a “domino effect” which can be the origin of emergency situations forthe whole distribution network.Therefore, the electrical protections of DG cannot actuate when they detect externalcontingencies in the network (flickers, voltage drops, asymmetries, etc.). It isnecessary to set up for each type of technology the conditions on which they haveto keep connected to the network despite some type of perturbations occur in thesystem.7) Connection charges. The connection of DG involves expenditures to connect thegeneration groups and sometimes the reinforcement of the existing assets.Depending on the country, these costs are shared differently between DNOs andproducers. Due to the importance of this issue, it is explained into more detail in thefollowing section.8) Availability of DG to provide DSOs with metering data. The DG groups mustsend to DSOs measures about their working conditions to facilitate the operation ofthe distribution network. The importance of this data increases with the voltagelevel of the connection point and also for some types of technologies (especiallyintermittent RES).9) To contribute to system’s stability, normally a maximum evacuation capacity isrequired. This evacuation capacity is defined as a percentage of the total capacity ofthe line or the transformer where the DG in connected.Typical connection voltagelevelGeneration technologyHV (38-150 kV) Large industrial CHPLarge-scale hydroOffshore and onshore wind parks
    • 49Large PhotovoltaicMV (10-36 kV) Onshore wind parksMedium-scale hydroSmall industrial CHPTidal wave systemsSolar thermal and geothermalsystemsLarge PhotovoltaicLV (< 1 kV) Small individual PVSmall-scale hydroMicro CHPMicro windTable 6: voltage levels and its typical generation technologies [7].Besides the technical aspects, the integration of DG within the system requires thefollowing considerations.From DNOs’ point of view: Incentives for DG to connect in areas where it improves the local and the overallefficiency of the system. Avoid larger capacity of DG than it is locally needed to supply local demandconnected in the same area, because this can lead to congestions and therefore,often DG curtailment in alert situations.From producers’ point of view: Reduce the lead time and complexity of authorisation procedures and requirementsfor the connection of DG to the distribution network. Common national connection criteria: equal criteria for the whole national territoryand not depending on the region where producers want to locate their generatinggroup. Transparency and non-discriminatory criteria for all producers. Standardised connection criteria: facilitating the connection process.All this contributes to a clearer regulation that enables producers to be aware of all thecosts of connecting to the distribution network so that they can elaborate more realisticcost-benefit analysis.Connection chargeWhen connecting DG to the distribution network it might be indispensable to reinforcethe existing grid to ensure system’s security. The cost of connecting the DG to thenetwork is paid by the producer but the possible extra cost of reinforcing the networkcan be shared in different ways by producers and DNOs. Depending on how they sharethe reinforcing cost, there are three types of connection charges.
    • 50 Shallow connection charging:Producers will cover the cost of the equipment required to connect their generatorsto the nearest point of the distribution network.DNO will satisfy the costs of any reinforcement on the existing network derivedfrom the connection of the producer.Advantages: Those producers using renewable energies can locate their generation groupswhere the natural resources can be used in an optimal way. Therefore, theperformance of the RES is the best.Disadvantages: This method can result in inefficiencies and higher costs for DNOs. Too much generation connected at the same point of the distribution systemcan increase congestions and therefore, DG curtailment. Deep connection charging:All the costs derived from the connection of the generator (physical connection tothe grid and possible reinforcements) are paid by the producer.DNO does not incur into any expenses.Advantages: The producers will connect to the points of the system where it is better for theoverall and local efficiency of the distribution system. Better utilization of the installed capacity.Disadvantages: Due to prohibitively high prices, investments on DG involve more risksundermining the integration of DG. Producers who want to use renewable energies may shift to conventionaltechnologies than can be used at any point (internal combustion energies, gasturbines, steam turbines, etc.). Mixed or shallower connection charging:The connection costs are paid by the producer. Possible reinforcements are sharedby DNO and producers. In cases where several producers connect to the same point,each of them usually pays the proportional part of the new infrastructure that theyuse. In this case it is especially important to establish transparent and non-discriminatory criteria to calculate the costs and the conditions for the connection.
    • 51Advantages: It allows producers to locate their generators on those places where resourcesare available without incurring in too high expenses. This type of charging can be used as a mechanism to incentivize firmness ofDG, when shifting from deep to this type of charging mechanism. There is a trade-off between DG connected wherever it is more efficient (incase of renewable energies) and where it is better for system’s efficiency andsecurity.Disadvantages: Non clear and transparent regulation can benefit some producers with respectto others when connecting to the same point.The reader may have already noticed that some access contracts areincompatible with some types of connection studies. For instance, in thosecountries where “only operation approach” is used, it is senseless to use shallowconnection charging because DNOs would incur in disproportionate expenses.b) Access:Refers to the capacity of generators to inject and absorb power over the time. Access criteria arevery important for managing network’s capacity and its flexibility. There are two types ofaccess contracts for DG: firm DG production and firm/variable access contracts. Firm/Variable DG network access contract.DG developers might have the possibility to choose between firm or variable accesscontracts. With the variable DG network access contracts producers have the optionof not having firm physical connection to the grid 100% of the time. Variableaccess contracts reduce the output of the producer to a predefined limit ininfrequent situation, expected only for few hours a year (when the network isconstrained).The main advantage of variable access contracts is that it improves the flexibility ofthe generation on the distribution networks. This, together with the flexibility of thedemand (demand-side participation) will improve the utilization of the existingassets.This type of access contract has to be incentivized in order to compensate suchrestriction over the time. Some mechanisms to incentivize non-firm accesscontracts: To use shallow or mix connection charges for firm DG.
    • 52 DG developers should be provided with information on expected curtailmentso that they can include it in the risk analysis and economic viability analysisbefore they invest.4.1.6 Information exchangeDNOs have high flexibility in their HV grids (almost comparable that one oftransmission networks) but their MV and LV have poor and deficient flexibilityrespectively. Due to the traditional passive approach, DNOs are missing very valuableinformation which would improve dramatically the security, the quality and theefficiency of the service. It is because of this that DNOs should address: Improving the monitoring level of their MV and LV distribution grids. Establishing information exchange between DSO and DG. Establishing information exchange between DSO and TNO.a) Monitoring levelIncreasing the monitoring level and consequently, the flexibility of MV and LV grids iscrucial to evolve towards active system management. In order to enhance thismonitoring level, DSOs have to implement ICTs. However, to integrate the ICTs anintensive capital is required. This high investment is motivated by the large amount ofelectrical substations, components and users comprising these grids.b) Information Exchange DSOs-DGPresently, DNOs do not receive any information from the DG. In most of the Europeancountries DG/RES which are included in the normative concept can inject as muchpower as they want and when they want (due to the priority access and other aids suchus feed-in tariffs). This means that the DG included within the normative concept doesnot participate in the energy market, so DNOs cannot know how much DG capacity isbeing used at any time.For DNOs to manage better the capacity of their networks, they should be able to: Receive the expected production schedule and planned maintenances of the DG.Hence, DSOs will be able to balance the system and avoid other problems such ascongestions, voltage variations, etc. Assess the availability of every DG group to know the actual DG capacity availablein the system, especially when the demand peaks. Have access to remote disconnecting of DG when the distribution system is in anemergency state.DNOs are a regulated activity, and therefore all this proposals must be provided byregulatory authorities and subsequently coordinated by the DSOs.c) Information exchange between DSOs-TSOs.
    • 53The information exchange between DSOs and TSOs can only be achieved byregulatory rules that set the interface to do so. DNOs should inform TSO with operational information they need from finalcustomers connected to the distribution grid. TSOs should not be able to bypass DSOs. If TSOs need for their operation actionsfrom DG, the orders should be send trough the DSOs.Since network activities are regulated, these information exchanges between DNOs andTSOs can be established only if the regulatory authorities create the proper regulatoryframework.
    • 544.2 Demand-side Participation (DSP)4.2.1 Definitions.The introduction into the distribution network of distributed energetic resources (DERs),especially the intermittent nature of some renewable energy sources (RES), makesnecessary to improve the flexibility of the system. This flexibility must be achieved onthe generation side (DG) but also on the demand side. Reaching certain level ofgeneration and load flexibility, will be crucial to offset the intermittency of RES.On one hand, to increase the demand flexibility is indispensable to make end-usersaware of the real cost of the electricity. End-users thanks to price signals, receivedthrough smart meters, can manage their consumption more actively according to theirpreferences. This represents a change of paradigm, shifting from the current “supplyfollows demand” paradigm to a higher degree of “load follows supply” paradigm.On the other hand, DSOs are the ones who have to lead this change of paradigm. DSOsneed to create the proper field where suppliers/ large customers, producers, and other“product-related services agents” meet. This field should be an open market supervisedby the DSOs but governed by the offer and demand law.For this purpose, DSOs require more advance tools to manage their grids.In this context, the concept of DSP within the smart grids framework aims to a moreflexible demand in order to optimize the use of resources and assets at the same timethat integrating the DER.Since DSP requires actions from end-users and DSOs, the concept of DSP is used as aconcept that embodies two other: Demand-side management and demand response.Demand-side management (DSM) / Load managementIt is the planning and implementation of those actions aiming to influence on the waythat energy is consumed, obtaining desired changes in the demand curve. These actionsoriented to influence the demand are introduced by DSOs.The desired changes in the demand curve are four:1. Improve the overall efficiency of the system: all those actions oriented todiminish the overall consumption or a deceleration of the increasing electricdemand.2. Shift demand from peaks to valleys: all those methods that enables to transferpart of the load from peaks to valleys.3. Fill valleys: mechanisms aiming to fill the valleys with new electric demands suchus: electric vehicle and electric storage.
