A Wärtsilä White Paper supported by modelling conducted by Redpoint Energy, a business of Baringa Partners Flexible energy for efficient and cost effective integration of renewables in power systems
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Flexible energy for efficient and cost effective integration of renewables in power systems Executive Summary We are witnessing a sharp increase in the volumes of intermittent renewable generating capacity in electricity markets. The demand for flexible forms of generation to manage this intermittency is expected to grow. Whilst it is likely that Demand Side Response, interconnection, and storage technologies will all have important roles to play, flexibility from generation will remain essential. However, some of the most common forms of providing flexibility from generation may be increasingly inefficient. In particular, part-loading of conventional generation can unnecessarily drive up the cost of providing flexibility, adding to consumers bills. In this paper, we set out analysis to demonstrate that using new forms of flexible generation (Smart Power Generation) can achieve significant savings over using traditional forms of flexibility from generation, particularly as the penetration of renewable generation technologies increases in the future. Electricity market arrangements need to value this flexible energy explicitly in order for new technologies to be deployed. Regulators and/or market operators should review their markets to ensure that the signals for flexible energy are fit for purpose given the significant changes in the generation mix on the horizon. The key arrangements to focus on are market balancing and ancillary service arrangements, and the incentives that these place on market participants. 3
The generation mix of the world s electricity markets is changing The generation mix in electricity markets around the world is changing. Governments are putting policies in place to address the energy trilemma facing their countries, often in response to national or regional targets that mandate a change in one or more areas. This trilemma is widely accepted to consist of: Environmental sustainability: countries need environmentally sustainable ways of generating electricity, without long term dependence on burning of fossil fuels with its associated carbon emissions. Security of supply: countries are seeking ways to ensure that the lights stay on while managing growing demand or old generating capacity shutting down, which can be exacerbated by the intermittency of renewable generation. Affordability: increasing electricity prices are a concern for all consumers, and have the potential to disrupt economic growth and throw households into fuel poverty. It is key for governments to balance decarbonisation and security of supply improvements with affordability, especially in times of economic downturn and recession. Renewable and low carbon forms of generation have a vital role to play in the sustainability effort, and, often, in security of supply. While nuclear technology offers low carbon energy at scale, it faces political challenges after the Fukushima incident in 2011 and has suffered escalating costs in recent projects using latest reactor designs 1. Carbon Capture and Storage (CCS) may one day offer significant amounts of low carbon energy but it is still a fledgling technology, and it looks unlikely that the world will see commercial scale deployment before 2020. Of the renewable technologies, hydro-powered and geothermal resources are effective, but their application is limited by geographical constraints. The key focus for renewables deployment in a 2020 timeframe is wind and solar generation. In 2010, wind and solar s contribution to the world s gross electricity production stood at just under 3%, and the IEA estimates that wind and solar would have to grow by 16% and 21% respectively to 2020 in order to follow the pathway required under its 450 scenario 2. 4 1 For example, the new Areva European Pressurised Water Reactor (EPR) designs have suffered delays and escalating costs at Olkiluoto in Finland, and Flamanville in France. 2 The IEA s 450 scenario outlines an energy pathway that would limit the concentration of greenhouse gases in the atmosphere to a level of 450 parts CO2 per million. IEA 2011, Deploying Renewables: Market development for RE technologies. IEA 2012, IEA statistics: Electricity Information 2012.
