Power system transformation and flexibility

Power system transformation and flexibility

Power systems around the world are undergoing one of the most profound transformations in history (IEA, 2017a; 2017b; 2018a; 2018b). This chapter begins by summarising the main trends behind this transformation: first, the rise of low-cost wind and solar power; second, digitalisation of the power system; and third, the rise of distributed energy resources (DER). It then highlights the importance of system flexibility for power system transformation and discusses its most relevant aspects. Finally, the chapter highlights the consequences of power system transformation for both centralised and distributed power system resources. A diverse number of international examples provide the foundation for this part of the chapter.

Three global trends in power systems

Low-cost wind power and solar photovoltaics

The dramatic reduction in the cost of wind and solar photovoltaic (PV) power – collectively referred to as variable renewable energy (VRE)15 in this report – is arguably the most radical change for power systems in the past two decades (Figure 7).

The global average levelised cost of electricity (LCOE; see IEA/NEA, 2015; IEA, 2016a) from both technologies has dropped from USD 500 (United States dollars) per megawatt hour (MWh) for solar PV and 94 USD/MWh for onshore wind in 2000 to USD 100 /MWh and USD 71 /MWh, respectively, in 2017 (IEA, 2018c). A combination of technological progress and downward price pressure via well-designed feed-in tariffs (FITs) and competitive auctions has delivered this development (IEA, 2018c). Looking at agreed prices for future projects, even lower costs are emerging. It is important to note that solar PV has seen more rapid reductions than wind power and is on track to become the cheapest source of electricity in sunny areas around the globe. With regard to wind power, the most notable development is the dramatic reduction in the price – and underlying cost – of offshore wind.

Global investment trends reflect these developments: in 2017, renewables accounted for 66% of global investment in power generation, in monetary terms (IEA, 2018d). The International Energy Agency (IEA) forecasts that over the period 2018–23, up to 84% of capacity growth and 46% of generation growth will come from VRE (Figure 8; IEA, 2018c).

Looking further into the future, IEA scenarios see renewable energy – driven by VRE – becoming the largest source of power generation. In the central scenario of the IEA World Energy Outlook, called the New Policies Scenario (see Chapter on “Power system transformation pathways for China to 2035” for details on scenario definitions), renewables become the largest source of power generation by 2030 and VRE makes up 21% of global electricity generation (IEA, 2018b). In the Sustainable Development Scenario, which includes measures to help achieve climate, energy access and local air quality targets, renewables become the largest source before 2025 and VRE alone is the largest source of electricity by 2040, with a share of 35% of global electricity generation.

Second, VRE power plants are modular. They can be built as very large-scale plants (such as the mega-bases in the People’s Republic of China [“China”]) or in a highly distributed fashion. Solar PV in particular has tremendous potential for distributed deployment, including rooftop deployment on individual houses (IEA, 2017a; 2017c). Finally, due to their technical characteristics – especially weather-driven variability and uncertainty – VRE deployment raises the importance of power system flexibility. These three trends are discussed next.

Digitalisation

One of the most relevant drivers of change in the power sector is digitalisation.16 While digitalisation is an economy-wide trend, electricity is likely to be the first energy sector to see the impact of its deeper transformation and the one that will ultimately be most affected. Traditionally electricity is generated in large power plants, transferred through transmission and distribution networks and delivered to end-use sectors (residential, commercial, industrial and transport). This model is set to change dramatically.

By facilitating a better match between demand and the real-time state of the power system, digitalisation opens up the opportunity for millions of consumers as well as producers to sell electricity, provide valuable services to the grid and benefit from improved consumption patterns. Connectivity is the key factor. It allows the linking, monitoring, aggregation and control of large numbers of individual energy-producing units and pieces of consuming equipment. These assets can be big or small, e.g. a rooftop solar PV system in a home, a boiler on an industrial site, or an electric vehicle (EV).

Increasing availability of advanced metering and communication technology is enabling the deployment of time-variable tariffs and demand response arrangements. Whether implicit – that means customers take individual decisions responding to price signals – or explicit – agreed via a dedicated contractual agreement – demand response is actively reshaping the topology of the power system. In modern power systems, demand will increasingly shift from a passive building block to an active component, contributing to the integration of renewables and meeting the increasingly diverse needs of the power system. From the system planner’s perspective, actively engaging demand provides an opportunity to actively shape load and meet the changing needs of the system cost-effectively.

As digitalisation advances, a highly interconnected system can emerge, blurring the distinction between traditional suppliers and consumers with increasing opportunities for more local trade of energy and grid services (Figure 9). In addition, digitalisation allows for the creation of largescale platforms that integrate and optimise a myriad of interconnected devices across different parts of the energy system (IEA, 2017c).

One of the most visible results of digitalisation is the potential for decentralisation of system operations. This has been driven mostly by increasing penetration of new DER (see next section) and the consequent need to more closely monitor system stability at a local level. Depending on the structure of the market, digitalisation may lead to a shift in responsibilities between stakeholders or even the creation of new roles. The emergence of new roles in the operation and management of power systems is still an open field worldwide. It requires closer examination of the fundamental technical roles in the power system, and how they are currently bundled into different institutional constellations.