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Smart Grid in Denmark

Contents
Preface................................................................................................................................................................ 4

Summary ........................................................................................................................................................... 5

Framework and preconditions for the report.............................................................................................. 8

The energy system stands at a crossroads...................................................................................................9


1.1 Denmark’s climate and energy targets will change
the conditions for the power system......................................................................................................... 9
1.2 Changes to the power system necessitate
a decision regarding its future design....................................................................................................... 9

Fact sheet: What is Smart Grid?....................................................................................................................12

2. Smart Grid is the most effective way to accommodate


increases in electricity consumption............................................................................................................ 15
2.1 Conversion of the energy system requires large investments.......................................................15
2.2 Smart Grid is the most effective and inexpensive
method for upgrading the power system..............................................................................................15
2.3 Socioeconomic costs of establishing a Smart Grid.............................................................................15
2.4 Socioeconomic costs of a continued traditional expansion strategy......................................... 17
2.5 The economics of Smart Grid are sound even when preconditions differ................................18

Fact sheet: Economic calculations............................................................................................................... 19

3. Smart Grid offers new possibilities for the consumers........................................................................ 22


3.1 Electric vehicles and plug-in hybrid vehicles become greener
and more flexible.............................................................................................................................................. 22
3.2 Smart Grid can provide a complete overview of energy consumption..................................... 22
3.3 New energy-related services will create entirely new opportunities......................................... 22

4. Smart Grid is a mutual task...................................................................................................................... 23


4.1 Realisering the Smart Grid potential
requires a contribution from the entire sector.................................................................................... 23
4.2 An efficient market will lead to a common
effort and realise Smart Grid potential................................................................................................... 23

5. Two necessary political preconditions.................................................................................................... 25
5.1 Future-proofing financial regulation
in the electricity sector should create incentives............................................................................... 25
5.2 Smart Grid development and demonstration
activities can accelerate development.................................................................................................... 25

6. The way ahead............................................................................................................................................26
6.1 Phase 1 – Facilitating phase..........................................................................................................................26
6.2 Phase 2 – Establishment phase..................................................................................................................26
6.3 Phase 3 – Commercialisation phase......................................................................................................... 27

3
Preface

In the coming years, electricity consumption and production in Denmark is set to change
significantly. Electricity generation will be increasingly derived from renewable energy
sources, while consumers will change their oil-fired burners for electric heat pumps and
start to replace their petrol-powered vehicles with electric vehicles and plug-in hybrid vehi-
cles. Consequently, the power system should be developed, but what is the most effective
way to do this?

Energinet.dk and the Danish Energy Association have analysed the issue of grid develop-
ment to meet the new requirements in this joint report.

The conclusion of the economic analysis in the report asserts that an intelligent power sys-
tem – a Smart Grid – is the most effective strategy for developing the power system.

Sensitivity calculations conducted in the analysis show that this conclusion is robust, irre-
spective of whether there are fewer or more electric vehicles and plug-in hybrid vehicles in
relation to the basic conditions for the analysis.

All in all, the conclusion of the calculations is clear: If we desire a society which is independ-
ent of fossil fuels and which utilises huge amounts of wind power for transport and heat-
ing, then Smart Grid represents the most effective strategy for developing the power sys-
tem to meet future requirements.

Although it will be many years before we see the complete roll out of Smart Grid, the stra-
tegic foundation should be created now. A foundation which we hope this report will help
pave the way for.

Enjoy reading.

Peder Ø. Andreasen Lars Aagaard


President and CEO Director
Energinet.dk Danish Energy Association

4
Summary

Electricity consumption and generation in The analyses in the report show that the requires social investments of around DKK
Denmark is set to change significantly in power system will manage increases and 9.8 billion – an investment which will pro-
the coming years. Electricity customers will changes in electricity consumption and vide derivative benefits of around DKK 8.2
demand new services as they replace oil- more fluctuating generation most efficient- billion in the form of lower electricity gen-
fired burners with electric heat pumps and ly through a Smart Grid that creates a dy- eration costs, a more effective production
traditional petrol-powered vehicles with namic interaction between the power sys- of ancillary services and increased electrici-
electric vehicles and plug-in hybrid vehicles. tem and the consumers through metering, ty savings.
The electricity sector should be ready to pro- controlling and automation in the power
vide these services with the same high lev- grid and in private households. The conclu- On the other hand, a traditional reinforce-
el of delivery quality as today. This should sion also applies if there are fewer electric ment strategy requires social investments
occur in a situation where electricity gener- vehicles and plug-in hybrid vehicles than as- of approximately DKK 7.7 billion at present
ation is increasingly derived from renewa- sumed above. value but creates no increment in bene-
ble energy. fits. Consequently, the economic benefit of
However, as Smart Grid is a new and very choosing the Smart Grid strategy is esti-
Denmark has ambitious political climate different method for developing the power mated at approximately DKK 6.1 billion.
and energy targets to reduce CO2 emissions, system than traditional reinforcement, a de-
integrate more renewable energy, especially cision needs to be taken to ensure that all The distribution network should be expand-
wind power, into electricity generation and players are pulling in the same direction to ed concurrently with the customers' de-
improve energy efficiency. Overall, these tar- avoid investments in and expenditures on mand for electricity for electric vehicles,
gets create a need for reinforcing and ex- equipment and systems that would not be plug-in hybrid vehicles and heat pumps.
panding the power system. But how? used optimally. This requires increased co- However, the need for reinforcement is DKK
operation between the players in the sec- 1.6 billion less if the new consumption is op-
Energinet.dk and the Danish Energy As- tor as well as strong political commitment timised flexibly and intelligently with the
sociation have analysed this in the report to establish fundamental regulatory condi- assistance of Smart Grid functionalities.
'Smart Grid in Denmark' with the objec- tions for this development. Specifically, Smart Grid reduces the need for
tive of describing and analysing the specific reinforcements of the distribution network
challenges facing the power system in the from DKK 5.7 billion to DKK 4.1 billion.
coming 15 to 25 years. Moreover, the report
Traditional expansion
describes how and to what extent Smart versus Smart Grid
Grid solutions can prepare the power sys- Traditionally, the power sector has adapt- Conclusion of the report
tem for handling these challenges. ed and reinforced the power grid by lay- The economic analysis in the report con-
ing more and thicker cables in the ground, cludes that Smart Grid is the most effec-
Energinet.dk and the Danish Energy Associ- erecting more substations and securing ac- tive strategy for developing the power sys-
ation have analysed the part of Smart Grid cess to sufficient generation capacity. The tem and preparing it to meet the challenges
that enables an effective interaction be- consumers have been primarily 'passive' ahead.
tween wind power generation, heat pumps with predictable and regular consumption
in private households, electric vehicles and patterns. A number of preconditions relating to the
plug-in hybrid vehicles. expected future development of electrici-
Traditionally, in an intelligent power system ty generation and consumption in Denmark
The project assumes in its analyses that the – a Smart Grid – completely new perspec- are set out in the project. There is a degree
Danish electricity sector in 2025 is able to tives will emerge. The consumers will be able of uncertainty associated with these pre-
handle the following: to interact with the power system and gen- conditions as it is difficult to predict the
• that wind turbine capacity is expanded to eration through automated and intelligent pace of the development. This obvious-
cover approximately 50 per cent of annu- control of their electrical appliances, thereby ly gives rise to some uncertainty about the
al Danish electricity consumption acting as resources for the power system. calculations. Of course, a significant change
• that the number of electric and plug-in to the preconditions will alter the size of the
vehicles totals 600,000, and The overall calculations show that a future calculated investments and benefits.
• that there are 300,000 individual heat power system using Smart Grid can be es- However, the calculations are estimated to
pumps. tablished at a social net cost (present value) be all in all so robust that the conclusion
in the range of DKK 1.6 billion. However, this is clear: If we desire a society with a wide-