Increased intermittent generation presents significant operating challenges Wind and solar forms of renewable energy are intermittent in nature their output fluctuates as a result of weather conditions. The output of wind turbines fluctuates with changes in wind speed, while solar PV output fluctuates as varying cloud cover impacts light intensity. This presents an increased challenge for parties responsible for managing flows across the electricity networks, especially where the output of many wind and solar farms are correlated within an area due to regional weather patterns. In most countries this is a role carried out by the transmission system operator (TSO). However it is also a challenge for energy companies looking to ensure that the electricity their consumers need is fulfilled by the energy that they buy or generate. Electricity storage technologies are either not yet commercially developed, or are not available in all areas (such as forms of hydropower), so levels of generation output need to be actively balanced with levels of consumption on a secondby-second basis. At present this is mostly achieved by flexing the output of controllable sources of electricity generation (such as gas, coal, oil and hydro). Larger volumes of flexibility will be required System operators hold flexibility in reserve already to cover disturbances in the balance of supply and demand such as surges in demand, or for back-up in case of the failure of a large plant. The impact of large amounts of intermittent renewables on systems will need to be handled in a similar way, though it is widely accepted that the task of balancing wind and solar generation will be far more significant in future. This will mean that system operators may have to hold significantly larger volumes of flexible reserves than they do at present. Without flexible forms of energy to balance increasing intermittency, the system could become unstable and insecure. It could lead to the system operator taking actions to curtail power from wind, solar or other inflexible generation in order to maintain system security, and in the extreme it could also lead to black-outs. Question: what is flexibility? Flexibility can be defined as the ability to change the level of electricity output (or consumption) in response to an instruction or another signal. All forms of electricity production or consumption are flexible over certain timeframes. For example a combined cycle gas turbine (CCGT) can flex from producing no electricity at standstill to full output over the course of a couple of hours. Similarly some industrial processes take hours to days to entirely shut down to bring their electricity consumption to zero. Response time is the critical differentiator for valuing flexible forms of energy in the context of balancing intermittent renewables. Flexible forms of energy must be able to ramp their output at the same rate that wind and solar output fluctuates, so that a balance can be maintained. Systems need to respond across different timeframes, from seconds to minutes to hours. 5
How can flexible energy be provided? Flexibility in electricity markets is not a new concept. There is already a range of existing technologies that can provide the flexibility on the short timescales that will be required. Some of the common forms of flexible energy technologies are listed in Table 1 below. Table 1 Common technologies used to provide flexible energy Technology Description Notes Storage Interconnection Thermal generation Demand side response Includes hydropower, batteries, flywheels, pressurised gas and other developing technologies. Conventional hydropower is the most developed in a commercial sense. It provides flexibility by using the potential energy of water stored at height behind dams to drive turbines when released. Networks linking adjacent electricity systems to enable cross border trade of electricity flowing to where prices are highest. Includes conventional turbines and reciprocating engines, with either simple or combined cycles. Simple cycle generators use the combustion process or heated steam alone to drive a generator. Combined cycle generators use the combustion process or heated steam to drive a primary generator, and then they exploit waste heat from the combustion process to drive a secondary generator for increased efficiency. Turbine-based generators are often fuelled by gas, light oils or coal. Reciprocating piston engines are fuelled by gas or oils. CCGTs and coal powered generators tend to require part loading so that they are ready to provide flexibility. Open Cycle Gas Turbines (OCGT) can often provide flexibility from standstill but can be inefficient on fuel. Reciprocating engines have highly efficient and flexible output from standstill and when running. For example, some engines are ready to deliver power 30 seconds after starting. Energy consumers reducing their consumption in response to an instruction or signal (making demand fall to match available supply of electricity). Mainly provided by large users in response to spot market electricity prices, or in agreements with their electricity suppliers. Apart from hydropower, other technologies are still struggling to be demonstrated on a commercial scale. Hydropower has specific geographic requirements (variable relief and water source) Requires sufficient flexibility to be available in the supplying market. CCGTs and coal generators are very common for providing baseload power to electricity systems. OCGTs are common where there is more value in providing flexible energy. Reciprocating engines were previously used in niche applications but are growing in range and size of application as flexibility requirements increase in scale and efficiency is required. Requires a feedback response, and for businesses, the ability to compensate for lost energy to avoid lost output (eg, onsite energy production capabilities). Hydropower and interconnection offer flexibility where they are available, and Demand Side Response (DSR) could have significant potential in the medium to long term 3, but it is widely accepted that thermal generation will still be required in most systems for providing flexible energy in the future. Of the conventional thermal generation technologies used to provide flexibility, OCGTs can provide high levels of flexibility, but they lack the fuel efficiency of a CCGT to be able to generate electricity at regular market prices, which means that they are only used to run for short periods. CCGTs are generally efficient enough to generate electricity at regular market prices, which means that they have more 6 3 Many commentators believe smart meters will enable price responsive behaviour (DSR) from a larger portion of consumers as smart meters become established in electricity markets.