    • 554. Reduce demand in critical moments for the system: those techniques that try toreduce the electric demand when the system is in a critical situation.Figure 24: Mechanisms of Demand-side Participation [1].Since the DSOs design the system considering power capacity, the final aim of thesechanges in the demand curve is reduce or remove peak load, so that DSOs can postponetheir investments on: New capacity and Distribution facilities.Since DSOs are the ones responsible to introduce these actions, demand-sidemanagement is characterised by a “top-down” approach.Additionally, DSM affects to DSOs, which is a regulated activity. This means that allsystem services included within the context of DSM must be provided by regulatoryauthorities and coordinated by the DSOs.Demand response (DR)It involves all the changes in end-users’ normal consumption patterns due to variationson price signals over the time. Subsequently, final customers aware of the real price ofelectricity become more active in their electricity consumption usage.The price signals received by final customers will depend on the network load and thelocal conditions of the system. During valley hours without local problems in thedistribution system, the prices will be lower. In contrast, during peak demand hours and/or local constraints in the network, the prices would be higher.Since demand response requires that the end-users actually decide to manage theirelectricity consumption, it is characterized by a “bottom-up” approach.On top of that, DR affects to final customers and supplier which are de-regulatedactivities. Therefore, the actions included within the context of DR do not require thecreation of new normative.
    • 56As a result of the proper implementation of DSP, some of the possible benefits that eachof the stakeholders of the system will experience are: Customers: potential lower electricity bills, more market participation and flexibleload contracts. Suppliers: offer new products and services based on individual consumptionprofiles and preferences, better balancing and hedging opportunities. DSOs: due to DSM tools, DSOs` planning and operation can be improved, delayingthe investment in reinforcements and new capacity at the same time than mitigatingcertain grid constraints. Generator: can optimize investments in peaking generation plants and back-upcapacity.4.2.2 Demand characteristicsThe characteristics of the demand around Europe may differ in many aspects mainlymotivated by the different climatologic conditions and lifestyles in each country.However, the main variables that determine the demand in any country are:1) Demand categories: The consumption can be classified into three main groups: Industry: its profile is more or less constant during the day. Services: demand higher during the morning. Residential: demand higher during the evenings.The importance of each group over the total demand will highly influence the demandprofile. For instance, in the case of Spain these are the profiles of each sector during anormal working day:Figure 25: Demand profile of the different groups. [8]
    • 572) Seasonal behaviour over the year: the energy consumption is higher during winterand summer and lower during autumn and spring. This is highly related to thetemperature and hours of light.Figure 26: seasonal behavior of demand. Own based on data from [8].3) Peak-valleys ratios: the ratio of peak demand over valley demand is veryimportant for DSOs to determine the required capacity of the system. The higherthis ratio, the less efficient the system because more capacity has to be installed foronly few hour per year. For this reason, DSOs try to reduce this ratio as much aspossible through DSM.4) Especial events: some important events can influence the demand; for instance:strikes, sport events, national celebrations, etc. can result in an unusual behaviour ofthe demand.5) Geographic dispersion: the demand has a different distribution and growth thanthe generation. The distance between demand and supply is a very important factor.The more distance between demand and generation, the more power losses andmore problems associated to the transportation and distribution of the electricity.
    • 58Figure 27: Dispersion of the generation and the demand [8].4.2.3 Lack of demand participation in energy markets: Inelastic demandWhen the demand response becomes a reality, all end-users (industrial, services andresidential) will manage their electricity consumption more actively than they presentlydo.Demand response is already a reality for large factories with intensive electricityconsumption (such as steelworks among others). For instance, in some Europeancountries these energy-intensive factories are incentivized to shift their production tovalley hours (during night), obtaining reduced prices or other benefits as compensation.Even though demand response already exit for part of the load, demand response mustbe extended to the rest of the customers (smaller industrial, commercial and householdconsumptions).However, in many countries household clients have regulated energy tariffs withoutvariations of price depending on the different hours of the day. Additionally, householdcustomers have no information about the actual price of electricity and how itinfluences on their electricity bill. Because of this, final clients do not find any incentiveto change and manage their electricity usage habits.Regulated energy tariffs without price signals together with the lack of information ofend-users result in an inelastic demand in the energy market. In other words, thedemand is not sensitive to price variations. No matter how much prices fluctuate in theenergy market, the demand is slightly the same than before the variation of the price.Inelastic demand is represented in the left part of Figure 28: Inelastic and elasticbehavior of demand.The main problem of this inelastic demand is that during peak hours, the demand hasneither incentives nor information that motivates them to shift or reduce theirconsumption. Therefore, DSOs have to design over-sized distribution networks withenough capacity for those situations which only represent few hours over the year.In order to avoid this, DSP aims to introduce an elastic demand with more participationin the energy markets. This elastic demand would be sensitive to fluctuations in prices,
    • 59reducing its consumption when the price of the electricity increases. This behaviour canbe seen on the right part of Figure 28.The integration of the demand into the energy markets require: Shifting from regulated energy tariffs with static prices to market-reflectivecontracts. End-users to receive price signals.Figure 28: Inelastic and elastic behavior of demand.Market reflective tariffsThe electricity bill of any client is made up of two different parts (as represented inFigure 29: End-users electricity bill): network access and energy. Network access: is the charge due to the distribution and transmission servicesprovided by DSOs and TSOs to the customer connected to the network. This chargeis regulated as an access tariff. Energy: is the price that customer pays for the product (electricity). This chargecan be regulated or not.o De-regulated energy price: customers receive direct signal prices from the energymarkets or their energy suppliers.o Regulated prices: the regulatory authorities regulate the prices of the product. Thiscontracts present static prices.
    • 60Figure 29: End-users electricity bill. Source: OwnThe integration of the demand into the energy market requires that end-users have eitherregulated energy contracts based on price signals or de-regulated contracts.In Europe, most of European household consumers have regulated energy tariffs.Therefore, in those countries where static prices exist, regulatory authorities should shiftto market-reflective contracts.Once those market-reflective contracts are created by regulatory authorities, energysuppliers can provide them to the end-users, especially to household customers, andadjust them to their individual needs.Some of the market-reflective products that regulatory authorities can define are: Time-of-Use (ToU) contracts: higher “on-peak” prices during daytime hours andlower “off-peak” prices during night and weekends. Critical peak pricing: same rate structure as for ToU but with much higher priceswhen supply prices are high or system reliability is endangered. Dynamic (including real-time) pricing: prices vary according to the prices of thewholesale market.These contracts and others try to introduce the demand in the wholesale market, at thesame time that helping DSOs to reduce the peak capacity usage and electricconsumption when the stability of the system is in danger.Very unlikely most of household clients are willing to spend time and effort analysingthe data and trying to optimize their electricity usage based on wholesale markets pricesand the state of the system. For demand response to actually take off is very importantthat these products defined in the regulation framework are adjusted to the individualneeds of every costumer. It is because of this that energy suppliers need to manage thecomplexity of the products and adapt them to the specific characteristics of eachconsumer.Electricity billNetwork(service)Regulated: access tariff(Adjustment services,by offer & demand)Energy(product)De-regulated( Energy marketprice signals)Price signalsMarket-reflectivecontracts(ToU, CCP, Real-timepricing)Regulated Static prices
    • 61Signal prices and informationEnd-users can manage their consumption only if they are aware of the actual price ofthe electricity. For this purpose, DR requires that final customers receive price signals.The variations of this price signals depend on the prices of the wholesale market andthe stability of the system (local congestion, faults, etc.). In this way, clients cancontrol their electricity usage based on their preferences and the price signals theyreceive.The technology required to physically send these price signals to final customers is whatis known as ICTs (Information and Communication Technologies). Remarkablyimportant, within the ICTs, for the integration of demand response are the “smartmeters”.Complementary to the smart meters, the development of home automation will becrucial in the future to help final-customers to manage their load effectively.Smart meters with their functions and home automation will be further analysed insection 4.2.6.4.2.4 Planning.Planning refers to the long-term decisions that the DNOs have to make in order toprovide enough capacity (generation) for the expected future demand (around 15 yearsahead), under secure conditions, considering quality of supply requirements and tryingto minimize the costs. Hence, DNOs invest on those assets and capacity that allow thesupply of the future demand with the minimum cost.Traditionally, in the planning step the demand has been considered as an externalvariable impossible to be modified. Therefore, a conception of “supply followsdemand” paradigm was established. Currently, due to the DSP within the smart gridsframework there is a change of paradigm towards higher degree of “demand followssupply” paradigm.Within this new paradigm, demand can offer flexibility and firmness to DSOs, whoconsidering this demand can determine the necessary capacity of the network. A moreflexible and firm demand and generation (DG) enable DSOs to utilize better theinstalled assets and capacity, optimizing and postponing their investments indistribution facilities and new capacity. At the same time, flexibility and firmness of thedemand represent an essential key for the implementation of intermittent RES.
