Dissemination Strategy on Electricity Balancing
for Large Scale Integration of Renewable Energy
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Results of the DESIRE project:

Project summary Project achievements Project recommendations

Project summary

Given the Energy policy goal of the EU, there is a need for a considerable increase in the supply of renewable energy and especially wind power. The change from a situation in which renewable energy is a minor niche production in a fossil fuel-based energy system to a system with initially between 20-50% renewable energy-based electricity production provides special challenges. An infrastructure must be established which can balance production with consumption.

The DESIRE project shows that these balancing challenges cannot be met in an economic way by just increasing grid interconnections and transboarder electricity trading. Furthermore, it shows that there is a need for establishing a new flexible balancing infrastructure which systematically secures a coordination of renewable energy production with consumption. The first technical step of this flexible infrastructure includes units for cogeneration of heat and electricity, CHP units, in combination with heat pumps and heat storage systems. The exact configuration of these technical solutions will vary from one region to another.

The DESIRE project has disseminated practices which can integrate fluctuating renewable electricity supplies such as wind power into electricity systems using combined heat and power (CHP) with heat accumulation. This integration will improve the economic competitiveness of both CHP and wind power, allow a more effective pan-European trading in electricity, and increase the proportion of renewable electricity that can be absorbed by the system throughout the EU.

As proportions of renewable electricity rise, problems develop in the pan-European electricity trading. Transboundary electricity inter-connectors will become blocked with international transfers of excess wind power supplies. The DESIRE partners have spread knowledge about the short and long-term solutions to these problems. In the short term, the EU can use wind power and CHP plants to co-produce a balanced and non-fluctuating electricity output. Accumulators are heat stores which enable CHP plants to shift energy production from one time period to another. The DESIRE partners have also spread information about how, in the longer term, the EU can derive advantages from utilising technology like heat pumps for balancing fluctuating electricity supplies.

The use of software and other tools has been demonstrated and promoted by implementing the system in case studies in Denmark, Germany, and the UK.

The dissemination activities include the making of a home page and the organisation of and participation in a long list of meetings and seminars as well as the publishing of papers and articles (Deliverable 7.1 Deliverable 7.2 Deliverable 7.3 Deliverable 7.4 Deliverable 8.1 Deliverable 8.2).


Project achievements

CHP demonstration projects
The DESIRE project has demonstrated how local CHP plants can help achieving a balance between supply and demand in a system with fluctuating wind power productions. These plants are equipped with a CHP capacity equal to the maximum heat demand in the winter and thermal stores equal to the heat demand of a summer weekend. The relevant software and other tools have been used in case studies in Denmark, Germany, and the UK.

The time scale for integrating productions from geographically distributed wind turbines in a region is typically 15 minutes or more. Moreover, most of the local plants are not well suited for delivering fast automatic balancing (as e.g. primary automatic regulating reserves within 30 seconds and secondary automatic regulating reserves within 60 seconds). Therefore, we have focused on both one hour and one day ahead spot markets and 15 minutes manual regulating power markets in the demonstrations prepared in WP4 and made in WP5.

In Denmark, the Nord Pool Elspot Market (http://www.nordpool.com/) has been selected as the primary market of this work. This market is a physical day-to-day power supply market. The demonstrations have been focused on power contracts of one-hour durations. The Manual Regulating Power Market is the selected ancillary market that has been worked with in Denmark. The Danish TSO (www.energinet.dk) operates this market. The practical demonstrations have taken place on Hvide Sande CHP plant and Skagen CHP plant, which are selling their electricity productions on the spot market. In the DESIRE project, the operation of these two plants has been made available online, to be seen at http://www.project-desire.org/. It has not, as first expected, been possible to make practical demonstrations of these two plants participating on the Regulating Power Market. These demonstrations have been made as simulations in the software tool energyTRADE.

In Germany and the UK, the demonstrations have been made as simulations. In Germany, the spot market on the European Energy Exchange (EEX) has been simulated and, in the UK, the "Prompt market" and the "Fixed tariffs market" have been simulated. The "Prompt market" is organized as a Pay As Bid-market.