5
spread use of electricity for transport and vehicles will have their energy consump- To ensure an effective development of
heating as well as a high level of wind pow- tion for transport covered in a very individu- Smart Grid on market-based conditions, it
er generation, Smart Grid will be the most al and intelligent way because it will be pos- is crucial that both framework conditions
effective solution. sible to charge the battery in the vehicle at and specific solutions are developed with a
varying prices depending on charging speed strict focus on securing low complexity and
Sensitivity calculations conducted in the and charging time. low costs.
analysis show that this conclusion is ro-
bust, irrespective of whether there are few- At the same time, it will be possible for
er or more electric vehicles and plug-in hy- consumers to reduce their electricity bills
Two necessary political
brid vehicles in relation to the fundamental through intelligent consumption and au- preconditions
preconditions for the analysis. In particular, tomated energy-efficient solutions by let- The electricity industry shall and will play an
a Smart Grid is a very effective solution if, ting their electrical appliances function au- active role in ensuring a common and coor-
in the long term, the use of electric vehicles tomatically at predetermined comfort levels dinated development of an intelligent pow-
and plug-in hybrid vehicles becomes even to the benefit of both themselves and the er system in Denmark. However, this re-
more widespread. power system. quires that the political preconditions also
promote a proactive behaviour amongst all

Advantages for the The realisation of Smart Grid players.

consumers requires a contribution from There are two necessary preconditions,


The establishment of a Smart Grid will in- the entire sector which are crucial to supporting this proac-
crease the digitisation of Danish house- Customer demand for such new services tive behaviour.
holds. More metering, controlling and com- will make the power system more compre-
munication electronics will be present in hensive and far more dynamic than it is to- The financial regulation of the network
households, which will afford the consum- day. To meet this demand, the power system companies should ensure that they are in-
ers an overview of their consumption and needs to be further integrated across the centivised to actively participate in the de-
the possibility to achieve automatically con- existing interfaces in the future. velopment of a Smart Grid and that they
trolled and intelligent electricity consump- make the necessary, long-term investments
tion, thereby saving energy and money. A single transparent price that dynamical- to create an intelligent power system. Un-
ly reflects the costs in the value chain of the der the current regulation, these expenses
An additional benefit of equipping house- entire power system should be developed so do not result in an increase of the revenue
holds will be the possibility for consumers that the customers can gain the full bene- caps of the network companies.
to purchase a number of related services. fit of making their consumption flexible and
For example, it is conceivable that consum- intelligent. In addition, systems and prod- Furthermore, increased demonstration ef-
ers could receive an SMS if their heat pump ucts should be developed to make it easy forts are required, partly to further develop
should happen to break down while they for the customers to offer their flexible con- and adapt the necessary Smart Grid tech-
are away on winter holiday. They could if de- sumption as regulating power and system nologies and partly to ensure the neces-
sired automatically shut off standby con- reserves and benefit from this. sary standardisation within the field. Con-
sumption in their home while they are sequently, society should continue to grant
away, and they could at any given time con- This means that the transmission system financial support to conduct focused and
trol the temperature in the house via their operator (TSO) and distribution network coordinated development and demonstra-
smart telephone or PC. companies (network companies) will have tion activities which encourage the ad-
to undertake new tasks. The TSO should vancement of those technologies and so-
Moreover, it is to be expected that more of continue to develop the market for balanc- lutions that will form the building blocks
such new and innovative products will be- ing and ancillary services. Furthermore, net- for the intelligent power system of the fu-
come available in the future. Products that work companies should create a real-time ture. These efforts are decisive if Denmark is
will avail of the new infrastructure, as we have view of the load on the distribution network to achieve a market leading position within
seen with mobile telephony and the Internet. that can form part of the overall dynam- the Smart Grid value chain.
ic electricity price and thereby motivate the
Moreover, Smart Grid will ensure that own- consumers to use electricity in a way that The way ahead
ers of electric vehicles and plug-in hybrid minimises the costs of grid reinforcement. Although it will be many years before we

6
see the complete Smart Grid roll-out, the Facilitating phase By the end of this period, this development
foundation should be laid now. A number will have brought about a power system in
of network companies are either engaged
(2010-2012) which the fundamental Smart Grid infra-
in or planning to roll out automated meter- From 2010 to 2012, society will experience structure has been established. At the same
ing systems (AMR) to private households. an increasingly widespread use of electric time, the system should be so mature that
Moreover, the replacement of oil-fired burn- heat pumps and the first proper launch of commercial solutions supporting intelligent
ers with electric heat pumps is already in electric and plug-in hybrid vehicles by com- demand response start to find more wide-
progress partly due to the payment of pub- mercial players. spread use.
lic subsidies to customers substituting oil
burners for heat pumps. Although the ma- By the end of this period, the electricity sec-
jor challenge in relation to electric and plug- tor should have ensured that the relevant
Commercialisation phase
in vehicles is still some years away, exten- players both inside and outside of the elec- (2020-)
sive work is carried out today to develop tricity sector are mobilised and involved in This phase is expected to occur after 2020.
concepts and charging stations and to plan considering the power system of the fu- By that time, electric heat pumps will be the
the expansion of the entire charging infra- ture. Also during this period, a wealth of ex- most widespread source of heating outside
structure. perience should have been gained through areas supplied with district heating and
development and demonstration projects natural gas. At the same time, electric and
Therefore, efforts should be directed to- which can form the basis for frameworks plug-in hybrid vehicles will be recognisable
wards identifying the need for and ensur- and standards. and commonplace on the streets.
ing the necessary standardisation and func-
tionality requirements, thus preparing these This situation makes it possible to balance
elements to the widest possible extent to
Establishment phase the power system via Smart Grid function-
function immediately in a Smart Grid con- (2012-2020) ality in the form of intelligent and automat-
cept. From around 2010 to 2020, changes on the ed control of the consumers’ flexible appli-
demand side will begin to take shape as the ances while Smart Grid services should be
The way towards an intelligent power grid use of heat pumps will have become signifi- further developed so that consumers have a
can be described briefly in three phases: cantly more widespread and consumers will wide range of products to choose between.
Facilitating in the short term, establishment have begun to purchase electric and plug-in
in the medium term and commercialisation hybrid vehicles on a larger scale.
in the long term.

7
Framework and preconditions
for the report
In recent years, the Danish Energy Associa- scribe and analyse the specific challenges show how such an effective outcome could
tion and Energinet.dk have worked deter- facing the power system in the coming 15 to be achieved in Denmark in both the short
minedly on investigating the opportunities 25 years and to describe in which ways and and the long term.
and challenges facing the power system, to what extent Smart Grid solutions can ad-
given the ambitious political climate and dress these challenges. The project will pro- The work is carried out by a number of
energy targets. In the first half of 2010, a vide an overview of the possibilities that working groups consisting of personnel
joint project was initiated with a view to these potential solutions create for the con- from Energinet.dk, the Danish Energy Asso-
analysing the prospects of Denmark tak- sumers and of the investments that the so- ciation and member companies of the Dan-
ing advantage of the opportunity to make lutions require. This overview is central to ish Energy Association. This report is based
the Danish power system more environ- creating the basis for a forward-looking and on the analyses and conclusions of these
mentally friendly and efficient by setting long-lasting investment plan for regulated groups, whose work is described in detail in
up intelligent demand response in Danish companies and market players in the elec- a number of appendix reports.
households. The platform for this intelligent tricity industry.
electricity consumption is created concur-
rently with increased consumer investment Moreover, the project should describe which
in electric heat pumps and – in the near fu- framework conditions it would be advanta-
ture – electric and plug-in hybrid vehicles. geous to adjust to ensure an effective out-
The objective of the project has been to de- come; similarly, the project should seek to