    • 62In order to obtain such flexibility and firmness from the demand, regulatory authoritiesshould define distribution grid codes and ancillary services that will result in newarrangements between DSO and suppliers/large customers.4.2.5 Operation.As it was presented in the DG section, the two main operation problems that DSOs facebecause of the integration of DG are: congestions and voltage variations. The aim ofthis section is to show how DSP can help to solve these two problems.CongestionsAs explained in DG, congestions can occur when the DG force the system beyond itscapacity limits (PG-PL>Pmax) or when there is an excessive demand (PL -PG >Pmax)leading to outages.Solution for congestions: State system operationWhen describing how to solve the congestion problem from DG point of view, adistribution market model was defined. This distribution market supervised by theDSOs, allows them to influence the demand and the generation when the constraints ofthe system are surpassed.In this section, the requirements to introduce the DSP within that market model aregoing to be explained.The functioning of this distribution market would be as follows:The DSO would receive the demand curve one day in advance from the nationalenergy market (dairy and intraday markets). Based on the expected demand, DSOs areable to analyse whether the agreements of the energy market result in local congestionin some area of the distribution system (the agreements of the national market do notalways match with the local constraints of the network). Therefore, this market referredto as distribution market, will behave differently depending on the state of the system.Three different possible states in the system are:1) Normal State: The demand curve does not violate any constraint of the distributionsystem and the system will function smoothly.2) Alert State: Because of the demand curve agreed in the national energy market,there can appear local congestions in the distribution system, endangering thesecurity of part of the system. Generation and demand flexibility are used in thesesituations.3) Emergency State: when the congestions cannot be solved using the flexibility of theDG and the demand during the alert state or other types of severe faults whichaffect an important part of the system occur.
    • 63Normal StateIn the normal state, the distribution network runs smoothly. The DSOs act as operators,supervising the security and quality of the supply service. This task is performed bymonitoring in real-time the conditions of the distribution network.When the system is in normal state, the distribution market is not operating. Thedistribution markets manage system service to help DSOs to coordinate and control thebalance between generation and demand, ensuring the quality of the service and usingthe system more efficiently.DSP Contracts incentivizing the firmness of demand (end-users stop consuming incertain moment obtaining benefits in their electricity bill), could be an importantelement to avoid inefficiencies and possible local constraints. Better communication of DSOs with the wholesale market, obtaining informationabout the demand curve ant the established agreements.Alert StateWhen the agreements of the national energy market are not compatible with the localconstraints of the distribution network (congestions), the DSOs opens the distributionmarket. The distribution market functions in a similar way to the national energy marketor wholesale market. DG and supplier/large customers send their bids and purchases tothe DSOs, who gather the offers and match the energy and the final price of theelectricity.In these situations, DSOs use the system services to communicate with large customers/energy suppliers. Thanks to these services, provided by regulatory authorities, DSOscan either obtain changes in: The generation schedule of DG or/and The demand (DSM) through energy suppliers.These changes allow DSOs to obtain changes in part of the power flows previously setin the national energy market, alleviating congestions that would appear on certainpoints of the system. All this ensures the security and quality of the supply service.This market would be regulated by DSOs but it would be ruled by the offer anddemand law. The DSOs would be market facilitators but not actuators.DSP
    • 64 Regulatory authorities should define market-reflective contracts that allow moreflexible demand. A more flexible demand resulting from flexible contracts, willallow the demand to participate in the distribution market. Proper regulatory framework that provides DSOs with system services (ancillaryservices and grid codes defining the criteria on which the ancillary services arebased) that allow the communication between DSOs and large customers/ suppliers. DSOs must create tools that allow them to simulate their distribution networks,improving the detection of possible congestions in the system. It is crucial to implement ICTs (especially smart meters) because:o They provide price signals and other information that makes aware theconsumer about higher prices (motivated by the alert state).o They provide useful information for DSOs about the state of the demand. Thishelps DSOs to supervise in real-time whether there is any influence on thedemand or not when a congestion problem is being managed.Emergency StateIn these cases, and only after all the possibilities of the alert state have been taken intoaccount, the DSOs have to modify themselves the working conditions of the system.The actions taken by the DSO could be: Burden connection or disconnection Force generation from DG or curtailment.The DSOs would be in this cases system actuator since they directly modify the loadand/or the generation (DG) in order to avoid that a fault spreads to the rest of thedistribution network.DSP For the DSOs to be able to modify directly the demand, distribution grid codesneed to be defined by regulatory authorities. In this way, DSOs can use the gridcodes to take the actions required to keep the security and quality of the service.Grid codes usage should be limited to specific situations and only after flexibility ofdemand has been totally used. Additionally, DSOs should implement the required technology to modify thedemand.4.2.6 Technology and information exchangeIn the future smart grids, the development of technology is necessary in order to: Increase the visibility of the DG, demand and the distribution network. Introduce the DR into the wholesale market. Facilitate the communication and integration of all agents involved in the system.
    • 65For this reason, it is necessary to provide DSOs with proper tools. At the same time,ICTs-based technologies are essential to facilitate the communications between agents.a) Technology and tools for DSOs.DSOs require new tools to meet their tasks (security, reliability and quality of service)at the same that integrating DER. These tools will improve their planning andoperability capability, allowing them to use more efficiently the existing capacity anddistribution facilities. These tools are: Forecasting tools: new and more accurate forecasting tools together with theflexibility and firmness of the demand will improve the efficiency of the existingand future distribution assets. These tools are a complementary to the study tools. Monitoring tools: any problem that cannot be detected cannot be solved. DSOsneed to improve the monitoring and supervision of their networks, DG and demandto improve the security and efficiency of the system. Actuation tools: once there are proper monitoring tools, the next step is toenhance the actuation tools. DSOs must improve their system operability to be ableto modify themselves the demand or generation profiles and schedules. Theseactuation tools must be complemented with ancillary services and distributiongrid codes, properly defined by regulatory authorities. Study tools: The planning and operation of distribution networks need that DSOscreate and set up simulation and study tools. These tools allow DSOs to analysetheir networks’ behaviour in different scenarios before they actually occur.For instance, these tools can play a crucial role for the DSOs when locatingpossible local congestions in their distribution network. Data management tools: in the future smart grids, in order to integrate all theagents of the system using ICTs-based technologies, enormous volumes ofinformation need to be managed. This requires complex and robust informationinfrastructure and tools to manage that information.b) ICTs-based technology.The ICT-based technology such as SCADA (Supervisory Control and DataAcquisition), DMS and automated devices with self-healing capabilities are essential forkeeping the stability of this complex system. However, from a DSP point of view, themost important aspect of the ICTs is the Advance Metering Infrastructures (AMI).
    • 66AMI are systems whose function is not only metering as current electrical meters butalso gathering and analysing the information about the use that end-users make of theelectricity.From the DR point of view, the most important component within the AMI is the “smartmeter”.Smart MeterSmart meters are the communication link between end-users and the distributionnetwork. Smart meters allow final customers to receive price signal and other importantinformation.From the DR point of view, the smart meters are the gateway to receive price signalsand other information, increasing their awareness of end-users and allowing theirparticipation in the energy market.From the DSM point of view, the smart meters are the technological solution for DSOsto coordinate the system services defined by regulators.Smart meters will manage constant bidirectional flows of information. This informationcan be classified in three different categories: Technical data: information required by DSOs about final customers’consumption to operate and plan the distribution network and supervise that thepower quality thresholds are not exceeded.For final customer, it is very important to ensure secure information exchange sothat unauthorised parties cannot maliciously modify their energy supply.DSOs have to create secure communication channels and control of theirdistribution networks to achieve their responsibilities.Some examples of this data could be: Remote connection/disconnection of supply. Remote management of alarms and events from meters Remote metering Remote adaptation to topology changes on the network. Quality of supply data. Static data: all that information required for administrative purposes. This data isthe same than current electrical meters. For instance: Registration of new smart meters. Control of demanded active power (limiter).