stable running patterns (and revenue profiles), which has made them a popular investment in the past. At present, coal fuelled generators are also economic to run in the market owing to low coal prices, and in Europe, low carbon allowance prices 4. It follows that many systems rely on CCGTs, or existing coal plant, to provide flexibility. As these plant cannot typically provide flexibility from standstill, they often need to be part-loaded (in the box below). However, while this may have been practical in the past for providing small amounts of flexibility from existing generating resources, it is questionable whether such practices will be efficient for integrating renewable generation in the future. What is part-loading? Part-loading is the practice of turning down generating units that would otherwise be running at full load, so that they can be turned up again to provide flexible energy if needed. Similarly, generating units that are not running can be turned on to produce low levels of output as a form of standby. It is a way of creating reserves of flexible energy. A generating unit that is turned down to part-load will produce less energy. So in practice, as a generating unit is turned down to part-load, another unit is turned up simultaneously to maintain the overall balance of energy 5. Figure 1 Example of part-loading Normal running schedule After partloading Electricity production A at full output A part-loaded to provide flexible reserves Flexibility made available B paid to turn and part-load to replace energy from A A B A B In the example shown in Figure 1, in the normal running schedule, A is running, but B is not often this is because B generates electricity at a higher price than A. When A is part-loaded to create potential flexible energy, B needs to be turned up to replace the lost energy output from turning down A. As B produces electricity at a higher price than A, the cost of producing the original amount of energy required has increased. This is the cost of part-loading. 4 Plant owners must present European emissions allowances (EUA) for each tonne of carbon dioxide that their plants emit. The price of these allowances has hit all-time lows recently due to economic downturn in Europe and a surplus of allowances (at the time of writing, allowances trade at under 5/t). 5 Similarly, if a generator is turned on as a form of standby, other generators that are already running will need to have their output reduced. 7
Inefficiency of part-loading conventional generation The practice of part-loading conventional power plants to ensure that they can provide flexibility is a cause for concern where the associated costs are inefficient, as these will be passed through to consumers bills. These costs arise for a number of reasons: part-loading a generating unit that is already supplying energy to customers means paying another unit (probably one with a higher cost of generation) to turn up to replace the energy (as in Figure 1 above), part-loading a conventional power plant from standstill incurs large start-up costs owing to the time and fuel required to get the unit running at a stable level, and part-loading of conventional power plants also reduces fuel efficiency because such plants tend to be most fuel efficient at maximum output. It can be shown that these costs may be significant in some systems, and they could constitute an increasing proportion of consumers bills as the level of intermittent generation grows in electricity systems. Markets will need to enable more efficient generation solutions for providing flexible energy to reduce these unnecessary operating costs. Smart Power Generation for more efficient flexibility Instead of focusing on part-loaded conventional generation to provide the increased flexibility requirement in the future, we believe that electricity markets need to embrace new forms of flexible generation, such as forms of Smart Power Generation (SPG). SPG is a set of requirements that we believe future generators must be able to deliver to enable the transition to a modern, sustainable power system. These are: the need for very high energy efficiency, the need for outstanding operational flexibility, and the need for multi-fuel operation. For today s emerging low-carbon power systems, these requirements allow balancing of large input fluctuations of wind and solar power. They also provide for high efficiency baseload, peaking, and load-following power, as well as super-fast and versatile grid reserves on a national power system level. Wärtsilä s technology and power plant solutions have been developed to deliver against the SPG principles to enable sustainable, reliable and affordable power systems in the future (see Table 2 below). They are a form of highly flexible and efficient power plants based on reciprocating engines, covering a capacity range of 10 to over 500MW. These solutions are used across the world in different applications, from flexibility provision to baseload operation. 8
