Feasibility, beneficiality, and institutional compatibility of a micro-CHP virtual power plant in the Netherlands Adapted from (Setiawan, 2007) Master thesis - Systems Engineering, Policy Analysis, and Management Patrick Landsbergen, B.Sc. (1015400) [email protected] Date: 17-6-09 Version: Final Delft University of Technology Faculty of Technology, Policy and Management Department of Economics of Infrastructures N.V. Nuon Energy Department of Business Development & Projects Technology & Engineering Services Graduation committee Prof.dr. J.P.M. Groenewegen (TU Delft, Economics of Infrastructures) 1st supervisor: Dr. T.W. Fens (TU Delft, Economics of Infrastructures) 2nd supervisor: Dr.ir. I. Bouwmans (TU Delft, Energy & Industry) External supervisor: R.I. Gnutek, M.Sc. (Nuon, BD&P - TES) Preface It has been a challenging and intensive 8 months, but in the end I’m happy with the performed research and the report as it now is. I could however not have performed this research without the support of others. I would like to thank professor John Groenewegen for being the chairman of my graduation committee. Further, I want to thank my university supervisors Theo Fens and Ivo Bouwmans for their useful suggestions and clear feedback, and especially for their advice on making the report more readable. Also I would like to thank Michiel Houwing for answering my questions and providing me with data, advice, and insights in µCHP and VPP. At Nuon there are also a number of people that helped me during the research. First, I would like to thank my Nuon supervisor Radoslaw Gnutek for his support, feedback, good suggestions and helping me get familiar at Nuon. Involving me in the day to day practice of the department has greatly enriched my graduation project and without his guidance I would not have been able to produce the report as it now is. Further, I would like to thank Robert de Kler for providing me with the opportunity to perform my research at his department and Remôn te Morsche and Ruud Hendriks for providing me with starting points and advice on the economic viability calculations. Also I would like to thank Maurice Vlek for providing me with data and advice on retail related subjects and Jan van den Bor for helping me with energy trade related subjects. Also I would like to thank Renate Meekenkamp for providing me with starting points for the institutional chapter. Last, I would like to thank all my other colleagues for making my experience at Nuon a very pleasant one. I also got help from people outside Nuon and university. I would like to especially thank Jan Bozelie and Alex Geschiere of Liandon for guiding me through the complex world of electricity networks. Without their feedback and advice I would not have been able to correctly write the network impacts part of the research. I would also like to thank Gerrit-Jan Ruijg of ECN and Jan Uitzinger of the University of Amsterdam for providing me with measured household energy demand profiles. Further, I would like to thank Hans Spaermon and Patrick Donders of Ecolegis for helping me with interpreting the Law on environmental taxes. Last, I would like to thank Jorgen van de Velde ICT Solutions and Simon Kolin and Ferry van Doorn of Homa Software for providing me with more insight in the ICT and software related aspects of my research. Further, I would like thank all people that I have forgot to mention, but that have participated in interviews, provided me data, or gave me suggestions and advice. Last, but not least, I would like to thank my parents for their love and support during the research and my study. 1 Table of contents EXECUTIVE SUMMARY ..................................................................................................................................... 6 1 INTRODUCTION ......................................................................................................................................... 10 1.1 BACKGROUND AND MOTIVATION FOR RESEARCH ................................................................................... 10 1.2 VPP LITERATURE OVERVIEW AND RESEARCH POSSIBILITIES .................................................................. 11 1.3 PROBLEM STATEMENT , RESEARCH OBJECTIVE AND PERSPECTIVE .......................................................... 12 1.4 RESEARCH FRAMEWORK .......................................................................................................................... 12 1.5 RESEARCH QUESTIONS AND METHODS .................................................................................................... 13 1.6 THESIS OUTLINE ....................................................................................................................................... 14 2 VIRTUAL POWER PLANT DEFINITION AND ΜCHP REVIEW....................................................... 15 2.1 VPP DEFINITION AND DESCRIPTION ......................................................................................................... 15 2.2 ADVANTAGES AND DISADVANTAGES OF A VPP...................................................................................... 17 2.3 ΜCHP REVIEW ......................................................................................................................................... 19 2.4 CONCLUDING ........................................................................................................................................... 19 3 TECHNICAL FEASIBILITY OF A ΜCHP VPP...................................................................................... 20 3.1 TECHNICAL PROBLEMS RELATED TO MICRO -CHP UNITS ........................................................................ 20 3.1.1 Technical limitations of the µCHP units.......................................................................................... 20 3.1.2 Seasonal operating limitations of the µCHP units........................................................................... 21 3.1.3 Solutions to overcome µCHP limitations: energy storage and supplementary heating .................. 22 3.2 TECHNICAL PROBLEMS RELATED TO THE VPP CONTROL SYSTEM .......................................................... 24 3.3 POSSIBLE NETWORK PROBLEMS WHEN CONNECTING ΜCHP/DG TO ELECTRICITY DISTRIBUTION NETWORKS ........................................................................................................................................................... 25 3.3.1 Voltage............................................................................................................................................. 25 3.3.2 Fault level........................................................................................................................................ 27 3.3.3 Anti-islanding / loss of main (LOM) protection............................................................................... 27 3.3.4 Power quality................................................................................................................................... 28 3.3.5 Network stability.............................................................................................................................. 29 3.4 CONCLUSIONS TECHNICAL FEASIBILITY OF A ΜCHP VPP ...................................................................... 30 4 ECONOMIC VIABILITY OF A ΜCHP VPP............................................................................................ 32 4.1 BASE , INTERMEDIATE , AND PEAK LOAD OPERATION OF A ΜCHP VPP ................................................... 32 4.1.1 Heat and electrical output of the µCHP VPP vs. the energy demand of a household..................... 33 4.1.2 Costs of electricity production of a µCHP VPP vs. wholesale and retail electricity prices............ 34 4.2 CALCULATION OF ECONOMIC VIABILITY INDICATORS ............................................................................ 38 4.2.1 Possible trade revenues on Dutch electricity markets..................................................................... 39 4.2.2 NPV, IRR and discounted payback period....................................................................................... 42 4.2.3 Sensitivity analysis to determine critical parameters...................................................................... 44 4.2.4 NPV break even values of most critical parameters........................................................................ 45 4.3 OTHER POTENTIAL COSTS AND BENEFITS ................................................................................................ 46 4.4 CONCLUSIONS ECONOMIC VIABILITY ΜCHP VPP................................................................................... 47 5 THE INSTITUTIONAL ENVIRONMENT AND THE IMPACT ON THE FEASIBILITY AND VIABILITY OF A ΜCHP-VPP ........................................................................................................................... 49 5.1 INTRODUCTION AND FRAMEWORK AS BASIS FOR ANALYSIS ................................................................... 49 5.2 INSTITUTIONAL ENVIRONMENT OF THE ΜCHP/VPP ............................................................................... 49 5.2.1 Layer 1: Actors ................................................................................................................................ 49 5.2.2 Layer 2: Institutional arrangements between the actors................................................................. 50 5.2.3 Layer 3: Formal institutions...........................................................................................................