In the demonstrations, we have used advanced tools for optimal bidding on the different markets, and the two Danish plants have been equipped with cost-effective IT solutions, allowing fast delivery of new production plans to each plant.

In Denmark, the minimum bidding on the Regulating Power Market is 10 MW and, in Germany, the minimum bidding is +/- 30 MW (since September 2006 +/- 15MW). Therefore, generation pools and bidder communities have been assumed, e.g. it has been assumed that CHP plants are divided into groups of a little more than 10 MW each.

In the Danish demonstrations, the spot market has exhibited good abilities to make CHP plants and wind turbines operate together through this market. It has e.g. been shown that, at hours when wind turbines produce a major part of the consumption, the CHP plants avoid producing, due to the fact that the spot prices are low at these hours. At these hours, the CHP plants cover the heat demand of the particular region through the thermal store.

In the Danish simulations, it has been shown that the plants, in addition to participating on the spot market, are also able to offer competitive regulating power. In the German and UK simulations, it has been shown that it is feasible at existing district heating schemes to establish a large CHP capacity and large thermal stores, which are necessary in order for these plants to contribute to the balance between supply and demand in a system with fluctuating wind power productions.

For more details on these activities, please consult Deliverables 4.1 - 4.4 Deliverable 5.1 Part 1 Deliverable 5.1 Part 2.

CHP long-term scenario evaluations
In six regions in Denmark, Germany, the UK, Poland, Spain and Estonia, models of the electricity supply have been made and the magnitude of CHP regulation systems has been evaluated against other relevant measures including the expansion of interconnectors.

Interregional and international transmission lines play an important role in the balancing of fluctuating and partly unpredictable electricity productions and consumptions, in particular when they connect areas with fundamentally different systems of electricity production units. An example of this is the balancing of wind power and hydro power with reservoirs between Denmark and Norway.

However, the scenario calculations for 2020 for the six regions have shown that new interregional transmission lines usually do not form the most profitable and sustainable solution to the balancing problem caused by an increase of fluctuation in the electricity production. A range of technologies which can be applied to increase the internal balancing capacity has been analysed and described:

  • CHP with heat stores (maybe with heat pumps)
  • Flexible demands and Demand Side Management.
  • Hydro power with reservoirs (maybe with reverse pumping).
  • Electric cars (battery, hybrid or fuel cell)
CHP with heat stores: Except from the case of Denmark, CHP is typically used today as base load or heat demand-oriented production. However, by use of heat stores, CHP may serve as a balancing instrument for peak load production, spot markets, manual reserve and possibly - as long as they are operating - even primary reserve. The operation hours may decrease, but such operation will allow for a better integration of wind power. Heat pumps can be added and allow for improvements of both efficiencies and even further improvements of the integration of wind power.

Flexible demand and demand side management can be used for avoiding the peaks of excess wind power production. This involves e.g. heat stores in individual houses for demand response purposes. Hot water and space heat demands can partly be covered by heat stores with integrated electric heaters or, at best, be equipped with energy-efficient heat pumps.

Hydro power with reservoirs including reverse pumping can ideally be used for delivering positive and negative balancing power. Capacity can be retrieved from the storage when energy is needed and the electricity is typically available within minutes or even within one minute. The use of hydro power for European balancing will mainly apply to short-term and fast-responding power balancing requirements on small scale.

Electric cars: The integration of the electricity supply system and the transport system has been investigated as a long-term solution for the balancing of wind power. Positive socio-economic results have been found in the 2020 calculations in cases where the price difference between an ordinary car and a comparable battery car is reduced to 50% of today's level. This is due to the combined advantages of A: the balancing potential of the large combined capacity of the batteries, and B: the substitution of the expensive and CO2-emitting fuel, petrol.

The proposed internal balancing requires effective and fast markets for primary power as well as balancing power and reserve power. This in turn can only be implemented if new powerful communication networks linking all producers and major consumers are established.

The passing of this barrier is, however, assisted by a parallel effort by the TSOs: the creation of the 'cell structure' in the transmission and distribution system.

The intention behind this effort is to create smaller and more independent areas (cells) operating at the medium voltage levels below 100 kV. This structure can perform balancing of active as well as reactive power and can enable the single cells to disconnect from the transmission grid in situations where voltage break-downs are threatening to spread to large areas (even internationally).The need for these functions has increased with the increase of decentralised producers and the opening of the access to the grid.