    • 67 Commercial or product data: it is the data related to available products and otherinformation that allow end-users to select the offer that best suits them.In order to create innovative offers, suppliers must analyse their customers’electricity usage. For this reason, energy suppliers must have timely access to theirconsumers’ consumption data.This data can be: Remote setting of selected tariff: those parameters related to the contractagreed between supplier and end-consumer. Remote metering. Fraud detection. Information for end-users about their consumption patterns.Energy box, automated houses and smart appliancesWhen describing the concept of demand response, it was mentioned that finalcostumers will modify their consumption based on price signals and their preferences.The response of the final customer can be: Manual: customers see the prices in the displays of their smart meters and theydecide how to manage their consumption. Automated: the consumption patterns of final customers are automatically managedby a complementary technology.The components necessary for a proper automated demand response are three: theenergy box, automated houses and smart appliances.The energy box is an electronic device which manages the household consumptionbased on: price signals received from the smart meter and the setting established by final customers about their comfort and electricityusage preferences.Additionally, the integration of automated houses together with smart appliances arefacilitators. Automated houses will consider the local condition of the house and thanksto the smart appliances, they will be able to optimize the use of electricity (choose theoption which consumes the least maintaining the comfort conditions of the house).Of course, these two elements are not obligatory and as facilitator, the will be purchasedby those clients who are willing to pay for such investment with the idea of recoveringthe investment along the time for the saved electricity.
    • 68
    • 695. The new role of the DSO and regulatory frameworkrecommendations.5.1 Planning.The integration of DERs, in certain conditions, can help DSOs to improve the utilizationof the already existing capacity and electrical facilities. Therefore, DERs must beproperly integrated in the distribution system to improve the overall efficiency of thesystem avoiding oversized systems.At the same time, DSOs must accomplish their tasks, especially ensuring the quality,security and reliability of the supply service. Thereby, the proper integration of theDERs into the system is essential to improve the overall efficiency of the system whilemaintaining the quality, security and reliability of the service.For DSOs to take into account the capacity of DERs in the planning step, DERs mustprovide firm capacity so that DSOs actually can use that capacity when the security ofthe system may be jeopardised. To integrate DERs into the planning step, the mostimportant aspect is to encourage the firmness of these DERs.In this dissertation, DG and DSP are the only two DER considered, but many of theideas that are presented in this chapter can be applied for the future integration ofdecentralise storage and electric vehicle.5.1.1 Firmness of DG.Firmness of DG means that, the capacity of the DG connected to the distributionnetwork must be available to support the DSOs in the operation of the system when it isneeded (when load peaks and security of the system is endangered).Within the technologies deployed in DG, two groups can be distinguished:dispatchable and non-dispatchable technologies.Dispatchable technologies (Internal combustion engines, combined cycles, nuclearplants, Biomass, etc.) are technologies that can produce electricity at any time they arerequired, as long as they have the fuel they need.Conversely, non-dispatchable technologies (wind power, solar PV, solar thermal, etc.)are technologies that depend on primary sources that cannot be controlled.Firmness of DG in strongly related to the technology. Conventional technologies canstart producing electricity when they are activated, but non-dispatchable technologiescan only produce when the atmospheric conditions are adequate.
    • 70Thereby, from the firmness point of view it might seem better to install conventionaltechnologies based on fossil fuels. However, it is important to diversify the mix of DG.This is because one of the objectives of DG is to use renewable energies to reduce theexternal dependence at the same time than reducing the environmental impact.For this reason, it is important to install conventional generation that provide firmnessto DSOs but also renewable energies.The most feasible solution to reduce the intermittency of DG RES is to incorporatedecentralise storage. In this way, the electricity produced in those moments when it isnot required, can be storage and then injected into the network in other moments whenthe system demands more capacity but the non-dispatchable technologies are notworking because the wind is not blowing, the sun is not shining, etc.Presently, the technologies deployed in the electrical storage are very expensive and inmost cases, it is cheaper to invest in the network rather than investing in thesetechnologies. Hence, technological investigation and development of these technologiesis crucial for the proper integration of intermittent technologies.To incentivize the connection of firm DG, regulatory authorities should establish: Shallower charge instead of deep charge to those technologies which are able toprovide firm capacity service. A framework on which DSOs provide to DG developers with clear informationabout when firm capacity services are to be required by DSOs. Create the market platform (referred to as “firm DG capacity market”) whereDSOs and DG can meet to manage the capacity.5.1.2 Firmness of DemandFirmness of Demand is to reduce/stop consuming when the DSOs require it to alleviatethe constraints of the system in a certain area. Therefore, firmness of demand helps inpostponing investments in extra capacity that may be used only few hours in the year.In order to incentivize firmness of demand, regulatory authorities must create a marketplatform where DSOs can meet with energy supplier/ large customers, offering themincentives to reduce the demand during certain hours of the year. This platform is called“firm demand capacity market”.The combination of the firm DG/ demand capacity markets provides the DSOs with animportant tool for the Demand-side management, the “Firm capacity management”.
    • 715.1.3 Firm capacity management: Firmness markets for DG and Demand.The market for firmness of DG and Demand must be two different markets, but in anycase they should be co-ordinated by the DSOs.DSOs should use the option which is cheaper (firmness of DG or/and demand) for eachsituation in a certain area.The reader must be aware that the active participation of the demand (elastic demand) inthe electrical markets will diminish peaks and alleviate certain constraints in someareas. Nonetheless, not in all the areas of the system, the constraints will disappear.Therefore, the firm capacity management through these two markets will remain as auseful tool for the planning of distribution networks.5.1.3.1 Functioning of firm DG capacity markets.To understand the functioning of this market and the objective, Figure 30 represents inthe right side, the monotonous curve the demand in a year for the transformer presentedin the left part of Figure 30.Figure 30: Possible distribution network topology and the monotonous demand curve for thetransformer during a year.In the monotonous curve of Figure 30, there are a number of hours on which thecapacity of the demand surpasses transformer’s capacity. In this situation the DSOcould either reinforce the network by installing second transformer (option which takesbetween 3-4 years at least) or use the DG connected to that area to cover the exceedingcapacity. The aim of these markets is that the DSO can use the firmness of the DGconnected to that point to provide the extra capacity required.First, DSOs create the monotonous curve of the expected demand for a certain year.Based on the expected demand and the capacity of their network for that year, they candetect the areas and number of hours when this extra capacity will be required.Secondly, this extra capacity is offered to the DG connected to that area, so that theDSO can obtain that extra capacity from them. The best mechanism to offer this firmcapacity is creating a market of firm DG capacity.
    • 72Therefore, regulatory authorities must create a market with the following characteristics:One year in advance the DSO, responsible for the area with a transformer that will beoverloaded during certain hours a year, opens a market where they offer that firmcapacity to the DG connected to that area for a number of hours. In a similar way as inthe intra-day markets, DG producers will send their bids about their firm capacity to theDSO for a number of hours (based on DSOs predictions) in the year, as depicted inFigure 31:Figure 31: Bids of firm capacity of DG producers connected to a certain area.The DSO gathers all the offers and orders them according to the price. Those with thelowest price and providing the firm capacity required are the ones which will providethe firm capacity service to the DSO. In this way, the DSO avoids investing in newassets, because the DG offers the extra capacity required.In the real-time operation, when the DSOs decide to use this service, DSOs have to payto DG for this service at the marginal price established in these markets (OPEX).National Regulatory Authorities must allow this communication between DSOs(regulated activity) and DG (de-regulated activity).If is happens that DG is not available when it is supposed to be providing firm capacity,then it would be penalized.There can be cases when the DG connected to an area come to an agreement andestablish a collusion of their bids. However, if the bids offered by DG are too high,DSOs would rather reinforce the network (CAPEX) instead of using these services(OPEX). As a consequence, the DG would lose the potential benefit that they couldobtain from participating in this market.