Table 2 Wärtsilä engine overview against SPG principles SPG requirement Very high fuel efficiency Operational flexibility Multi-fuel operation Wärtsilä engine performance More fuel efficient than the most flexible forms of turbine based generators (OCGTs). Comparable efficiency to a CCGT, (around 50%) which means that it is economic to operate in the day to day electricity market in addition to flexibility provision. Built and operated using a modular approach, so its load can be reduced without a corresponding drop in fuel efficiency (see Figure 2 below) Extremely fast start-ups which means that it is able to meet many flexibility requirements from standstill. Able to produce energy from standstill after 30 seconds. Reaches full power output after a further 90 seconds. Does not have penalties for start/stops - more robust to repeated starts and stops than many turbine designs, which often require shorter periods of time between scheduled maintenance if subjected to abrupt changes in their running patterns such as increasing number of start/stops. Available for multi-fuel operation (either gas or biogas and a number of other liquid fuels including light and heavy fuel oils and biofuels). Figure 2 Wärtsilä technology modularity Wärtsilä technology modularity allows for incremental expansion and operation Engine 9
Estimating savings using Smart Power Generation We have commissioned Redpoint Energy 6 to undertake analysis of the potential savings from using SPG for flexibility in the Great Britain electricity system instead of using new conventional plant. This modelling indicated that significant savings could be possible in managing the costs of intermittent wind output. Compared to using current practices, we estimate savings between 381 million to 545 million per annum in 2020 under different scenarios, and modelled savings are estimated to be even higher in 2030. The results are summarised in the box below. Analysis of savings in flexible energy provision in GB from using Smart Power Generation instead of CCGT in 2020 and 2030 Methodology We looked into the difference in costs of providing flexibility from a version of Smart Power Generation technology (referred to here as simply SPG), compared to using current practices of part-loading in the Great Britain electricity market. The GB electricity market is characterised by an increasing wind penetration, with the UK Government aiming for 31% of electricity from renewables to meet its 2020 renewable energy targets. It has low levels of access to other sources of flexibility, (such as hydropower) and significant levels of installed fossil fuel powered conventional generation (77% in 2011 7 ). We modelled the GB market in 2020 and 2030, considering two scenarios for the trajectory of wind generation deployment base wind and high wind 8. In each of these scenarios, we replaced 4.8GW 9 of new build CCGT generating capacity with 4.8GW of SPG. We used a power market simulation tool (PLEXOS) to determine the least cost dispatch of generators in the GB market, and also to simulate the actions that the system operator would have to take to create the flexible reserves of energy needed to integrate wind (known as reserve creation), and any constraints caused by the GB network configuration. This allowed us to compare the costs of creating flexibility using SPG compared to the costs of creating flexibility using CCGT. 10 6 A business of Baringa Partners LLP 7 The Department of Energy and Climate Change, Digest of United Kingdom energy statistics (DUKES) 8 The key difference between the two scenarios is the volume of offshore wind capacity. The base wind scenario includes around 10 GW of offshore wind in 2020 and around 15 GW in 2030. The high wind scenario includes around 20 GW in 2020 and close to 40 GW in 2030. Base wind uses a capacity mix that is consistent with the Central scenario of the UK Government s Updated Emissions Projections (2011). High wind has a higher capacity of onshore and offshore wind, in line with the system operator National Grid s latest Gone Green scenario (as published in the UK Future Energy Scenarios in October 2012). 9 Which aligns with our assumptions on new build CCGT in GB to 2020.