For more details on these activities, please consult Deliverable 1.1 Deliverable 1.2 Deliverable 1.3 Deliverable 1.4 Deliverable 1.5 Deliverable 2.1 Deliverable 2.2 Deliverable 2.3 Deliverable 2.4.

Identification of CHP barriers
The barriers have been investigated both at the EU level as well as at the national level in the six participating countries.

EU Directives establish a framework for the promotion of wind power, CHP and competition, which can be more effectively obtained through the balancing of wind power by CHP. Therefore, these Directives should create a good framework for the balancing techniques proposed in our project. Member States must implement the EU Directives into national regulation and, in fact, they have implemented more or less what the Directives provide into country-specific regulation. Nevertheless, the usual approach is a minimum implementation, i.e., national regulation establishes the minimum requirements asked for by the Directives and, normally, they do not surpass these in order to implement the "spirit" of the Directives. Therefore, several market barriers remain unresolved.

When dealing with barriers for balancing wind power by means of CHP, two levels must be analysed. On the one hand, operational barriers relate to the short-term ability of balancing techniques to be used and, on the other hand, strategic barriers can appear which are related to the longer term.

Four main barriers have been identified during the work carried out in the project:

  1. In most of the countries, a minimum capacity is required in order to enter the market. Therefore, small producers must contract an aggregator to enter the market and, hence, they will not realise all the benefits of going to the market. However, the DESIRE project conceives CHP and wind power aggregation as a means of reducing wind power balancing problems, so the need for aggregation is not a problem for this project. In addition, aggregation might not mean loss of profit if the aggregator is a company owned by the owners of small plants. This type of barriers can be described as operational barriers and they can quite easily be overcome.
  2. In some countries, such as Poland or Estonia, electricity markets are not yet well developed. Certainly, the Commission will carefully monitor the development of these markets to promote competition and avoid market abuse, so this operational barrier is likely to be removed in the near future.
  3. In some countries, like the UK or Denmark, wind power is not properly promoted at present. The situation is different in the two countries. In Denmark, wind power development has been halted by too low and fluctuating sales prices on the Nord Pool market, and there is a need for increasing the price level. Moreover, there is a need for introducing stable investor prices by means of a feed-in tariff system. In the UK, there is a considerable wind power expansion, but the way of financing this expansion is too costly, and wind power implementation could probably be more cost-effective using a feed-in tariff. A good wind promotion policy with long-term stable prices and a stable payment for avoided environmental costs are required in order to create the necessary investor security.
  4. In some countries, such as Spain and the UK, CHP is not flexible. Most, if not all, CHP schemes are linked to industrial processes, so they cannot modify their electricity and heat generation profile to balance the output of wind farms. This is also a strategic problem, which is quite difficult to solve. EU Directives promote CHP, but not specifically flexible CHP and, hence, it might become more difficult to encourage national authorities to promote investments in flexible CHP.

In order to improve the integration of wind power in electric systems, as many balancing options as possible are required. In this sense, flexible CHP is a good option for balancing wind power. Although EU Directives establish a good framework for the development of wind power balancing by means of flexible CHP, many market barriers remain unresolved. Some barriers are likely to be removed in the short term, but some strategic barriers seem to be more difficult to overcome. If wind balancing by means of flexible CHP is to be promoted, good conditions for investments in both technologies are needed, which is not the case under present conditions.

For more information on such barriers, please consult Deliverable 3.1 Deliverable 3.2 Deliverable 3.3 Deliverables 6.1 - 6.3.


Project recommendations

A suitable infrastructure with flexible CHP systems does not develop on its own under the existing market and taxation conditions. There is a clear need for an active public regulation that secures the development and implementation of this new flexibility infrastructure.

The public regulation should secure that:

    At the strategic level:
  1. The needed investments in renewable energy technologies (initially mainly wind power) are made,
  2. The needed investments in the right flexible regulation infrastructure are made and,

  3. At the tactical level:
  4. The operation of the regulative infrastructure is performed in such a way that renewable energy sources are integrated into the electricity system in an energy-efficient and economical way.