8
1. The energy system
stands at a crossroads
Realising Denmark’s ambitious climate and achieving the long-term political objective energy2. Consequently, by investing in heat
energy-policy targets to reduce CO2 emis- of making Denmark independent of fossil pumps as well as electric and plug-in hybrid
sions, increase its share of renewable ener- fuels. The way ahead is to adapt the Danish vehicles consumers will be contributing sig-
gy, especially in electricity generation, and energy system and significantly change the nificantly to:
to improve energy efficiency means that power system, both in relation to the way • improving energy efficiency
electricity will play an even more central electricity is generated and how it is used by • reducing CO2 emissions by substituting
and sustainable role in the power system of the consumers. Electricity that is increasing- fossil fuels for renewable energy based
the future than it has to date. ly generated with the assistance of renew- electricity
able energy can favourably replace fossil • realising the target of 10 per cent renewa-
This chapter describes the implications of fuels in the heat and transport sectors. Con- ble energy in the transport sector
this new role for the power system. The con- sequently, electricity will play an even more • minimising the dependency on imported
clusion is that this development will result central and sustainable role in the energy oil and natural gas.
in increased investments, which in princi- system of the future than it has to date.
ple could follow two paths. One of the paths
can be characterised as a traditional expan- On the supply side, there will be a signif- 1.2 Changes to the power sy-
sion strategy in which the power system is icant expansion of Danish wind genera- stem necessitate a decision
reinforced and the electricity consumers are tion capacity so that in 2025 wind turbines
maintained as 'passive' consumers. Alterna- are expected to generate up to 50 per cent
regarding its future design
tively, the other path would lead to the es- of annual Danish electricity consumption. The current power system is based on a
tablishment of an intelligent power system In addition, a focus on renewable energy number of fundamental assumptions about
– a Smart Grid that creates a dynamic inter- and zero-energy houses will increase the generation and consumption. Firstly, the
action between the power system and the number of households engaging in local en- balance between consumption and gener-
consumers through metering, controlling ergy generation by means of photovolta- ation is ensured basically by letting gener-
and automation. ic cells, domestic wind turbines, etc., in the ation follow consumption, but through the
coming years. active use of our international interconnec-
With a view to avoiding double investments, tions, however. Secondly, the power system
it would be most expedient to begin adapt- On the demand side, electricity will be in- is a one-way system in that electricity is al-
ing to a Smart Grid strategy already now if creasingly utilised in the heat and transport most exclusively transmitted from the pow-
this path is assessed to be the most effec- sectors through the increased use of electric er system to the consumer. Thirdly, it is al-
tive in the long term. As such, the economy heat pumps as well as electric and plug-in ways essential to keep some central power
of the Smart Grid strategy would be under- hybrid vehicles. In both these sectors, elec- stations operating in order to establish and
mined if large-scale expansions based on a tricity can easily make consumption more maintain the electrotechnical system sta-
traditional strategy were carried out. climate-friendly and efficient. The heat sec- bility.
tor uses approximately 20 per cent of Dan-
ish energy consumption for heating homes, As the power system undergoes considera-
1.1 Denmark’s clima- of which 60 per cent is generated from fos- ble changes on the supply side in the future
te and energy targets sil fuels. Electric-powered ground-to-water as described above, power system develop-
heat pumps can generate the same volume ment must be aimed at finding new ways
will change the conditi- of heat as today with 50-70 per cent lower to ensure:
ons for the power system energy consumption1. The transport sector • Effective utilisation of wind power gener-
Denmark has set an ambitious political tar- uses another approximately 20 per cent of ation. Electricity generation from wind
get for the next ten years to reduce CO2 Danish energy consumption on road trans- turbines cannot be determined to fixed
emissions in non-ETS sectors by 20 per cent, port, of which almost 100 per cent is sup- times. If wind power capacity is expand-
to increase the share of renewable energy in plied by fossil fuels. The motor in an elec- ed substantially, considerable amounts of
electricity generation to 30 per cent, to in- tric vehicle is more energy efficient than electricity will be generated during windy
crease the share of renewable energy in the a petrol or diesel engine as it can be driv- periods which can be utilised advanta-
transport sector to 10 per cent and to im- en the same distance on 50-75 per cent less
prove energy efficiency. The targets repre-
2
“Technology assessment of alternative propellants
1
'Efficient use of wind power-based electricity in in the transport sector”, COWI, 2007. The efficien-
sent a significant step on the path towards Denmark', Energinet.dk, 2009 cy is based on mechanical output relative to in-
put energy.

9
geously through intelligent demand re- hicles as well as heat pumps will mean to commence the establishment of an intel-
sponse. that the power grid of the future should ligent power system – a Smart Grid – which
• Access to ancillary services3 from new transfer more electricity than it is current- creates entirely new perspectives for elec-
sources. As wind power becomes the prin- ly designed to do. Therefore, it should be tricity consumers to interact with the power
cipal source of electricity generation, it reinforced as efficiently as possible. system and electricity generation. This can
would be expedient to ensure that con- • Continued maintenance of a stable volt- occur through automated and intelligent
sumers are given better possibilities to age in the distribution network. Many of control of the consumers’ appliances which
contribute to the supply of ancillary ser- the electrical appliances require a stable enables them to function as resources for
vices to the power system so that the voltage in the distribution network to the power system.
power system can function at times function correctly. An increased number
when there is no longer a commercial ba- of electricity-generation facilities at do- As Smart Grid is a new way of developing
sis for operating central power stations. mestic level together with new and wide- the power system which differs significant-
ly fluctuating consumer patterns will lead ly from traditional expansion strategies, a
At the same time, changes on the demand to increased variation in the voltage in decision should be made in favour of one or
side will mean that new thinking is required the local distribution networks and result the other strategy. This decision should en-
in the distribution network to ensure: in a more unstable voltage, causing in- sure that all players are pulling in the same
• Effective expansion of the transfer capac- convenience to the consumers. direction, thus preventing investments in
ity in the distribution network4. The intro- and expenditure on equipment and systems
duction of electric and plug-in hybrid ve- Traditionally, the electricity sector has which would not be used optimally.
adapted the power system to changes in
3
Ancillary services are the generation capacity for
reserves and regulating power, inertia and short- the outside world by laying more and thick-
circuit capacity. er cables in the ground, erecting more sub-
stations and securing access to sufficient
4
Energinet.dk has previously concluded that intel-
ligent demand response is not an alternative to generation capacity. The consumers have
transmission grid expansion as the need for ex- been primarily 'passive' with predictable
panding it is to a higher degree dimensioned by
the development of the generation mix used in the and regular consumption patterns. The elec-
power system and trading in the cross-border elec- tricity sector can still follow this tradition-
tricity market. Therefore, the need for transmis-
sion grid expansion has not been analysed further
al strategy, yet new technologies offer an al-
in this project. ternative possibility. This new possibility is

10
Upon substantial expansion of the wind power capacity, considerable amounts of electricity will be generated during very windy
periods which can be utilised advantageously through intelligent demand response.
MWh per hour projected to 2025 based on 2010 consumption and wind generation

Estimated generation
and consumption in 2025
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Hours in the second quarter, 2025

Figure 1. In the future, wind turbines will generate considerable amounts of electricity that can be utilised with advantage in
Denmark via intelligent demand response, which will create times when there is no commercial basis for operating
central power stations.

An analysis of 148 selected radials in the low-voltage grid shows that many power lines in the future should transfer more elec-
tricity than they are built to handle today.
MWh per hour projected to 2025 based on 2010 consumption and wind generation

Load rate in per cent

350

300

250

200

150

100

50

0
Analysed 0.4 kV radials

Figure 2. Increased electricity consumption will necessitate thicker cables in many parts of the power grid, which will also generate
greater variation in the voltage in the power lines on the individual suburban streets when consumption fluctuates greatly.

11
Fact sheet:

What is Smart Grid?

The Smart Grid concept has become widespread in recent years and International studies have identified a number of specific advantag-
the concept is used in various contexts with widely differing defini- es for consumers, the environment and society of introducing Smart
tions. This project analyses the part of Smart Grid that enables an Grid into a power system. These advantages primarily relate to2,3
effective interaction between wind power generation, heat pumps • Improved system stability resulting in higher security of delivery
in private households as well as electric vehicles and plug-in hybrid • More options to create power balance in a less expensive and
vehicles. Both the Danish Energy Association and Energinet.dk work more efficient way
with Smart Grid in other contexts, using broader definitions. • Faster remedy of faults in the power grid
• Reduced need for investments in the power grid
There are numerous descriptions and definitions of what a Smart • General energy savings and lower electricity prices for consumers
Grid is. An excellent definition proposed by 'European Technolo- who use electric vehicles, plug-in hybrid vehicles and heat pumps
gy Platform' states that Smart Grid is 'electricity networks that can intelligently
intelligently integrate the behaviour and actions of all users con- • Increased integration of renewable energy through the flexibil-
nected to it – generators, consumers and those that do both – in or- ity offered by electric vehicles, plug-in hybrid vehicles and heat
der to efficiently deliver sustainable, economic and secure electricity pumps, where minor time lags in consumption will not reduce
supplies.' 1 consumer comfort.
2
Source: ” What’s So Smart about the Smart Grid?”, Booz&CO 2008
1
Source: Smart Grid definition, www.smartgrids.eu 3
Source: “ European Technology Platform Smart Grids”, European Commission,
2006

Power grid
Communication

Operation and monitoring Service provider

Markets

Customer

Smart Grid
Generation

Distribution
Transmission

Figure 3. A Danish Smart Grid builds on the existing infrastructure and creates new possibilities for interaction with the consumers.