    • 735.1.3.2 Firm Demand capacity markets.This market can be considered as part of Active Demand-Side Management, since it is atool for DSOs to remove peak load and defer the installation of new capacity anddistribution facilities.Firmness markets for demand will be used when: There is not enough DG to provide the extra capacity required in an area. There is no DG connected in that area so local constraints can be only alleviatedby reducing the demand’s capacity. Procuring this service is cheaper than procuring firmness of DG in that area.Figure 32: Possible network topology of a certain area with few DG and its monotonous demandcurve.To understand the functioning of this market and the objective, ¡Error! No seencuentra el origen de la referencia. represents in the right side, the monotonouscurve the demand in a year for the transformer presented in the left part of ¡Error! Nose encuentra el origen de la referencia..In the monotonous curve of ¡Error! No se encuentra el origen de la referencia., thereis a number of hours on which the capacity of the demand surpasses transformer’scapacity. In this situation the DSO could either reinforce the network by installingsecond transformer (option which takes between 3-4 years) or try to reduce the peakincentivizing the demand to do so.First, the DSOs create the monotonous curve of the expected demand for a certain year.Based on the expected demand and the capacity of their network for that year, they candetect the areas and the number hours when the system will be locally overloaded.Secondly, the DSOs will organize a market on which the energy suppliers with theiraggregate demand in a certain area and large customers voluntarily participate.The energy suppliers/ large customers would send their bids of how much capacity theycan reduce a number of hours during the year and the price the offer because ofreducing that capacity.
    • 74The DSO of that area, as operator of this market, would gather the offers and order themaccording to the price. When the DSO covers the required capacity, the marginal priceis established. This process is represented in Figure 33.Figure 33: Functioning of the firm capacity of demand market.In the real-time operation, when the DSOs decide to use this service in an area, they willpay to energy suppliers/ large customers for the provided service at the marginal priceestablished in the market of that local area (OPEX).Energy suppliers will be penalized if they do not reduce the agreed capacity in the hourswhen the DSOs ask for it. Therefore, the energy supplier participating in these marketswill use different incentivizes to reduce their aggregate load in those hours. Themechanisms that each energy supplier creates to obtain this reduction will depend ontheir business model and it is not an issue of the NRA.The firm capacity management markets will be used by the DSOs until the pointwhere investing in new reinforcements (CAPEX) and procuring firm capacity fromDG/Demand (OPEX) in an area breaks even in the long-term time scale. For the casepresented in Figure 30 and ¡Error! No se encuentra el origen de la referencia., thissituation would be when installing a second transformer and all complementaryreinforcements (CAPEX) is as expensive as purchasing firm capacity from DG/Demand(OPEX). When both options are the same cost, DSOs will invest in the reinforcement(CAPEX).
    • 75Regulatory recommendations for allowing firm capacity management markets. Create the two types of markets according to the description above detailed. Allow the information exchange between DSOs (regulated activity) and DG,Energy suppliers/ large customers (de-regulated activity).5.2 Connection and Access5.2.1 Connection and access requirement for DSOAs DG increases its penetration into distribution networks, DSOs need to shiftfrom the traditional passive approach to a more Active Management Approach.In Table 7, the different approaches are presented.AccessFirm Non-FirmConnectionFirm X Only operationapproachNon-firm Fit and forget approachActive managementapproachTable 7: Connection and access approaches. Source: own.Passive approach results in inefficient and oversized distribution networks if there is animportant share of DG. This is because the network is reinforced for the worst operationconditions (excessive investments in CAPEX).At the same time, Only Operation approach results as well in oversized systems (manyDG groups connected to the grid) and many instability situations that require continuousintervention of DSOs (excessive investments in OPEX).The active management approach is the best philosophy because both, planning andoperation are considered as complementary. During the planning step, DSOs considerhow the connection of new DG will affect the system. Complementarily, during theoperation thanks to real-time information exchange and the system services, DSOsimprove the flexibility and efficiency of the system (trade-off between CAPEX andOPEX).
    • 765.2.1.1 Connection based on Active management approach.When DG developers propose DSOs to connect in a certain area, the DSO offersdifferent points where the DG can connect to the network.Previously, before deciding whether to allow the connection or not and where, DSOsmust perform a long-term analysis. During the planning step, DSOs must considerwhether the connection of new DG capacity will provide better quality, security andreliability of supply service for the local distribution network and the system.Only when quality, security and reliability are ensured, DSOs will offer DG developersthe different connection points and the costs of each option.5.2.1.2 Network access based on Active Management Approach.The access of DG to the grid is closely related to the operation of the network. Withinthe active management approach, DSOs should incentivize the shift from firm networkaccess contracts to non-firm access contracts.Non-firm access contracts Objective of these contractsChase the global efficiency of the system considering the economic interests of DGand DSOs. How do they work:This contract establish a number of hours in a year, when DSOs can reduce/ stopDG’s feed-in due to congestions in the area where that DG is connected. Theseinfrequent situations are expected only for few hours per year. How DSOs establish the times and duration of the curtailment:DSOs require tools for monitoring, simulation and forecasting of the networks.DSOs using these tools and based on the expected demand and the characteristicsof the network can determine the number of hours on which the DG in a certainpoint may be required to reduce/stop injecting power into the network.The number of hours of possible curtailment must be communicated by the DSO tothe DG developer. In this way, DG developers can include these curtailments intheir risk and economic viability of the business
    • 77 How do DSOs use this contracts:When the DSOs face local congestions, they will curtail the DG which acceptedthis contract. When the DSOs make use of this service, they have to pay for it(OPEX). These contracts are essential for the system service “Security congestionmanagement” in the alert state.DSOs must determine when it is more cost-effective to invest in procuring thisservice (OPEX) than investing in new reinforcements (CAPEX) in an area of thenetwork in a long-term scale (planning). There is no one-size-fits-all solution, dueto the variety of topologies and characteristics of the distribution networks.For this analysis, DSOs need to improve their tools for monitoring, simulationand forecasting of their networks (especially in MV and LV networks).Furthermore, DSOs need the proper technology to remotely curtail/disconnectfrom the SCADA system the DG. Criteria used to curtail DG:In the operation time-scale, there can be situations when there are several DGgroups connected to the same point with these variable access network contracts.For this situations NRA must define the criteria to curtail the minimum number onproducer at the minimum cost.Therefore, National Regulatory Authorities should define the following criteria:If DSO considers that reducing the feed-in of all DG groups is enough to solve theconstraint:1) All DG groups should reduce their output to a defined level. (always takinginto account the security factors of the DG groups, such us technical minimum)If it is not enough to reduce the feed-in of all of them, some DG has to stopinjecting power. For this situation:2) The criterion will be based on the system services provided by each DG group(different technologies offer different system services). The preference of thesystem services will depend on the characteristics of the local area (topology,DSOs active elements, etc.). DSOs must decide what DG provides moresecurity to the system.3) Finally, in similar conditions, DSOs must disconnect those DG groups withhigher costs.
    • 78The basic idea of these criteria is to ensure security first and then the economicaspect. How to incentivize these contracts:DSOs should offer shallower connection charges to DG developers. Bad planning of the DSOs-This type of contract establishes a limited number of hours in which the DSO cancurtail DG with variable access network contract.The main problem that DSO has to face is that because of a bad planning,congestions occur more than expected. This motivates that before finishing the year,the DSO has already depleted those hours.DSOs have to keep the security of the system under any circumstances and if theymake a bad planning, they would incur in higher expenses to solve the problemsthrough other ways.For this reason, NRA must incentivize DSOs the investment of better tools formonitoring, forecasting and simulation of their networks.Regulatory recommendations for the establishment of non-firm access contractsaccess contracts. Regulatory authorities must define variable access network contracts that can beoffered from DSOs (regulated activity) to DG (de-regulated activity). NRAs have to define how to regulate the OPEX and the CAPEX. Incentive DSOs to invest in new tools (monitoring, forecasting and simulation) fora better operation.5.2.2 Connection and access requirements for DG and Demand5.2.2.1 Connection requirements from DG’s point of view.When DG developers request connection to the distribution network, there severalaspects that must be well defined and clearly specified by regulatory authorities:Technical connection criteriaFirst of all, clear technical connection criteria. When analysing the technicalconnection criteria in section 4.1.5, some the most important were described. However,DSOs depending on the characteristic of their network must establish those whichimprove the planning and operation of the system.Within these criteria, the most important is the protection criteria for new technologies(especially renewable energies and cogeneration). Presently, new generationtechnologies are disconnected when their electrical protections detect disturbances on
    • 79the network. However, generators should keep connected to provide stability to thesystem when there are faults in the distribution system. Therefore, DG must keepconnected to the network even though disturbances appear in it.Each generation technology has different characteristics and not all of them can toleratethe same disturbances. To adapt the protection criteria of each technology, regulatoryauthorities should use international standards such as UNE and IEC.Connection chargesSecondly, it is important to define what type of connection charges is used.In the case of deep connection charge, DSOs must provide a cost study of the differentoptions for the connection of each DG and possible reinforcements.In case of using shallower connection charge, the cost of the connection and theannually payment (cost of network use) must be presented clearly to DG developer.This annual payment must be socialized between all DG connected to the same point.Shallower connection charges are recommended for DSOs to incentivize DG to acceptvariable access contracts, to provide system services and firm DG.Additional requirementsDG developers must implement ICT technologies to provide DSOs with necessaryinformation such as: State of the DG (DSO can check in real-time if a specific DG group is available) Maintenance and outages periods. Production schedule and actual dispatching.Additionally, these ITCs will allow DSOs from their SCADA system to curtail DG insecure conditions when the system is in an emergency state or when DG are curtaileddue to variable access contracts.The cost of implementing the necessary ITCs should be shared between the DGproducers and the DSOs, since both of them will use this technology.Moreover, when DG connects to the distribution network it must be equipped with thenecessary technology to provide at least mandatory system services (DSO voltagecontrol, anti-islanding operation and islanding operation) and some others (that DGdeveloper may want to provide using the system services market.General recommendationsOn top of that, NRA should: Reduce the lead time and complexity of authorisation procedures andrequirements for the connection of DG to the distribution network. Transparency and non-discriminatory criteria for all producers.