Results Figure 3 Actions taken for flexible reserve creation (no SPG) 4 Normal running schedule After partloading GW 3 2 1 0-1 -2 Gas Coal Electricity production A at full output A part-loaded to provide flexible reserves Flexibility made available B paid to turn and part-load to replace energy from A -3-4 A B A B Taking a typical business day in 2020 from the base scenario as an example, the chart on the left of Figure 3 shows how the GB system operator would need to take actions throughout the day to turn down coal powered generation (the red area) while simultaneously replacing this energy with Gas CCGT (the blue area) to provide flexibility 10. The chart to the right of Figure 3 illustrates the system operator s actions in part-loading terms. Figure 4 Actions taken for flexible reserve creation (with SPG) 4 Normal running schedule After partloading GW 3 2 1 0-1 -2 Gas Coal Electricity production A at full output A part-loaded to provide flexible reserves Flexibility made available B paid to turn and part-load to replace energy from A -3-4 A B A B In comparison, Figure 4 shows how the volume of part-loading is reduced when SPG replaces CCGT in the market. The need for flexibility has not disappeared, but rather, because SPG can be quickly dispatched from standstill in response to fluctuations in wind, there is a reduced need to take actions to prepare flexible sources of energy through part-loading of conventional generators. 10 The modelling assumptions were such that electricity produced from coal was calculated to be lower cost than electricity produced from gas, meaning that coal was already in the market and available to be turned down to partload. 11
High volumes of part-loading of conventional plant are still required across peak periods of the day (0700-1100, and 1500-2100) partly because market prices at this time are driven to levels where it is economic to sell SPG output in the market, which means it is unavailable to provide flexible energy. This is shown in the dispatch of different generating technologies in the market across the typical day in Figure 5. Figure 5 System generation with SPG The proportion of flexible reserves provided by SPG across all years and scenarios modelled is shown in Figure 6 below. Where SPG is included on the system, it is the single biggest provider of flexibility across all years and scenarios modelled, mainly having the impact of displacing the use of gas CCGT and coal for providing flexibility. Figure 6 Proportion of system flexibility provided by technology 12 Savings in the provision of flexibility In GB, the costs of reserve creation are recovered as a charge collected from market participants, which are passed through to consumers bills. As SPG reduces the need to create reserve, it produces considerable savings, which are set out in Table 3 below.
Table 3 Costs of creating flexible energy (reserve) with and without SPG Reserve creation costs for integrating wind ( Mn per annum) 2020 2030 Base wind High wind Base wind High wind Costs no SPG Costs with 4.8 GW SPG 692 311 1008 464 834 256 2781 1244 Cost savings due to SPG 381 545 578 1537 Separate to the GB study, we have also commissioned a study into the Californian wholesale electricity market in 2020 to estimate the impact that SPG could have in helping the Californian Independent System Operator (CAISO) to manage upcoming challenges such as heavy penetration of renewable generation and other variable sources. The Californian market is structured differently to the GB market, however the modelling indicated that SPG could still provide significant savings in the different markets costs, for example: In the Californian day-ahead markets, the modelling indicated that SPG would reduce the cost of total energy production in the market in 2020, producing cost savings compared to a base case ranging from 3.9% to 5.1% ($273m to $352m p.a. respectively). This saving is derived from the increased efficiency of SPG over existing forms of generation capacity (such as CCGT). The cost of providing ancillary services (flexible reserves) was also reduced by 3.5% to 8.4% ($16m to $39m p.a. respectively) because of SPG s low starting costs and fast starting capabilities. On the real time dispatch market on a modelled peak demand day, the efficiency of SPG lowered overall market costs by 38% or $13.6m, with further savings of $2.5m owing to its increased flexibility. The full results of the Californian study are available on the Smart Power Generation website 11. Challenges facing SPG and other forms of flexible energy There are a number of challenges facing the deployment of all new forms of flexible energy across electricity markets that can act as a barrier to market entry, even as the need for flexibility increases with the growing penetration of intermittent renewables. The most common themes are: Prices that do not reflect the real value of flexible energy: short term prices paid for buying and selling energy do not always reflect the actual costs incurred to balance intermittency. In such systems, market participants do not bear the full consequences of not balancing their generation or consumption, and as a result they are less willing to buy or offer flexible energy capabilities in effect, reducing the market for flexible sources of energy, and increasing the likelihood that the system operator will need to rely on part-loading of conventional plant. This is a particular problem in some European markets, where intermittent generation causes large imbalances but is paid through fixed support schemes and as a result it is not required to face market based balancing incentives. 11 www.smartpowergeneration.com 13