12
Fact sheet:

In this project, Smart Grid is analysed as the


way to develop a power system capable of
creating intelligent demand response us-
ing those elements that are necessary to ef-
ficiently integrate more wind turbine pow-
er, more micro generators at domestic level,
electric heat pumps as well as electric and
plug-in hybrid vehicles. The analyses have
shown that such a Smart Grid can offer
consumers the possibility to actively
• supply system stabilising services to the
power system
• reduce the need for reinforcing the distri-
bution network
• consume electricity when it is cheap
• achieve overall energy savings.

Such a system can generate economic ben-


efits for both society and the consumers
without a resulting loss of comfort. The sys-
tem is conceptually summarised in the fol-
lowing illustration.

A more detailed version of the described


Smart Grid and its elements is illustrated
in Figure 4 below with the numbered areas
described in the text after the figure.

13
Fact sheet:
Power grid
Communication
Communication at home
Automatic on/off
Real-time readings
Power stations

PV cells

Facilities for ensur-


ing system stability
Grid company

Elec-
tricity
meter
Integrated Household Heat
price signal appliances pump
Electricity consump-
tion control system
TSO
Commercial market players

Other relevant players


Charging Electric vehicle
Wind farm station
Figure 4. Illustration of the elements of a Danish Smart Grid.

1
Systems for interdisciplinary coordination and data exchange tion intelligently entails the least possible difficulty for the consum-
between the players in the power system er. Although the electricity meter is an important element in the es-
Smart Grid requires close coordination across the interfaces of the tablishment of an intelligent power system, it could not create the
power system, and it will therefore be necessary to establish IT sys- desired ambitious conversion to demand response and an intelli-
tems capable of receiving and processing data about the status of gent power system alone. It is necessary to support the electricity
the power system – for most of the parties involved – online. These meter data with a contractual relationship between consumer and
IT systems should make it possible to fulfil the wishes and needs of electricity supplier that rewards the consumer for acting flexibly, eg
the consumers without overloading the power system and thus re- settlement according to the hourly rates on the wholesale market.
ward the consumers for their flexibility.
4
Facilities for ensuring system stability
2
Equipment for measuring the condition of the distribution In a future of more wind power, there can be periods when there
network will be no economic rationale for having power stations in opera-
Measuring the condition of the distribution network is a prerequisite tion. System stabilising services such as inertia and short-circuit ca-
for ensuring that the distribution network does not overload. Con- pacity, which are normally provided by power stations, should be
sequently, measuring equipment should be installed at nodes in the ensured at all times. No decision has been taken in the project re-
distribution network, particularly in those areas that are at risk of garding the most effective method for ensuring system stabili-
such overloading. This measuring equipment should be able to send ty; however, based on calculations it is assumed that it could be
real-time information about the condition of and load in the grid. achieved by installing synchronous compensators and SVCs.

3
Equipment for flexible control and settlement of the consump- In order to link the Smart Grid elements together effectively, a well-
tion of consumers investing in a heat pump or an electric vehicle functioning division of work should be ensured between the regu-
Flexible consumption control is managed by one or more electron- lated players in the industry and the competition-based enterprises.
ic units in the consumer’s home which can control the consump- At the same time, a market model should be created which facili-
tion of the flexible, electrical appliances in the house. Such control tates well-functioning interaction between the players.
can simultaneously maximise the consumer’s comfort and ensure
effective interaction with the needs of the power system expressed The conversion to an energy system that helps Denmark to come
through price signals. Flexible settlement is performed with the as- closer to achieving its climate and energy-policy targets will require
sistance of data from a remote-reading electricity meter4. The elec- significant investments throughout the energy system and espe-
tronic unit seeks to ensure that optimising electricity consump- cially in the power system.

4
It is assumed in the project that all private consumers owning heat pumps The analyses show that the power system can manage increases
and/or electric vehicles will have an electricity meter capable of recording and
saving the consumer’s electricity consumption each hour. This assumption re- and changes in electricity consumption and more fluctuating pow-
flects the fact that a large number of network companies today have or are er generation most efficiently by establishing a Smart Grid that cre-
planning to roll out meters which can meet these requirements, and that sev-
eral of the network companies will install new AMR systems for customers ates a dynamic interaction between the power system and the con-
with a demand response potential when the 'old' electricity meters are due to sumers through metering, controlling and automation in the power
be replaced. For some consumers it will also become relevant to change their grid and in private households.
existing electricity meters when they acquire a consumption device that can
be used for demand response purposes, such as an electric vehicle or an elec-
tric heat pump.

14
2. Smart Grid is the most effective
way to accommodate increases in
electricity consumption
2.1 Conversion of the The size of these investments depends part- the Smart Grid strategy is estimated to be
ly on how effectively the power grid can be around DKK 6.1 billion. These calculations7
energy system requires
utilised and partly on the consumers’ abili- are further specified in the following8.
large investments ty to act flexibly.
The future will bring great changes in both 2.3 Socioeconomic costs of
the generation and consumption of energy. The analysis does not include investments
establishing a Smart Grid
Generation will change to become increas- in transfer capacity in the transmission grid
ingly based on renewable energy, which will as this was closely analysed in the work un- Upgrading of the Danish power system to a
happen through an expansion of wind pow- dertaken by the Electricity Infrastructure Danish Smart Grid will require investments
er, for example. If Denmark is to become less Committee in 20086. and will therefore generate increased costs.
dependent on fossil fuels, consumers should The analysis has identified the necessary in-
change their energy consumption consid- vestments and costs, which amount to total
erably to use the new renewable energy ef- 2.2 Smart Grid is the most socioeconomic costs of approximately DKK
ficiently, eg through electric heat pumps as effective and inexpensi- 9.8 billion. These costs comprises of the fol-
well as electric and plug-in hybrid vehicles. lowing items:
These changes will require significant in-
ve method for upgra- • Metering equipment in the distribution
vestments from both society and the con- ding the power system network which can provide a continuous
sumers, which this project has not sought The economic analysis in the report con- overview of the load on the distribution
to quantify. Analyses in the project are cludes that Smart Grid is the most effective network. This is a significant precondi-
based on the premise that wind turbine ca- and inexpensive method for upgrading the tion – in combination with the electrici-
pacity expands to cover around 50 per cent power system so that it is prepared to meet ty price on the wholesale market – for es-
of Danish annual electricity consumption, the challenges ahead. tablishing integrated price signals which
that there will be a total of around 600,000 Consequently, establishment of a Smart the consumers can act upon both to their
electric and plug-in hybrid vehicles as well Grid will cost Denmark approximately DKK benefit and that of the power system.
as approximately 300,000 individual heat 9.8 billion in investments for metering, con- To this should be added costs necessary
pumps in Denmark – all in 20255. Howev- trol and automation at the consumers’ to enable consumers owning electric ve-
er, it is not critical to the analyses and con- premisis and in the power grid. This invest- hicles, plug-in hybrid vehicles and heat
clusions of the project that the aforemen- ment will yield benefits for Denmark total- pumps to use hourly settlement, which is
tioned development is achieved in this ling approximately DKK 8.2 billion, so that secured through the upgrading of their
specific year. the total cost will be around DKK 1.6 billion. electronic electricity meter (approximate-
ly DKK 2.1 billion)
This development will result in a need for en- The alternative to Smart Grid is a tradition- • Electronics in private households which
suring effective interaction between the new al expansion strategy, which requires a so- can automatically communicate with the
forms of fluctuating generation and the new cioeconomic investment of approximately power system and based on this – with
forms of consumption. The power grid and DKK 7.7 billion without yielding any benefits. the consumer’s acceptance – can control
its components are the central link between Consequently, the advantage of pursuing electricity consumption in the household.
generation and consumption. Increased (approximately DKK 1.6 billion)
electricity consumption and more fluctuat- 6
See http://www.energinet.dk/da/menu/Planlægn- • Expansion and reinforcement of the dis-
ing generation will require investments in ing/Udbygning+af+elsystemet.ht tribution network in areas where Smart
the power grid to make both ends meet. 7
The calculations do not take into account the so-
Grid functionality alone cannot handle
called net tax factor. The net tax factor is a calcu- the overload (approximately DKK 4.1 bil-
5
The number of electric vehicles is based on sce- lation concept that seeks to adjust for differenc-
nario A2 from the EFP project ‘Electricity for Road
lion)
es between factor and consumer prices (for more
Transportation, Flexible Power Systems and Wind information see the Danish Ministry of Finance’s 8
The economic calculations describe the econom-
power’, and the number of heat pumps is esti- guidelines for socioeconomic analysis). An applica- ics of power generation. Unless otherwise stated,
mated by analysing the potential for replacing ex- tion in this project would have only changed the all amounts are the discounted present value of fu-
isting individual heating units, primarily oil-fired absolute size of the figures and not their relative ture cash flows based on an annual discount rate
boilers and electric heating. connection. of 5 per cent .