    • 80 Standardised connection criteria for the national territory: equal criteria for thewhole national territory and not depending on the region where producers want toconnect.5.2.2.2 Connection requirements from demand response’s point of view.For the integration of the demand response, the most important element is the smartmeter. Regulatory authorities should: Make mandatory the installation of smart meters for new customers. Develop plans to gradually integrate the smart meters for those customers who arealready connected.The smart meters will allow consumers to receive information about prices contracts,etc. Meanwhile, for DSOs they will provide the information about their consumptionhabits and other data required for the correct planning and operation of the network.Smart meters will manage constant bidirectional flows of information. This informationcan be classified in three different categories: Technical data: information required by DSOs about final customers’consumption to operate and plan the distribution network and supervise that thepower quality thresholds are not exceeded.For final customer, it is very important to ensure secure information exchange sothat unauthorised parties cannot maliciously modify their energy supply.DSOs have to create secure communication channels and control of theirdistribution networks to achieve their responsibilities.Some examples of this data could be: Remote connection/disconnection of supply. Remote management of alarms and events from meters Remote metering Remote adaptation to topology changes on the network. Quality of supply data. Static data: all that information required for administrative purposes. This data isthe same than current electrical meters. For instance: Registration of new smart meters. Control of demanded active power (limiter).
    • 81 Commercial or product data: it is the data related to available products and otherinformation that allow end-users to select the offer that best suits them.This data can be: Remote setting of selected tariff: those parameters related to the contractagreed between supplier and end-consumer. Remote metering. Fraud detection. Information about end-users’ consumption patterns.For DSOs, smart meters constitute a very important component in the monitoring ofload. At the same time, they will allow a more active participation of final customerobtaining potential benefits derived from the contracts agreed with their energysuppliers. Therefore, the investment required to implement the smart meter should beshared between the DSOs and final customers.5.2.2.3 Access requirements from DG’s point of view.In this aspect, DG developers must receive clear information about the variable accesscontracts.Non-firm access contractsDG developers must be provided with the following information: The number of hours that their DG may be curtailed/ stopped during each year. Incentives received because of accepting these contracts. Since these contracts providenon-firm access to DG, regulatory authorities should allow DSOs the possibility to offershallower connection charges to those DG developers who accept these contracts.All this information is required by DG developers to develop a realistic risk andeconomic viability analysis prior to invest in the project. If the results are positive, theDG developer will accept non-firm access contracts.5.3 Operation5.3.1 System state model and system services as tools for the DSO.System state modelFor the operation of the system, regulatory authorities should create a model on whichthe operation of the system depends on its state. For this purpose, regulation shoulddefine the following three states:
    • 821) Normal State: the constraints in any part of the system are not violated and thebalance between generation and demand is even.There are bidirectional flows of information between all the agents involve in thesystem. Therefore, the distribution system is functioning smoothly and it does notrequire either actions from DSOs nor use of system services.2) Alert State: the demand curve agreed in the national wholesale markets, canoriginate local congestions and voltage variations in the distribution systemendangering the security of part of the system.In this state, DSOs use flexible service-based markets where system servicesprovided by DERs (DG, Demand, decentralised storage and electric vehicle) can bepurchased by the DSOs to solve the operation problems.3) Emergency State: the system will be in this state when: The congestions and voltage variations that cannot be solved through market tools. Severe faults. Restoration of outages.For these situations, the DSOs will either use other system services (mandatory systemservices with/ without compensation) or remote control the generation and demandconnected to their distribution network.These situations are expected to happen very seldom, but due to their threat for thesystem’s security DSOs have to be able to rapidly intervene in the system.REGULATORY RECOMMENDATIONS Regulatory authorities should define different states for the system following thedescription above explained. NRA should create the system services that can be managed for each of the states.These System Services are specified in section 5.3.2. NRA should create a market for the alert state, where DSOs can purchase systemservices from the DERs to solve operational problems. NRA should define DSOs as co-ordinator of the market for system services duringthe alert state. NRA should define the Distribution Grid Codes that define each of the ancillaryservices. NRA can optionally assign this task to DSOs.5.3.2 Concept of system services and system services required for each state ofthe system.5.3.2.1 System services definition.System service is a concept made up of two other concepts: Ancillary Service Distribution Grid Codes
    • 83Figure 34: Concept of System Service.The Ancillary services are commercial services procured by system operators (TSOsand DSOs) from network users (DERs). These services are necessary for ensuring thesupply of electricity in the required security, quality and reliability conditions.The Grid Codes define the specific characteristics of each ancillary service and how itworks. The grid codes determine: Purpose of the ancillary service Form of delivery: mandatory with/without compensation or voluntary throughsystem services markets. Who provides the ancillary service. Required information flows. Criteria and procedures for the application of the ancillary service. Other specifications required for the good functioning of the ancillary service(how to monitor, calculate and audit it).These services allow DSOs to postpone the investments to reinforce the distributionnetwork. Therefore, system services play an essential role from a Demand-SideManagement point of view. As a consequence of these system services, there will benew agreements between DSOs and DER/large customers/energy suppliers trying tomaximize their benefits at the same time that improving the quality, security andreliability of the service.5.3.2.2 System services required for each state.In Table 8, the system services which are considered essential are represented, butdepending on the characteristics of each network NRA may have to define other systemservices for the DSOs.A) Normal StateSystem ServicesAncillary ServicesGrid Codes
    • 84During the normal operation state, the only system service required is informationexchange between all the agents of the system.B) Alert state.For the alert state, regulatory authorities should create the following system services: Firm capacity management. DSO voltage control. Losses compensation Security congestion management (using non-firm access contracts). Islanding Operation.All these system services are used by the DSOs to come back to the normal operationstate. These services can be either commercial or mandatory, but in any case DSOs paysfor the use of these system services (OPEX).DSO voltage controlPresently, the main problem that leads the distribution networks to the alert state is thatDG connected to the distribution network does not support DSO in the tasks ofcontrolling voltage variation and reactive power transportation.Controlling voltage variations and power flows is becoming a complex task for DSOsdue to the lack of support of DG. Since reactive power cannot be transported overlong distances, in areas where there is a high share of DG but not conventional sourcesof reactive power, the support of DG is crucial.For this reason, NRA should define DSO voltage control as mandatory for DG.However, in the case of being in the alert state it will be mandatory with compensation.In contrast, in the emergency state this system service will be mandatory withoutcompensation.Additionally, in those areas where DG’s reactive capacity is not enough to offset theeffect of their active power injection, DSOs should reinforce the network installingconventional equipment (CAPEX): transformers, capacitor banks, etc.The DSOs will delay the investment in the network until the point when incursions inthe alert state become too often. When these incursions are too often, for DSOs it ismore expensive to procure this service (OPEX use this service many times in the year)than investing in reinforcement of the network (CAPEX tap-load transformers,capacitor, reactance, etc.).C) Emergency state.
    • 85The system services used in the emergency state are: Anti-islanding operation. DSO Voltage variation (emergency state). Security congestion management (emergency state). Black start.In this case, DSO will not pay for the use these system services. Due to the urgency, theDSOs will directly modify the demand or/ and the generation they consider that willsolve the problem. Hence, for this state it is necessary to establish the criteria forcurtailment and the compensations due to such modifications.Curtailment of DG/ Demand in emergency state.When the system is in an emergency state and the use of the system services from thealert state did not solve the local/ general problem in the system, DSOs must disconnectgeneration and/or burden to solve the problem.Regulatory authorities must: Define Grid Codes to establish how the curtailment should be performed affectingthe minimum number of users and resulting in the minimum cost for DSOs. Define criteria to compensate DG and demand for the restrictions on theirelectricity usage. As a reference: For DG, these criteria should be based on the energy that a curtailed DG grouphad dispatched if it would not have been curtailed. For demand, the criteria should be based on: contracted power (not the sameindustrial client than household), hour of the day and contract of the client andconsumption habits during curtailment hours.