At the tactical level, prices should reflect the day-to-day regulation problems. And the DESIRE project reaches the conclusion that the electricity markets already implemented or under development will lead to such reflection and thereby will become suitable to fulfil the requirements at the tactical level. Market barriers have been identified, but such barriers can be overcome if enough CHP plants are built.

The problem seems to be found at the strategic level. Consequently, the DESIRE project emphasises recommendations which will ensure the fulfilment of objectives at the strategic level without jeopardising the tactical level. In other words: How does the EU secure the expansion of suitable CHP systems and, at the same time, make sure that such CHP systems are operated in a suitable way in order to integrate more wind power?

The recommendations for such public regulation are the following:

Establishment of "feed-in" tariffs for renewable energy technologies. From practical experiences and for several theoretical reasons, a "feed-in" model has proven to be the most economically efficient implementation model for, especially, wind power. Furthermore, it makes no sense to establish fluctuating prices for wind power, as prices cannot regulate the wind.

Problem 1. Market prices are strongly fluctuating, and in some periods, due to investment in coal and nuclear-based overcapacity, prices are below the long run marginal costs of production. This, together with an oligopolistic behaviour of existing large market actors, makes the investment risk so high that no investments are likely to be made in new CHP capacity.
Solution 1: A price compensations system which - on a monthly basis - secures prices for electricity from CHP plants which as a minimum equal the long run marginal costs at a new large coal or natural gas-fired power plant (typical least cost non-CHP conventional alternative). A compensation mechanism could be designed similar to the one which at present is given to Danish CHP plants in order to compensate for potential losses in connection to their change to market conditions. According to this scheme, a monthly weighted average price is calculated for the spot market and compared to the marginal costs for a new gas-fired CC plant. If the calculated average is lower than this, marginal price compensation is paid to the CHP plants. In this way, the dynamism of the market is preserved.

Problem 2. Price signals on the spot market should include external environmental costs of the different technologies placing their bids on this market. This has not been the case under present market conditions, where the CO2 price has varied between 22 Euro/tons CO2 in 2005 and close to zero Euro/tons CO2 in 2007. This price variation does not reflect any variation in CO2 damage from year to year, but only the fact that the CO2 quota system did not function properly in the period of 2005-2007. As a result of this, coal-fired plants were able to produce cheaper electricity on the Nord Pool market than the CHP plants were.
Solution 2: A CO2 regulation system with relatively stable and sufficiently high prices on CO2 quotas must be established. This can be supplemented with a minimum payment for low CO2 content technologies such as electricity from CHP plants. This minimum payment should be designed in such a way that the electricity produced at coal-fired condensation plants is never cheaper on the market than the electricity produced by natural gas or biomass in co-production with heat.

Problem 3. The electricity markets should react in such a way that a large quantity of wind-based electricity production lowers the price to such extent that CHP-based electricity production is pushed away from the electricity market. This functions to some extent on the Nord Pool market. But the problem is that the market conditions and the taxation system hinder the electricity produced at CHP plants from entering the heat market via a system of heat pumps and water storages.
Solution 3: It is important to change the taxation system in such a way that it becomes economically attractive to produce electricity at CHP plants and sell it to heat pump-based heat production when there is a surplus of electricity produced from wind turbines.

Problem 4. In countries such as, for instance, Germany, the large power companies also own the transmission grid system. This makes it very difficult to control whether these companies are levying fair prices on their power plant competitors, for the rental of transmission capacity.
Solution 4: An EU directive should be formulated in such a way that it will not be possible for power producers to own transmission and distributions systems in the future.

Problem 5. The establishment of widespread CHP serving domestic and commercial heating demands requires the development of a district heating infrastructure. This does not consistently exist in any of the cases, except from Denmark.
Solution 5: A general plan must be presented for heat supply and the development of a heat distribution network implemented through changes in planning laws and regulations. In Denmark, a 1979 law required residents, where possible, to derive their heat from district heating networks. Planning regulations which favour district heating must be implemented in the different countries. Some progress in this direction can be seen in London, UK, where developers of new buildings are required to implement sustainable energy plans and are set a 'hierarchy' of energy solutions with district heating with CHP at the top.