15
• Investment in facilities to ensure system there are no significant Smart Grid bene- of the consumers (approximately DKK 4.4
stability in a power system with signifi- fits to be gained from improving security of billion)
cantly more wind power. (approximately supply, even though this is often mentioned • Costs of regulating power, reserves and
DKK 1.7 billion) in other countries. However, the analyses ancillary services can be reduced by giv-
• Metering and control software at Energi- show that the other areas of benefit con- ing more providers with lower costs ac-
net.dk and the network companies that tain a significant Danish potential that can cess to the market (approximately DKK
collects and processes data and provide socioeconomic benefits amounting 2.4 billion)
ensures sufficient data communication to approximately DKK 8.2 billion distributed • Clarification of the consumers’ electrici-
between both regulated and commer- on the following areas: ty consumption and the possibility of im-
cial players in the power system (approxi- • Utilisation of the time-oriented flexibility plementing energy-saving solutions, eg
mately DKK 0.3 billion). of electric vehicles, plug-in hybrid vehicles through automatic standby function,
and heat pumps can move their electrici- can reduce total electricity consumption,
The analyses have also investigated the ty consumption to times when electricity which saves society the alternative costs
benefits of a Smart Grid in a Danish context. is cheaper and thus reduce the socioeco- that would otherwise have been incurred
Today, the Danish power system is very ro- nomic costs of total electricity generation from implementing such energy-saving
bust with high security of supply, and thus without reducing the perceived comfort initiatives (approximately DKK 1.4 billion).

Smart Grid has additional social costs of approximately DKK 1.6 billion Smart Grid
in contrast to DKK 7.7 billion in a traditional grid expansion scheme. Traditional expansion
Socioeconomics in DKK billion

Investments Benefits Total


Investments Benefits Total

Smart Grid investment in detail Smart Grid investment in detail


Present value in DKK billion Present value in DKK billion

Metering and control software Savings in regulating power and reserves


Metering equipment in the grid and at consumers’ premises Savings in electricity generation
Control electronics at consumers’ premises Saved costs for energy-saving initiatives
Reinforcement of distribution network
Facilities for ensuring system stability

Figure 5. Investments and benefits of establishing the power system of the future.

16
Further benefits may be gained in the form 2.4 Socioeconomic costs strengthen the distribution network. This
of improved possibilities for locating faults need arises because especially electric ve-
in the power grid and thus reducing the du-
of a continued traditio- hicles, plug-in hybrid vehicles and in some
ration of power cuts, a potential reduction nal expansion strategy cases heat pumps will draw energy from
in the number of production units for cov- As an alternative to Smart Grid, future chal- the distribution network late in the after-
ering peak-load demand and the develop- lenges facing the power system would be noon and at the start of the evening if their
ment of know-how in Denmark which can managed using a traditional expansion consumption is not optimised intelligent-
ensure that Denmark’s leading position in strategy wich does not focus on generat- ly. This increased consumption will coincide
the industry is translated into jobs and ex- ing increased consumer involvement in the with the peak time when the distribution
ports. However, these benefits are not ap- power system but merely on strengthening network is already today under most stress
praised in the work of the project, yet they the power grid. – the so-called 'evening peak'.
represent a considerable upside to the con-
clusions of the analysis. If this strategy is selected to resolve the A lesser part of the costs (around DKK 2.0
challenges, the socioeconomic costs of gen- billion) results from the need to establish
The overall calculations show that the fu- erating electricity will increase by approxi- new electrical installations that can ensure
ture power system with Smart Grid can be mately DKK 7.7 billion, thus constituting ap- the system stability of a Danish power sys-
established at a socioeconomic net cost of proximately DKK 6.1 billion more than the tem with a significantly expanded wind tur-
approximately DKK 1.6 billion, which is de- net socioeconomic costs of a Smart Grid ex- bine capacity.
rived from DKK 9.8 billion in investments pansion strategy.
less DKK 8.2 billion in benefits. The benefits In contrast to the establishment of an in-
can be realised on condition that all Smart The largest portion of the costs (around telligent power system, the traditional ex-
Grid potentials are commercialised. DKK 5.7 billion) stems from the need to pansion strategy and consumer behaviour

17
will not yield socioeconomic benefits in the solution than traditional power system ex- into the power system while generating sig-
form of reduced system and production pansion. In particular, increased amounts nificant socioeconomic savings through
costs and additional energy savings. of wind power or a greater number of con- cheaper electricity generation and energy
sumer appliances with large and flexi- savings for the owners of the new electric
2.5 The economics of Smart ble consumption could increase the value vehicles and plug-in hybrid vehicles.
Grid are sound even if significantly. It has been specifically cal-
culated in the project that from a socioe- If the power system is expanded using a tra-
preconditions differ conomic standpoint it is possible to save ad- ditional strategy, the increase in the number
A number of preconditions relating to the ditional billions by implementing a Danish of electric vehicles and plug-in hybrid vehi-
expected future development of electric- Smart Grid under the precondition that the cles will generate additional socioeconomic
ity generation and consumption in Den- number of electric vehicles and plug-in hy- costs of approximately DKK 2.2 billion. Using
mark were set out in the project. There is brid vehicles increases significantly in the this methodology, the network companies
some uncertainty about the exact develop- period after 2025.8 will conduct local and individual reinforce-
ment, and this naturally leads to uncertain- ments and expansion of their distribution
ty about the preconditions for the project A long-term scenario has been calculated, in network when areas with a risk of overload-
which of course will be reflected in the cal- which half of the Danish vehicle fleet com- ing are identified. Consequently, the need
culations. A significant change to the pre- prises of electric and plug-in hybrid vehicles. for investments will rise constantly and con-
conditions will naturally change the size of With an already established Danish Smart currently with new consumption.
the calculated investments and benefits. Grid, the increase in the number of electric
vehicles and plug-in hybrid vehicles could Similarly, the analyses show that the conclu-
However, the calculations are estimated to be integrated into it and all in all generate sion will be the same also if there are fewer
be all in all so robust that the conclusion a socioeconomic net benefit in the power electric vehicles and plug-in hybrid vehicles
is clear: If we desire a society with a wide- system of approximately DKK 1 billion. This than stated above, for example. The net cost
spread use of electricity for transport and benefit is achieved by carrying out minor in- of 300,000 electric vehicles and plug-in hy-
heating, Smart Grid will be the most effec- vestments which ensure the integration of brid vehicles is DKK 6.2 billion in a traditional
tive and least expensive solution. electric vehicles and plug-in hybrid vehicles expansion scheme, whereas it is DKK 2.5 bil-
8
Calculations in the project assume an increase in
lion in a Smart Grid expansion strategy.
Analyses in the project of the long-term im- the number of electric and plug-in hybrid vehi-
plications of an electricity-oriented society cles from approximately 600,000 in 2025 to ap-
proximately 1,1 million in 2030. This development is
clearly show that Smart Grid is in the long- based on scenario A2 from the EFP project 'Electric-
term a better socioeconomic and technical ity for Road Transportation, Flexible Power Systems
and Wind power'

In the long term, increased expansion of electric vehicles Smart Grid


will further increase the value of Smart Grid Traditional expansion
Socioeconomics in DKK billion when integrating an
additional 500,000 electric vehicles from 2025 to 2030

Invest- Benefits Total


ments

Invest- Benefits Total


ments

Figure 6. An intelligent power system will also be socioeconomically advantageous in the long term.

18
Fact sheet:

Economic calculations

The economic calculations in the project have been performed in Benefits


the individual working groups. This overview provides a brief intro- The investment required to create an intelligent power system in
duction to the calculations, which can be found in detail in the ap- Denmark will potentially generate benefits in the range of DKK 8.2
pendix reports from the individual working groups. All calculations billion. Continuation of the current traditional grid expansion strat-
are performed on the basis of a socioeconomic11 consideration and egy will be unable to generate benefits in the same way.
are calculated as present values based on an annual discount rate of
5 per cent.
The economics of Smart Grid are
Investments sound even if preconditions differ
Investments in upgrading the Danish power system to an intelli- A number of preconditions relating to the expected future develop-
gent power system will amount to approximately DKK 9.8 billion. ment of electricity generation and consumption in Denmark were
Continuation of the current traditional grid expansion strategy will set out in the project. There is some uncertainty about the exact de-
require investments in the range of DKK 7.7 billion. velopment, and this naturally leads to uncertainty about the pre-
conditions for the project which of course will be reflected in the
The calculations do not take into account the net tax factor from the Danish
11 calculations. A significant change to the preconditions will naturally
Ministry of Finance. See note 8.

