The current paradigm of electrical energy production and distribution is coming to an end. As the old energy world order debates how the future should look, the future is pushing through with nothing but contempt for tradition. The day is certainty fast approaching when changes such as smart grids, renewable energy and storage technologies will become firmly embedded as the investment of choice as well as being an environmental necessity. What does this mean for the industry?There is a global race to create the technologies and market architectures that will deliver the low carbon kilowatt of the future. This is a race between countries, as each country builds comparative advantage. It is a race between technologies. It is a race between different market designs. There are billions of dollars and hundreds of thousands of jobs on the line. Our environmental well-being is at stake.
To gain an insight into where this race may take us, there are several fundamental concepts we need to explore :
- The core purpose of the energy market
- The structure of the energy market
- The technological innovations that will drive change to the market
- The market architecture considerations that may drive changes to the market
- The apposing doctrines that are being progressed
- The political and regulatory context
- Sustainability drivers
- Carbon trading markets
- Energy trading markets
The focus of this series of blogs will be the management of the energy and carbon energy markets and in particular transactive energy frameworks that will enable the energy markets of the future. In this intial blog some background will be provided on the energy market and the following is very high level overview of some of the core concepts in the electrical energy market for the uninitiated.
Electrical energy delivers some of our most critical services - lighting, heating, cooling, information (internet), critical healthcare, manufacturing, defense systems, transportation systems and entertainment. It is not, however enough to just deliver these services. There are many characteristics that are required to deliver them at the quality expected by consumers. These essential characteristics include safety, reliability, value for money, and ecological sustainability. To deliver on these characteristics there are many technical requirements and the entire grid operates on a series of technical checks and balances. For example it must deliver continual synchronization of frequency, phase rotation, phase angle and requires maintenance of voltage within acceptable limits.
The delivery of energy services involves a generation source, the transmission of this power long distances using high voltage , the "stepping down" of this power to medium voltage and then distribution shorter distances before stepping the voltage down again to low voltage (or mains voltage) which is usable in home appliances.
The ownership structure of these various operational processes is driven by regulation, which in turn is governed by balancing the interests of various market participant (such as consumers, government bodies, and industry).
The current "centralised" or "macrogrid" was established due to the economies of scale that existed (and still exist to an extent) at the time around large power stations. While Edison was establishing many Direct Current (DC) networks, governments determined that vertical integration of generation, transmission and distribution assets could create significant economies of scale. A 10 MW power plant is far more efficient than 10 1 MW power plants. The temptation is, therefore, to maximise the size of each plant . This mentality reduces competition and governments must tread the fine line between the economies that are driven by competition, and the difficultly ensuring that cost efficiency can be driven in a monopoly environment.
The entire system is underpinned by sophisticated markets for the supply of energy. Generally these markets are run by a market operator.
The many markets include :
(a) Unit commitment - which tells generators when to run
(b) Transmission congestion - bids for the availability of transmission
(c) Primary market for supply
(d) Markets for large deviations of supply or demand and emergencies
(e) Markets for ancillary services which support the core market. A system operator must ensure the delivery of electrons with reliability and power quality. The ancillary services ensure these fundamentals are met through markets such as reserves, voltage support and black start services
(f) Markets for risk management (for example forward markets)
(g) Markets for environmental impact - such as carbon markets (generally not operated by the market operator)
(h) The quasi market for government funding and concessions
The entire industry operates on many distinct temporal dimensions. For example, on the one had we have short term competition based on existing deployed assets. On the other hand we have long term competition based on effective deployment of new assets. A key driver and complexity in the market is the ability to manage the costs of power at the intersection, or "margin" of existing capacity where each additional unit of power have costs which are unrelated to the last.
So what is driving the transformation in this market? The key drivers of change include :
This series of posts will be dealing specifically with the emergence of microgrids and the related development in transactive energy frameworks to manage these new sub-markets. In order to really understand where migrogrids are going and how to manage them, it is very important to maintain a firm grip on developments and technologies in the wider macrogrids.
These are some of the most fundamental concepts in the energy industry and should form a good basis for the following blogs about transactive energy frameworks.
The ownership structure of these various operational processes is driven by regulation, which in turn is governed by balancing the interests of various market participant (such as consumers, government bodies, and industry).
The current "centralised" or "macrogrid" was established due to the economies of scale that existed (and still exist to an extent) at the time around large power stations. While Edison was establishing many Direct Current (DC) networks, governments determined that vertical integration of generation, transmission and distribution assets could create significant economies of scale. A 10 MW power plant is far more efficient than 10 1 MW power plants. The temptation is, therefore, to maximise the size of each plant . This mentality reduces competition and governments must tread the fine line between the economies that are driven by competition, and the difficultly ensuring that cost efficiency can be driven in a monopoly environment.
The entire system is underpinned by sophisticated markets for the supply of energy. Generally these markets are run by a market operator.
The many markets include :
(a) Unit commitment - which tells generators when to run
(b) Transmission congestion - bids for the availability of transmission
(c) Primary market for supply
(d) Markets for large deviations of supply or demand and emergencies
(e) Markets for ancillary services which support the core market. A system operator must ensure the delivery of electrons with reliability and power quality. The ancillary services ensure these fundamentals are met through markets such as reserves, voltage support and black start services
(f) Markets for risk management (for example forward markets)
(g) Markets for environmental impact - such as carbon markets (generally not operated by the market operator)
(h) The quasi market for government funding and concessions
The entire industry operates on many distinct temporal dimensions. For example, on the one had we have short term competition based on existing deployed assets. On the other hand we have long term competition based on effective deployment of new assets. A key driver and complexity in the market is the ability to manage the costs of power at the intersection, or "margin" of existing capacity where each additional unit of power have costs which are unrelated to the last.
So what is driving the transformation in this market? The key drivers of change include :
- The integration of information and communications technologies in the form of "Smart Grids"
- Environmental concerns are driving requirements to deal with externalities to the system (particular greenhouse gases). This is shifting the quasi market for government funding.
- The rise of distributed generation sources in both transmission and distrbution systems (such as roof-top solar or co-generation)
- The rise of sub-markets based on localised micro-grids which are decentralised grids that combine and control a series localised renewable energy sources and storage technologies
- The rise of large scale renewable energy deployment
- The emergence of large and small scale storage
- Load growth through electrification of transportation
- The significant increase in energy efficiency both through passive design and through intelligent load devices and appliances
This series of posts will be dealing specifically with the emergence of microgrids and the related development in transactive energy frameworks to manage these new sub-markets. In order to really understand where migrogrids are going and how to manage them, it is very important to maintain a firm grip on developments and technologies in the wider macrogrids.
These are some of the most fundamental concepts in the energy industry and should form a good basis for the following blogs about transactive energy frameworks.
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