THE FUTURE ELECTRICITY GRID Key Questions and Considerations for Developing Countries
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THE FUTURE ELECTRICITY GRID Key questions and considerations for developing countries BHARATH JAIRAJ, SARAH MARTIN, JOSH RYOR, SHANTANU DIXIT, ASHWIN GAMBHIR, ADITYA CHUNEKAR, RANJIT BHARVIRKAR, GILBERTO JANNUZZI, SAMAT SUKENALIEV, AND TAO WANG WRI.ORG The Future Electricity Grid: Key Questions and Considerations for Developing Countries i AUTHORS: Bharath Jairaj, Sarah Martin, and Josh Ryor World Resources Institute Shantanu Dixit, Ashwin Gambhir, and Aditya Chunekar Prayas, Energy Group (PEG) Ranjit Bharvirkar The Regulatory Assistance Project (RAP) Gilberto Jannuzzi International Energy Initiative (IEI) Samat Sukenaliev UNISON Group Tao Wang DESIGN AND LAYOUT BY: Jen Lockard [email protected] TABLE OF CONTENTS 1 Foreword 3 Executive Summary 7 Introduction 13 The Traditional Electricity Sector Model 21 The Changing Electricity Sector: Current Trends 35 Implications for the Future Grid 45 Considerations for Developing Country Stakeholders 51 Conclusion 54 Glossary 56 Annex 1 57 Annex 2 58 References 65 Endnotes iv WRI.org FOREWORD Electricity systems around the world are balancing New policies that support these non-utility a diverse set of challenges, ranging from energy ▪ generators and aim to increase clean energy use security and access to environmental and public are expanding. health concerns. At the same time, the energy land- □ Since 2004, the number of countries scape is changing rapidly as a result of three trends putting in place renewable energy targets disrupting the status quo. These include: has tripled from 48 to 164 (REN21 2015). These trends are happening in New, more cost effective technologies, includ- both high income countries and lower ▪ ing variable renewable energy, energy effi- income countries. ciency, small distributed generation and storage that are being deployed at larger scale. Electricity sector planners and utilities have □ Solar photovoltaic (PV) energy systems important new opportunities to meet economic, have grown from a meagre 2.6 GW to 177 environmental, and access goals. This report looks GW (REN21 2015). And forecasts indicate at experiences from Brazil, China, India, and renewable capacity will continue to grow. Kyrgyzstan to help electricity planners and utilities become better prepared for the future grid. How □ Non-hydro renewable energy capacity has governments, energy planners, regulators, and increased over 6 times—from 85 GW to 657 utilities respond to these trends will determine GW (REN21 2015) how well they build a future grid to deliver the □ In just over a decade, annual investment clean, reliable, and affordable power people need in renewables grew from $40 billion in to thrive. 2004 to $329 billion in 2015 (Frankfurt School-UNEP/BNEF). New players, like individual homeowners and ▪ communities, are being seen as legitimate electricity generators by installing rooftop solar panels and community solar projects. The affordability of renewable energy is leading to Andrew Steer growing demand from consumers. President World Resources Institute □ About one third of global solar PV’s ca- pacity is owned by residential customers (Rickerson et al. 2014). □ Never before have traditional utilities been faced with such competition from alternative suppliers. □ This trend will continue as solar panels continue to be more efficient, wind turbine design is improving power output in more locations. The Future Electricity Grid: Key Questions and Considerations for Developing Countries 1 2 WRI.org EXECUTIVE SUMMARY The electricity sector is undergoing a transformation as it transitions from a static sector that is planned and operated by central authorities—regulators, utilities, system operators, and planners— to one that is increasingly driven by a mix of technologies, decentralized operators, and new market mechanisms and reforms. These changes are creating an environment of genuine uncertainty in which many challenges arise, along with new opportunities. The Future Electricity Grid: Key Questions and Considerations for Developing Countries 3 Globally, over the last ten years, non-hydro renew- We then identify three broad areas on which able energy capacity has increased more than regulators and policymakers need to focus as they sixfold, from 85 GW to 657 GW, and 164 countries prepare for a more modern grid, though more have now established renewable energy (RE) specific topics for consideration are also suggested. capacity targets (REN21 2015). At the same time, These areas involve: Technology and infrastructure the costs of clean energy are much more afford- (increased complexities and physical constraints to able. To take just one example, solar PV panel costs the grid), institutional arrangements (threatened declined by 80 percent between 2008 and 2013 conventional utility models), and electricity pricing (IRENA 2014). and equity concerns. Investments in clean energy across the world Technology and Infrastructure have been unprecedented, standing at about There will be a need to overcome technical US$329 billion in 2015 (Frankfurt School-UNEP/ limitations. As renewable energy is scaled up, BNEF 2015; BNEF 2016). Investment in other two primary grid infrastructure challenges are electricity sector technologies is also increasing. emerging: compatibility and interconnection For example, the cumulative global investment between intermittent RE resources and the grid; in smart-grid technologies, including smart- and locational disconnects between RE resources grid-related analytics—that is, software that allows and demand centers. A shift toward a safe, reliable, utilities to track, visualize, and predict events and affordable future grid will require plans for relevant to grid and business operations—is fore- grid upgrades, expansions, and regional inter- cast to total $594 billion in the period 2014 to 2023 connections that address these issues in a cost- (Navigant Research 2014). In light of these changes, effective way. decision-makers in many countries are navigating a more complex landscape as they seek to deliver There will also be a need to ensure system reliable, affordable, and high-quality electricity reliability and improve service quality. to consumers in all segments of society. Traditionally, the role of the grid has been to pro- vide a reliable supply of electricity to consumers. This report focuses on developments in the However, with the proliferation of RE options, electricity sectors of four developing countries— consumers may opt for on-site or non-utility Brazil, China, India, and Kyrgyzstan, and two devel- generation in the future. These options can be oped countries—Germany and the United States. It significantly cheaper than current grid tariffs. also provides an overview of the pace of key global This trend, combined with growing technical trends based on global datasets and leading global complexity, could greatly affect the way in which reports. We identify a number of key trends in the electricity providers need to think about grid sector and examine their likely implications for the system reliability and service quality. The grid electric grid of the future. will be expected to provide power to consumers in the event that distributed sources of generation Unprecedented growth and cost improvements fail to meet consumer demand. The grid and new ▪ in renewable energy sources generators will have to take on additional chal- Improvements in new technologies and lenges related to connecting small-scale distributed ▪ energy efficiency on-site electricity generation and consumers, while ensuring safety and reliability. Growing instability in fossil-fuel supply ▪ and prices Institutional Arrangements Growing support from governments ▪ and investors The emergence of newer-generation technologies and entities is challenging the traditional utility Electricity generation by new and model and characteristics of the grid, as it moves ▪ different entities toward a network involving more decentralized Technology uptake generation in which electricity flows between ▪ large numbers of consumers, producers, and 4 WRI.org “prosumers.”1 There will be a need for enhanced also important to ensuring that access to electricity institutional capacities, with an increased focus on continues to increase in future and that prices cooperation across unfamiliar boundaries. This will remain affordable to the poor. involve rethinking institutional frameworks and strengthening sector governance. There will be a need for rethinking tariffs. The current tariff determination approach is based Regulators must consider new problems, such as: predominantly on balancing utility, consumer, and who will pay for improvements and innovations in policy considerations, in a system characterized by the grid to enable benefits from emerging RE-based a relatively simple unidirectional flow of electricity projects; how added infrastructure requirements through the grid, from a few generators to a large will be financed; and how costs will be distributed. number of consumers. As net-metering policies pick Utilities are faced with new questions concerning up and more consumers are both selling to and buy- how they relate to their customers, who increasingly ing from the grid at different times of day, countries have alternatives to the grid. Utilities risk losing will need a more dynamic tariff policy that attracts both market share and high-value customers who and maintains investments to overcome shortages, represent much-needed revenue, especially in juris- and improves quality of supply.