Socioeconomic present value of investments and costs Smart Grid Traditional expansion
DKK billion
Primary elements Calculation basis

Grid reinforcements • Reinforcement of the distribution network (0.4 kV, 10 kV • Analyses of the distribution network of sev-
and 50 kV) to prevent overloading en large grid companies extrapolated to
country level
Facilities for ensuring • Installation of synchronous compensators and SVCs that • Analysis of the need for additional inertia
system stability can create the necessary inertia and short-circuit capacity and short-circuit capacity in a future with an
increased wind power share

Software installed with • Software installed with the TSO and the grid companies • Specific investment expectations from TSO
the TSO and DSOs that can aggregate and process all information collected in and two grid companies
the distribution network and at the consumers’ premises

Metering equipment in • Metering equipment in all 10 kV and 50 kV substations and • Results from ongoing projects at both En-
distribution network in one third of all 0.4 kV substations erginet.dk and a grid company

Intelligent solutions at the • Electronics for automated control of heat pumps, domestic • Analyses of current pricing of similar tech-
end user’s premises generation as well as demand response and generation at nology and historic price development for
the customers’ premises similar electronics

Upgrading of electronic • Upgrading of electronic electricity meters so that they can • Analyses based on actual experiences with
electricity meters facilitate hourly settlement for consumers with electric electricity meters and expected price devel-
and plug-in vehicles, heat pumps and electricity generation opment

Total

Figure 7. Investments and costs of establishing the power system of the future in Denmark.

19
Fact sheet:

change the size of the calculated investments and benefits. billions by implementing a Danish Smart Grid on the precondition
However, the calculations are estimated to be all in all so robust that the number of electric vehicles and plug-in hybrid vehicles in-
that the conclusion is clear: If we desire a society with a widespread creases significantly after 2025.
use of electricity for transport and heating, Smart Grid will be the
most effective and least expensive solution. A long-term scenario has been calculated, in which half of the Dan-
ish vehicle fleet comprises of electric and plug-in hybrid vehicles.
Specific calculations performed in the project demonstrate that With an already established Danish Smart Grid, the increase in the
from a socioeconomic standpoint it is possible to save additional number of electric vehicles and plug-in hybrid vehicles could be in-

Socioeconomic present value of investments and costs Smart Grid Traditional expansion
DKK billion
Primary elements Calculation basis

Savings on • Reduce costs of supplying reserves and regulat- • Detailed analyses of current costs for
reserves and ing power by utilising the consumers’ decentral- reserves and regulating power, includ-
regulating power ised resources ing future requirements
Savings on • Reduce costs of generating power by moving de- • SIVAEL simulation of future electric-
electricity mand response to times with a more efficient ity consumption and the generation
generation generation portfolio portfolio

Savings on • Reduce costs for alternative achievement of the • Analysis of a report concerning ener-
energy-saving energy saving-initiatives, which will be a derived gy savings in other countries and the
initiatives result of an automated Smart Grid transfer of their results to Denmark

Total

Figure 8. Benefits from establishing the power system of the future in Denmark.

Consequence
for Smart Grid
Argument Implication potential
There will be fewer electric vehicles There will be less need to invest in equipment for electric vehicle Potential re-
in Denmark or the expansion is de- owners. On the other hand, there will also be fewer Smart Grid duces
layed benefits in the form of reduced savings on grid reinforcements
and a reduction in derived energy savings
Electric vehicles will have a higher Pressure on the transfer capacity of the distribution network will Potential in-
charging effect be higher and thus intelligent control of the units’ charging ef- creases
fect aided by Smart Grid could provide increased benefits
There will be more heat pumps in Through more demand response, more heat pumps will via Potential in-
Denmark Smart Grid offer a greater possibility for reducing the socioeco- creases
nomic cost of electricity generation. In addition, more house-
holds will be able to achieve derived energy savings
There will be fewer heat pumps in Fewer heat pumps will mean that there are fewer benefits from Potential re-
Denmark, as there will be individual demand response and fewer homes with the potential for de- duces
biomass plants instead rived energy savings. However, the cost of expanding the distri-
bution network will also be reduced
Heat pumps will have a large accu- Heat pumps with a larger accumulation tank will via Smart Grid Potential in-
mulation tank allow heating to become more time flexible. This should reduce creases
the costs of grid reinforcements and similarly reduce the socio-
economic costs of electricity generation
There will be more local electricity- An increase in the number of local electricity-generation facilities Potential in-
generation facilities will create greater variation in the voltage quality in the distribu- creases
tion network. Using Smart Grid this variation could be managed
without the need for additional equipment, which will increase
the value of a Smart Grid

Figure 9. Consequences of changed preconditions.

20
Fact sheet:

tegrated into it and all in all generate a so-


cioeconomic net benefit in the power sys- In the long term, increased expansion of electric vehicles Smart Grid
tem of around DKK 1 billion. This benefit will further increase the value of Smart Grid Traditional expansion
is achieved by carrying out minor invest- Socioeconomics in DKK billion when integrating an
ments which ensure the integration of elec- additional 500,000 electric vehicles from 2025 to 2030
tric vehicles and plug-in hybrid vehicles into
the power system while generating signifi-
cant socioeconomic savings through cheap-
er electricity generation and energy savings
for the owners of the new electric vehi-
cles and plug-in hybrid vehicles. If the pow-
er system is expanded using a traditional Invest- Benefits Total
strategy, the increase in the number of elec- ments
tric vehicles and plug-in hybrid vehicles will Invest- Benefits Total
generate additional socioeconomic costs of ments
approximately DKK 2.2 billion.
Figure 10. An intelligent power system will also be socioeconomically advantageous in the
Similarly, the analyses show that the con- long term.
clusion will be the same also if there are
fewer electric vehicles and plug-in hy-
brid vehicles than stated above, for exam- Smart Grid has additional social costs of approximately DKK 1.6 billion Smart Grid
ple. The net cost of 300,000 electric vehi- in contrast to DKK 7.7 billion in a traditional grid expansion scheme. Traditional
cles and plug-in hybrid vehicles is DKK 6.2 Socioeconomics in DKK billion expansion
billion in a traditional expansion scheme,
whereas it is DKK 2.5 billion in a Smart Grid
expansion strategy.

Conclusion
The project calculations show that the so-
cioeconomic investment in converting Investments Benefits Total Investments Benefits Total
the power system up to 2025 will be ap-
proximately DKK 9.8 billion by establish- Smart Grid investment in detail Smart Grid investment in detail
ing Smart Grid. This investment will realise Present value in DKK billion Present value in DKK billion
a socioeconomic benefit of approximate- Total =9.8 Total =8.2
ly DKK 8.2 billion and thus result in total so-
cioeconomic costs of approximately DKK
1.6 billion. The alternative to Smart Grid is a
traditional expansion strategy, in which the
socioeconomic investment will be in the
range of DKK 7.7 billion, which in contrast
to Smart Grid will not yield any social bene-
fits. Consequently, the advantage of pursu-
Metering and control software Savings in regulating power and reserves
ing the Smart Grid strategy is estimated to
Metering equipment in the grid and at consumers’ premises Savings in electricity generation
be around DKK 6.1 billion.
Control electronics at consumers’ premises Saved costs for energy-saving initiatives
Reinforcement of distribution network
Facilities for ensuring system stability

Figure 11. Investments and benefits of establishing the power system of the future.