    • 86SystemServiceObjective Provided by Information Exchange Form of deliveryInformationExchangeOptimize DSOs and TSOscontrol, supervision andschedulingDSOs↔DG Production schedule, real-time generation output,maintenance periods, outages, real-time availability of DG.(DG DSO). For DG RES weather forecast (DGDSO). Number of hours of curtailment due to variable accesscontracts (DSODG).Mandatory withcompensationDSOs↔Energysuppliers/large customers Technical, static and commercial information from thedemand (Energy suppliers/ large customers SmartmetersData hubsDSOs). Commercial information from final customers (SmartmetersData hubsDSOenergy suppliers).SO↔DSOs↔TSOs DG production schedule (DSOTSO). TSO Real-time and off-line measurements and topologyinformation (TSODSO). TSO outage programs and availabilities information(TSODSO). Visualization of the demand curve of the wholesale market(SODSO).Firm capacitymanagement(long-term)DSO planning purpose;optimize the networkcapacity’s utilizationthrough flexible capacity ofDG and DemandDG CHP, smallhydro, RES withintegrated storage. DG outage programs and availabilities information(DGDSO) Real-time generation output (DGDSO). Real time demand flexibility information (DERDSO) Firmness periods (DSODER). CommercialDemand Energysuppliers/ largecustomers Real-time demand (Smart meterdata hubsDSO). Real time demand flexibility information (DERDSO) Firmness period (DSOEnergy suppliers/large customers)
    • 87DSO voltagecontrolLocal supply qualitysecurity and increasingamount of DG power thatcould be injected in the grid.Photovoltaic, WindPower, CHP,Decentralized Storage,Demand-sideManagement. Reactive requirement (amount and electrical or geographicaldelivery location) (TSODSO). Real-time load and network voltage or fault conditions(DSODSO). Real-time generation output (DG  DSO). V, Q, pf setpoints (DSODG).Commercial for purposesbeyond maintenance ofnetwork stability oroutside the scope of thecustomer’s ownconnection.Mandatory withoutcompensation to maintaindefined limits fordistributionSystem stability.LossescompensationImprove the efficiency ofthe systemDSO, DG, DemandResponse Real-time load and network voltage or fault conditions(DSODSO). Real-time generation output (DGDSO). V, Q, pf setpoints (DSODG). Demand reduction signals (DSOAggregators).CommercialSecuritycongestionmanagement(short-term)Operate the grid within thesecurity standardsRES, CHP, DecentralizedStorage, Demand-sideManagement. Real-time load and network voltage or fault conditions(DSODSO) Real-time generation output & load flexibility (DGDSO) Reduced setpoint/ reduction signal (DSODG) DG outage programs and availabilities information(DGDSO)Mandatory withcompensationor by commercialarrangement (non-firmaccess contracts)
    • 88IslandingoperationImprove continuity ofsupply when higher voltagesource is unavailableDG, storage, DSO (localnetwork controls), DSM Real-time active and reactive power flows informationexchange (DERDSO) V, P, Q setpoints (DSODER).Mandatory withcompensationAnti-islandingoperationAvoid unsafe, unbalancedandpoor quality distributionelectric islandsDG, Decentralizedstorage, DSO (localnetwork controls) Local automatic signal generated in case of fault or triggeringconditions all local DG, storage, network control points Local signal generator DSO SCADA or central control(and local /regional control depot), notification signal byDSOMandatory withoutcompensation (gridconnection rules defined ingrid codes)Black startGeneration support in caseof islanding operation.Back-up in testorationprocesses of an area after anoutage.Decentralized storage,wind power, solar, small-hydro power plants. Availability of DG to start working (DGDSO). Real-time generation output, maintenance periods, outages.(DGDSO). V, Q, pf setpoints (DSODG).Mandatory withcompensation.Table 8: System Services. Source: own and [7].
    • 895.4Regulation of OPEX and CAPEX for DSOsIn this section, the main objective is to define the regulation method which bestincentivizes DSOs to implement service-based solutions wherever it is the most costeffective solution.5.4.1 CAPEX regulation.Traditionally, DSOs capital expenditure mainly comes from the investment of newreinforcements (repowering, new transformers, new lines, etc.). In other words, it can besaid that CAPEX of DSOs are “investment in copper”.For the actual development of Smart Grids and the integration of the DER, DSOs needto invest in: Integration of ITCs: allow bidirectional information flow. Creation of a market platform where DERs can offer system services. Monitoring, simulation, control and forecasting tools for DSOs.Therefore, it is necessary to incentivize DSOs in the investment of these three crucialelements. Some of the initial investments required to establish these elements are: CAPEX ITCs: smart meters, infrastructure to connect all agents, creation of datahubs, etc.) CAPEX market platform: software to co-ordinate this platforms, protocols forcommunication between actuators, cyber-security, etc. CAPEX tools for DSOs: software to build up each tool, necessary technology inthe networks to improve visibility, etc.The method used to regulate the CAPEX of the DSOs should be an incentives basedregulation. Together with this regulation NRAs should define Key PerformanceIndicators (KPIs) which take into the degree of implementation of new solutions.Using incentives based regulation use good because: NRA can control the gradual investments devoted to the integration of the newsolutions. In this way, NRA according to their energy policy can decide howmuch money is dedicated to this purpose. DSOs will make sure that the new investments are cost-effective in the long-term planning of the network. At the same time, they will analyze when thetraditional investments in copper are better than investing in these new solutions.Regarding the KPIs, they should be used as measures for NRA to control thatinvestments in this new solutions are being carried out when they are cost-effective inthe long-term planning.
    • 905.4.2 OPEX regulation.Traditionally, DOS’s operation expenditures (OPEX) have been based in maintenanceof their networks. However, the implementations of ITCs, the creation of a marketplatform and the new tools for DSOs enclose new OPEX that must be considered.Some of these OPEX associated to each element could be: OPEX ITCs: software updates, protocols improvements, maintenance of theelectronic devices, etc. OPEX market platform: co-ordination of these markets, reparation ofcommunication problems, purchasing of the system services provided by DER, etc. OPEX tools for DSOs: software updates, protocols improvements, maintenance ofdevices that allow the well-functioning of these tools, etc.As in the case of the CAPEX, the method proposed for the regulation of OPEX is anincentives based regulation. At the same time, KPIs would be required, but in thiscase the KPIs will be based in security, quality, efficiency and economic variables.This regulation method allows the gradual operation of the new assets but together withthe KPIs, they will ensure that the most cost-effective solutions are taken withoutthreatening the security, quality and efficiency of the system.5.5 Integration of DER into the market.5.5.1 DGSubsidies for immature DG technologies must chase the technical development with thefinal aim of obtaining profitable technologies.When designing the subsidies there are two factors that must be considered: Maturity Penetration into the systemAvoid high penetration of subsidised immature technology resulting in expensivetechnology and instability for the system.Method defined for providing the subsidiesAccording to the experience curve and the price of energy in the wholesale market:
    • 91Figure 35: Difference between the cost of producing energy with a certain technology and the marginalprice of the wholesale market according to its experience curve.There are two conclusions: Subsidies must be decreasing on time otherwise it means that there is no technicaldevelopment and reduction of costs. There must be a limitation of integration for each technology to allow theimplementation of next generations.How to limit integrationIn order to limit the number of project of a certain technology when they are still inimmature stages, regulatory authorities should: Establish a total amount of money devoted for subsidies (in next section we analysefrom where this money should be withdraw). Secondly, they should define what proportion is devoted to each technology. Herewe recommend to:o Higher proportion for less immature technologies but less amount perprojectmore number of projectseconomies of scale.o Lower proportion for more immature technology but more amount perprojectless number of project limiting its integration into the system.From where should be obtained the money for subsidies:The total amount of money can be withdrawn from two different sources: Access tariff: this is the regulated part of the final costumer’s bill. To provide thesubsidies a small extra cost would be added. This would result in a higher cost ofelectricity giving as a result a diminution of competitiveness of the country. National State Budget: if the subsidies are related to the National State Budgetthrough the energy policy of the country, it would be charge to national population
    • 92as taxes. This results in a reduction of purchasing power of the population,impoverishing the country.Hence, it can be concluded that subsidies are not good for a country in the short-term.Therefore, subsidies should be reduced as much as possible.Nonetheless, if the country wants to develop technologically and become more efficientand competitive in the long-term, subsidies for development of new technologiesshould not be totally eliminatedThe final decision of deciding from where to get the money will depend on the:economic situation and the energy policy of the country. Governments have the lastword about what is the most convenient decision.5.5.2 Demand ResponseIn order to integrate demand response into the system, the following elements arenecessary: De-regulated market-reflective products Price signals Smart metersThe shift from regulated contracts to de-regulated contracts must be voluntary. Finalcustomers are not expected to supervise the prices of each hour and even less, they willthink how to optimize their consumption. In order to obtain this shift, energy suppliersmust create products that adapt to final customers’ needs (industrial, service andhousehold consumer).When products adapted to the necessities of each customer are created, final customerwill find more profitable these new products than the regulated ones.Energy suppliers: product design for final customerIn order to create products that adapt to customers’ consumption habits, energysuppliers should follow the following steps:Firstly, energy suppliers must perform an analysis about the characteristics that definefinal customers. In order to perform such analysis, energy suppliers need informationabout consumption habits of final customers. This information should be provided byDSOs, who gathered the information in data hubs using the smart meters.The information exchange between DSOs and energy suppliers must be based onregulatory rules, since DSOs are a regulated business. For this purpose, regulatoryauthorities should: Define what data from smart meters is commercial. Commercial data, is the datathat DSOs are able to provide to energy suppliers to design new products.