Lack of liquidity in short term markets: strongly linked to the point above, levels of liquidity in short term markets (such as within day markets) are often low where there are weak incentives to avoid charges for creating imbalances. This reduces the confidence that investors have around whether they will actually be able to sell their flexible energy. Poor exit signals for old generators: many governments and regulators have implemented (or are considering implementing) capacity mechanisms and other forms of long term contracts 12 to sustain adequate levels of generation capacity on the system, which can mean that aging and inefficient generation is kept open instead of decommissioning at the end of its life. This old generation blocks the opportunity for new technology to come forward, and often locks in inefficient provision of flexibility through part-loading. Making markets work for flexible energy Distortions in market arrangements can be addressed to encourage the deployment of flexible energy sources. Making charges for imbalances more cost reflective is the key prerequisite for creating a market where flexible energy is valued, traded and invested in by all market participants, including intermittent resources of energy. Markets should also be open for all participants to provide reserves of flexible energy to the System Operator on a short term basis, or equally, for participants to sell reserves to each other to meet their balancing needs. The European Agency for Cooperation of Energy Regulators (ACER) has recently recommended that System Operators should procure reserves on short timescales in preference to long term contracts to increase the efficiency of procuring such reserves, and to enable market entry for small providers of reserves. Cost reflective prices are assisted by enabling market structures (such as within day net pools for final trades of energy, and platforms for trading reserve) that help participants see prices forming in liquid markets in reaction to changes in the short term balance between electricity supply and demand. This enables participants to make informed decisions, and provides the opportunity to change positions in response to price signals. A further benefit is that these structures provide robust reference prices from which to base supply agreements and hedging arrangements, which assists new investment. Finally, governments and regulators that are designing interventions to sustain security of supply, such as capacity mechanisms (contracts for remunerating installed capacity separately from energy generated), should ensure that these interventions do not jeopardise the market signals for flexibility set out above. Ideally, such interventions should use the shortest contracts possible to allow for efficient exit signals and new entry at appropriate times. It is vital that these areas are addressed in electricity markets ahead of significant deployment of intermittent renewables to protect consumers against unnecessary costs arising from inefficient provision of flexible energy from partloaded plant in the future. 14 12 Such as some ancillary service contracts.
Smart Power Generation and Wärtsilä Smart Power Generation enables the transition to a modern, sustainable power system. Its cornerstones are high efficiency, excellent operational flexibility, and multi-fuel capability. For today s emerging low-carbon power systems, it balances large input fluctuations of wind and solar power. It also provides high efficiency base load, peaking, and load-following power, as well as super-fast grid reserves on a national power system level. Wärtsilä is the global leader in Smart Power Generation. Wärtsilä s technology and power plant solutions have been developed to provide a unique combination of valuable features enabling new horizons for sustainable, reliable and affordable power system of the future. Wärtsilä s portfolio covers the capacity range from 10 to more than 500 MW, with over 52 GW of installed capacity in over 160 countries. To find out more about Wärtsilä and Smart Power Generation please contact kimi.arima@wartsila.com, or visit www.wartsila.com. 15
Wärtsilä is a global leader in complete lifecycle power solutions for the marine and energy markets. By emphasising technological innovation and total efficiency, Wärtsilä maximises the environmental and economic performance of the vessels and power plants of its customers. Wärtsilä is listed on the NASDAQ OMX Helsinki, Finland. WÄRTSILÄ is a registered trademark. Copyright 2013 Wärtsilä Corporation. DBAC642385 / 05.2013 / Bock s Office / Arkmedia