21
3. Smart Grid offers new
opportunities for the consumers
Smart Grid offers the consumers a wide ers the cheapest transport and will also The increased digitisation can also support
range of advantages both in the short and contribute to increasing the share of green services, which improve the consumer’s eve-
long term. Apart from the possibility of re- energy used in electric vehicles and plug-in ryday life. By communicating with the unit
ducing their electricity bill through intelli- hybrid vehicles. that controls the electricity consumption in
gent consumption, which is included in the the house, for example, such services could
economic comparison in chapter 2, a Smart Conversely, electric vehicle and plug-in hy- provide for the automatic shutting-off of
Grid power system also offers numerous brid vehicle owners with an unpredictable electrical standby consumption in the home
other potential benefits for the consumers. and considerable need for transport could or the dynamic optimisation of the tempe-
In the medium term, these benefits will achieve tremendous flexibility via a Smart rature in the house through the electrical
stem from a greater flexibility in the charg- Grid, as a Smart Grid will allow for the rap- heat pump.
ing of electric and plug-in hybrid vehicles id charging of the battery in electric vehicles
and in the long term from new services re- and plug-in hybrid vehicles without over- Finally, it will be a natural extension to con-
lating partly to the consumers’ energy sup- loading the power grid. Typically such rap- nect the increased digitisation to the oth-
ply and partly to other aspects of the con- id charging would be more expensive than er sources of supply in the household, such
sumers’ everyday lives. conventional, financially optimal charging; as water and gas. The possibilities here are
on the other hand, the electric vehicle and wide ranging and can comprise a service, for
plug-in hybrid vehicle owner would be able example, whereby the consumers can ac-
3.1 Electric vehicles and plug- to go quickly from empty tank to full tank. cess information services relating to diver-
in hybrid vehicles become gent water consumption which may be due
These possibilities will not be available to a burst pipe.
greener and more flexible without Smart Grid as a power system de-
Car owners today derive great pleasure veloped in a traditional manner will not of-
from their vehicles, which afford them con- fer the consumers the possibility of hav- 3.3 New energy-related
siderable freedom and flexibility thanks to ing the same control of their consumption. services will create entirely
sound Danish transport infrastructure in Moreover, rapid charging could scarcely take
the form of roads and filling stations. This place in private homes without Smart Grid.
new opportunities
desire by car owners for flexibility is set to In the long term, it is expected that the elec-
continue, and Smart Grid can help to fulfil tronics in the home could give rise to a wide
this desire. 3.2 Smart Grid can provide a range of new services. Once the technical
complete overview of energy elements are in place, it is highly probable
This is possible because a Smart Grid ena- that commercial players will emerge that
bles electric vehicle and plug-in hybrid vehi-
consumption will develop new, innovative products and
cle owners to have their energy consump- The establishment of a Smart Grid will in- new markets, as has been the case with mo-
tion covered in a very individual way that crease the digitisation of Danish homes, as bile telephony and the Internet, for instance.
combines in the best possible way the de- more metering, control and communica- An example of this could be the coup-
sire for cheap transport with the desire for tion electronics will be installed in the hous- ling of Smart Grid electronics with offers of
a high degree of flexibility to handle unfore- es, which will make it possible for the con- burglar alarm and home monitoring as such
seen driving needs. sumers to achieve automated control and services could use the infrastructure that
intelligent electricity consumption. An addi- Smart Grid is based on.
Hence, electric vehicle and plug-in hybrid tional benefit of this equipment will be the
vehicle owners with stable and predicta- possibility for the consumer to purchase a Besides the advantages that are directly eco-
ble motoring needs will be able to choose number of related services. nomically quantifiable, several studies show
to charge their electric vehicle and plug- that consumers are also often more emo-
in hybrid vehicle while it is standing in the For instance, it is conceivable that consum- tionally motivated to want new technolo-
garage or on a parking place, and when it ers could ask to receive an SMS if their heat gy as this can also provide a perceived val-
is most financially efficient, which would pump, for example, should happen to break ue. In this context, Smart Grid electronics
be typically at times of low electricity con- down while they are away on winter holiday will afford consumers the possibility to allo-
sumption and/or high electricity generation so that they would have the possibility to cate some of their electricity consumption
from renewable sources. This affords elec- call for service and thus prevent the house to times when there is a documented abun-
tric vehicle and plug-in hybrid vehicle own- and the water pipes from freezing. dance of renewable energy in the power grid.

22
4. Smart Grid is
a mutual task
Smart Grid is the most effective way to interfaces to secure a sufficient basis for in- is still some years away, extensive work is
adapt the power system so that it can man- volving the consumers in the system. carried out today to develop concepts and
age a future of more wind power, more charging stations and to plan the expansion
electric and plug-in hybrid vehicles and Some of the new key tasks in the future will of the entire charging infrastructure. A sig-
more heat pumps. For this adaption to oc- be: nificant part of the foundation for the in-
cur, all the players should invest in equip- • Preparation of an integrated price mech- telligent power system of the future is thus
ment and solutions for combining meter- anism which for a given period reflects being installed already now. Therefore, ef-
ing, control and automation in the power both the price of electricity on the spot forts should be directed towards identify-
grid and in private households with com- market, potential prices for regulating ing the need for and ensuring the necessary
mercial products. If everyone should play a power and ancillary services and a dy- standardisation and functionality require-
part in implementing these investments, namic pricing of the load on the distribu- ments, thus preparing these elements to
a market needs to be created where cash tion network so that market players can the widest possible extent to function im-
flows can move freely so that all the players apply this integrated price in the compet- mediately in a Smart Grid concept. This will
have financial incentives to participate in itive markets promote an efficient implementation of the
the adjustment. Moreover, it should be clar- • Implementation of a system ensuring a Smart Grid functionality with the owners
ified which activities should be handled by constant overview of decentralised re- of heat pumps, electric vehicles and plug-in
regulated enterprises and which activities sources available for supplying regulating hybrid vehicles.
should be conducted on the free competi- power and reserves as well as of their lo-
tive market. cation in the power grid.
4.2 An efficient market will
To render possible these new interdiscipli- lead to a common effort and
4.1 Realising the Smart Grid nary functions, it will also be necessary to
realise Smart Grid potential
potential requires the efforts carry out changes within all the areas of re-
sponsibility in the power system, with the A precondition for ensuring a common ef-
of the entire sector TSO and network companies undertaking fort from the entire sector is the existence
Analyses in the project have shown that the new tasks: of financial incentives for all the players in-
establishment of a Smart Grid will result in • The TSO should continually develop the volved. This becomes particularly decisive in
social costs of DKK 1.6 billion, whereas the market for balancing and ancillary ser- a situation of rising costs and new benefits
alternative, ie traditional power system ex- vices to provide easy access for new sup- across the regulated and purely commercial
pansion, will cost DKK 7.7 billion. Smart Grid pliers of services as they are introduced enterprises and the consumers, with some
is therefore the least expensive method for • Network companies should create a real- of them initially bearing the costs of invest-
adapting the power system to future re- time image of the load on the distribu- ment and others reaping the benefits.
quirements and can save society alternative tion network, which can become the ba-
costs of DKK 6.1 billion. sis for an integrated price formation that The market should be commercialised, thus
motivates the consumers to use electrici- ensuring the free movement of cash flows
The establishment of an intelligent power ty in a way that minimises the additional between players. Moreover, the proper divi-
system in Denmark requires efforts and in- costs of grid expansion sion of work between regulated and compe-
vestments from all regulated players in the • The TSO and the network companies tition-based activities should be ensured.
electricity sector as well as players acting should ensure communication etc., which
purely on competition-based, commercial is necessary to enable market players to To ensure that such market commerciali-
conditions both inside and outside of the in- bring the new markets effectively into sation has the best possible conditions for
dustry. Only when all these players contrib- play vis-à-vis the consumers. success, the Smart Grid market should focus
ute can the total benefits of a Smart Grid A number of network companies are either on ensuring low complexity and low costs
be realised. This need is due to the fact that engaged in or planning to replace electrici- already in the establishment phase. Market
an efficient, market-based and consumer- ty meters in private households, and the re- access barriers should be kept low so that
oriented Smart Grid in Denmark will make placement of oil-fired burners with electric new players can easily enter the market
the power system more comprehensive and heat pumps is already well in progress, pro- without having to make huge investments
far more dynamic than it is today. Conse- moted through various subsidy schemes, in equipment or IT systems to comply with
quently, there will be a need for significant- for example. Although the major challenge unnecessarily strict and complicated market
ly increased integration across the existing in relation to electric and plug-in vehicles rules. At the same time, transaction costs

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for services in the market should be kept ers easy access to avail themselves of the verted into financial benefits that are not
at a minimum so that the benefits for con- possibilities provided by the power system. drowned in expensive and rigid transac-
sumers and new commercial players are not In this way, they can place the flexibility of tions for all in the sector.
devoured by complex transaction processes. their electricity consumption at the dispos-
Creating such a market will give consum- al of the power system so that it can be con-