    • 93 Establish how often energy suppliers can demand final customers’ informationfrom DSOs.Secondly, energy suppliers can define different segments according to decisivecharacteristics. For instance: contracted power, level of consumption, period when theenergy is consumed, prosumers5, etc.).Finally, energy suppliers must choose their position into the market, according to theirbusiness model. Based on their business model, each supplier must create the productsthat best suit their target customers. Here there will be a competence between energysuppliers aiming at the same type of clients, resulting in a more competitive retailmarket. The one who offer the best products (contracts) will gather more clients.Alternatively, the possibility of energy suppliers to earn extra benefits fromparticipating in firm management markets, can motivate that some energy supplierdecide to partially focus on clients who are willing to change the normal consumptionhabits in return of economic benefits.Clients: Choosing the product that best suit their needsDue to the fierce competence in the retail market, clients will benefit from contractswhich would bring benefits compared to the regulated ones. At the same time, clients(industry, services and household consumption) will benefit from contracts that adapt totheir necessities (the cheapest service, the best quality service, the one who offers morecomplementary services for the comfort at homes, etc.). This will avoid that clientsmust be aware of price signal received on their smart meters every hour.At this point it is important to highlight what is the role of automated houses andsmart appliances within the household consumption segment. The automated housescan be referred to as a facilitator. Its main function is to automatically optimize the useof electricity for the comfort conditions set by the customer.Automated homes according to the local conditions in the house and the prerequisites ofclients, will automatically manage smart appliances and other equipment of the house tomaximize the use of the local resources.5Prosumer: consumers who export their excess of electricity to the market via local distribution network.
    • 946. ConclusionsThe key conclusions for the implementation of the DER are:1. Incentivize firmness of DG and DSP for the planning.When considering firmness of DG, it is important to distinguish between two differentgroups of technologies: dispatchable and non-dispatchable. The non-dispatchabletechnologies (such as wind power or solar energy) need the technological developmentof electrical storage technologies to be able to improve their firmness.Additionally, to incentivize firmness of DG and Demand NRA should: Create firm capacity management markets. Define DSOs as market facilitators who co-ordinate these markets. Allow commercial communications with DG, energy suppliers and largecustomers. Enable DSOs to receive information about the energy agreements established inthe wholesale markets. Define ex-post payment of the firmness. Only when the DSOs use the firmnessof DG or demand, they have to pay for it. Define the regulation used for the OPEX and the CAPEX required for thecreation of these markets.2. DSOs must evolve towards an Active management approach.This method for providing connection and access (non-firm connection and non-firmaccess) of DG is the most cost-effective solution, being a trade-off between OPEX andCAPEX.3. Non-firm access contracts.NRAs should allow DSOs to offer this type of contracts for DG in reward of economicbenefits such as shallower connection charges. These contracts allow DSOs to curtailDG a limited number of hours in the year when congestions may appear in the network.DSOs need to integrate new tools for monitoring, simulating, control and load foresee todetermine the number of hours that curtailments could be required. A bad planning ofthese hours can lead to problems higher expenses for DSOs.Furthermore, NRA should define the criteria for the curtailment of DG connected in thesame point of the network. The criteria proposed in this dissertation are recommended.4. Connection of DG.Within the connection of the DG there are several aspects that need to be modified.First, regarding the technical connection criteria: NRA should define for each type of technology protection criteria based onUNE or IEC standards. These criteria must provide stability to the system,instead of disconnecting DG when the protections detect disturbances in thenetwork.
    • 95 NRA should allow DSOs to offer shallower connection charges (instead of deepconnection charges) in order to incentivize the DG provide system services thatsupport DSOs in the operation of their networks.Secondly, for the integration of the DG in the wholesale markets and in the systemservices markets, DG producers must implement ITCs that will enable the bidirectionalcommunication with DSOs. These ITCs will provide DSOs with useful information(schedule, dispatching, outages periods, etc.) for the operation. The costs of the ITCsshould be shared between DSOs and DG.Finally, NRA should Reduce lead times and complexity of the authorization process for theconnection of DG to the network. Define transparent and non-discriminatory criteria for all DG. Create standardized connection criteria for the national territory.5. Connection of the demandThe most important component in the connection of the demand is the smart meter. Thisdevice together with the de-regulated contracts will result in a more elastic demandintroducing therefore the demand response.The costs of smart meters should be shared between DSOs and final customers. This isbecause smart meters will provide useful information (technical, static and commercialdata) which will improve the operation and planning of the DSOs.6. OperationThe integration of the DER will require a more flexible operation system. For thispurpose NRAs should: Define three different system states (normal, alert and emergency operationstate) according to the security state. Create a system services market that will enable DSOs to control their networksmore actively and solve the problems of the system, coming back to the normaloperation state. Define the necessary system services for each operation state. This systemservices will be provided by DER and purchased by DSOs through commercialarrangements (alert state) or directly used (emergency state) with posteriorcompensations. Establish DSOs as market facilitators, since they are the ones who better knowtheir own networks. Define the necessary compensations for the emergency state. Incentivize DSOs to invest in the creation of these markets(CAPEX) and theiroperation (OPEX).7. CAPEX and OPEX regulation: new investments of the DSOsFor the integration of the DER in the distribution networks, DSOs need to invest in: Integration of ITCs. Creation of system services market platform. Monitoring, simulation, control and forecasting tools.This new investments and their operation together with the system services that DSOswill purchase in the system services markets, comprise new CAPEX and OPEX.
    • 96NRA should develop an incentives based regulation together with KPIs which take intoaccount the quality, security, efficiency, level of integration of new solutions andeconomic variables. This will allow NRA to control the gradual integration of the newsolutions at the same time that avoiding overinvestments and the threat of DSOs’ tasks.8. Integration process of new DG technologies in the system.The subsidies for the integration of new technology in DG should be done in a way thatincentivizes the technological development, becoming more competitive at the sametime that limiting the integration of high shares of immature DG in the system.For this purpose, NRAs should first establish a fix amount of total subsidies that theywant to dedicate for this purpose. Then, in order to limit immature technology and itsdevelopment NRA have should follow the following criterion to share the subsidies: Higher proportion of the total amount of subsidies for more mature technologies,but this money will be divided among many projects. For less mature technologies, a smaller proportion of the total budget should bedevoted for them, but the money will be divided among few projects. NRAshave to decide according to their energy policy whether the subsidies arewithdrawn from the access tariff or the National State budget.Finally, NRAs have to decide according to their energy policy where do they obtain themoney from. There are two possible options: Access tariff: this would result in a higher cost of the electricity and therefore adiminution of the competitiveness on the country. National State Budget: this option provokes the reduction of the purchasingpower of the population.Any of the options has negative effects, but a better efficiency of the electrical system inthe long-term time scale can be only achieve by investments on new technologies whichare expected to be cost effective.9. Integration of the Demand ResponseFor the integration of the demand response in the electrical markets there are twocomponents which are crucial: Price signals through smart meters. De-regulated contracts.Final customers are not going to be checking the price of the electricity for each hour ofthe day and try to optimize their consumption over the day. Because of this, it isessential that energy suppliers define attractive products that adjust to their targetcustomer consumption habits. This new contracts have to be good enough so that finalcustomer voluntarily shift from regulated contracts to de-regulated contracts.Additionally, demand response requires that final customer receives price signals fromtheir energy suppliers (those final clients who agree contracts with energy suppliers) orfrom the wholesale market (final customer who purchase the electricity directly fromthe wholesale market). Additionally, end-users can obtain potential benefits in theirelectricity bills if they decide to shift their consumption to those hours with lower
    • 97energy market prices or when the system requires it (incentives from firm demandcapacity markets).
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