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5. Two necessary
political preconditions
The electricity industry shall and will play ic heavy power consumption, the revenue of the benefits with which it can potential-
an active role in ensuring a common and caps will not increase sufficiently to cover ly contribute require the creation a series of
coordinated development of an intelligent the investments in grid reinforcements. new technologies and processes capable of
power system in Denmark, and therefore • Installation of metering equipment, facilitating many essential functions in an
it should also be ensured that the politi- which affords a better overview of the intelligent power system.
cal preconditions encourage a proactive be- power grid without generating greater
haviour among all the players. This chapter electricity consumption The advancement of these technologies will
describes the two necessary preconditions • Costs of processing and communicating require development and a significant dem-
which will be essential for supporting this large volumes of data and price signals, onstration effort. Investment in this devel-
behaviour. which are core Smart Grid solutions opment from commercial players both in-
• Costs of demonstration projects. side and outside of the power system is not
expected to sufficiently create accelerated
5.1 Future-proofing financial
The decision to choose a future direction for development as there will be no return on
regulation in the electricity the power system should be based on long- such investments until a pressing need for
sector should create term expectations. The reason for this long- solutions actually arises.
term perspective is that the electricity sec-
incentives tor typically invests in assets that have a Consequently, society should continue
The network companies see a future where very long life and depreciation period. granting financial support to conduct fo-
they should be a significant driving force cused and coordinated development and
behind the establishment of the intelligent A long-term expectation is encumbered demonstration activities that encourage the
power system of tomorrow, where they will with great uncertainty, which may incite advancement of those technologies and so-
undertake new tasks and where they should players in the electricity sector to wait and lutions that will form the building blocks for
make a number of investments to ensure see while they maintain their existing work the intelligent power system of the future.
overall socioeconomic benefits. and investment methodologies. It is there- These activities should both optimise devel-
fore considered essential to establish a form opment within the individual parts of the
Such a change to the network companies' of regulation which ensures that network value chain and simultaneously ensure that
activities will mean that the current finan- companies will not be financially penalised interdisciplinary solution models are devel-
cial regulation, which has been an effective if they proactively support the expansion of oped and tested.
way of regulating a power system with pre- electric vehicles, plug-in hybrid vehicles and
dictable electricity consumption and con- heat pumps, but the development moves in
sumption development, will turn out to be a different direction.
inappropriate and possibly even a direct
hindrance to the establishment of the intel- Both to prevent a distortion of the net-
ligent power system. work companies' finances and to ensure
that players are not financially penalised for
The really big challenge is that in order to making proactive investments, the financial
create tomorrow's intelligent power system regulation should be carefully considered
a number of investments must be made and and adjusted so that it actively contributes
costs incurred, which do not result in a corre- to ensuring the establishment of an intel-
sponding expansion of the network compa- ligent power system in Denmark with the
nies’ revenue caps. Examples of this could be: subsequently derived benefits for the power
• Reinforcement of the power grid so that system, consumers and society.
it can handle new devices such as electric
vehicles and plug-in hybrid vehicles, for
example. These vehicles draw heavily on 5.2 Smart Grid development
the capacity during charging, which ne- and demonstration activities
cessitates significant grid reinforcements.
However, as their electricity consumption can accelerate development
compared to classic consumption appli- The establishment of an intelligent pow-
ances is relatively lower than their period- er system in Denmark and the realisation

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6. The way ahead

The establishment of a comprehensive Dan- ed through development and demonstra- 6.2 Phase 2 – Establishment
ish power system that offers the consumers tion projects that can also form the basis of
the possibility to automatically achieve ben- frameworks and standards.
phase
efits is a huge task, which requires a long- In the establishment phase – from around
term focus and action already in the short In order to carry out this work, a number of 2012 to 2020 – changes on the demand side
term. key activities should be initiated: will begin to take shape as the use of heat
• Determination of the necessary stan- pumps will have expanded significantly by
6.1 Phase 1 – Facilitating dards for communication and data mod- now and consumers will have begun to pur-
els with an international outlook and chase electric and plug-in hybrid vehicles.
phase compatibility
In the short term – from 2010 to 2012 – so- • Determination of roles and responsibili- By the end of this period, this development
ciety will experience an increasingly wide- ties for the TSO, network companies and will have brought about a power system in
spread expansion of electric heat pumps commercial players which the fundamental Smart Grid infra-
and the first actual launch of electric and • Adaptation of necessary legislation, finan- structure has been established. At the same
plug-in hybrid vehicles by commercial play- cial regulation and regulations time, the system should be so mature that
ers. • Implementation of pilot testing and ad- commercial solutions supporting intelli-
By the end of this period, the electricity sec- justment of both consumer-oriented and gent demand response will start becoming
tor should have ensured that the relevant technical solutions more widespread. and the players should be
players both inside and outside of the elec- • Development of a tariff model that coun- in a position to facilitate the ongoing devel-
tricity sector are mobilised and involved teracts overloading of the distribution opment of the system and solutions with a
in developing ideas for the power system network. particular emphasis on limiting transaction
of the future. Also during this period, a costs in relation to the exchange of com-
wealth of experience should be accumulat- mercial services.

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To this end, a number of key activities 6.3 Phase 3 – Commercialisa- To achieve this objective, a number of key
should also be executed in this phase: activities should be executed:
• Accumulation of further experiences na-
tion phase • Commercial distribution of Smart Grid-
tionally and internationally This phase is expected to occur after 2020. based solutions to the majority of con-
• Formation of Smart Grid market mecha- By that time, electric heat pumps will be the sumers with heat pumps and /or electric
nisms such as ancillary services trading, most widespread source of heating outside and hybrid vehicles
tariff fixing, and integrated price forma- district heating and natural gas areas. At • Optimisation of system and grid opera-
tion across the power system the same time, electric and plug-in hybrid tion based on Smart Grid functionality as
• Implementation of Smart Grid function- vehicles will be recognisable and common- the flexible electrical appliances become
ality through metering, control and auto- place on the streets. more widespread amongst the consum-
mation in the power grid and in private ers
households This situation will make it possible within a • Continuous adjustment of market rules
• Penetration into the consumer market few years to balance the power system via and regulations to ensure optimal Smart
with the first wave of commercial Smart Smart Grid functionality in the form of in- Grid functionality.
Grid-based services and solutions telligent and automated control of the con-
• Continuous adjustment of market rules sumers’ flexible appliances, while Smart
and regulations concurrently with the ac- Grid services should be further developed so
cumulation of experiences. that consumers have a wide range of prod-
ucts to choose between.

Phase 3 Commercialisation phase


Phase 2 Establishment phase
(2021-)
Phase 1 Facilitating phase (2013-2020)
(2010-2012)

Social Heat pumps increasingly replace oil Heat pumps are well on their way Heat pumps are the preferred
development and stoker burners outside natural gas to becoming the preferred form of form of heating outside natural
and district heating areas, and the first heating outside natural gas and gas and district heating areas,
commercial launch of electric vehicles district heating areas, and the sale of and electric and hybrid vehicles
takes place electric and plug-in hybrid vehicles are commonplace on the streets
has begun to take off
• Motivation and involvement of rele- • Establishment of the fundamental • Balancing of the power sys-
Objective
vant players platform/ infrastructure tem aided by Smart Grid func-
• Agreement about standards • Expansion of commercial solutions tionality
• Accumulation of experiences • Ongoing further development of • Further development and ex-
system and solutions, and the lim- pansion of the range of Smart
iting of transaction costs Grid-related services and so-
lutions
Key activities • Determination of the necessary • Accumulation of further expe- • Widespread distribution of
standards for communication and riences nationally and interna- Smart Grid-based solutions
data models with an international tionally to the majority of consumers
outlook and compatibility • Formation of Smart Grid market with heat pumps and/or elec-
• Determination of roles and respon- mechanisms, eg ancillary ser- tric and hybrid vehicles
sibilities for TSO, grid companies and vices, tariffs, integrated price for- • Optimisation of system and
commercial players mation, etc. grid operation concurrent with
• Adaptation of necessary legislation, • Implementation of Smart Grid widespread use at the con-
financial regulation and regulations functionality in the power grid sumers’ premises
• Implementation of pilot testing and • Penetration into the consumer • Adjustment of market rules
adjustment of both consumer-ori- market with the first wave of com- and regulations
ented and technical solutions mercial Smart Grid-based services
• Development of a tariff model that and solutions
counteracts overloading of the distri- • Adjustment of market rules and
bution network regulations

Figure 12. Phases for introducing intelligent solutions into the Danish power system.

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