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Modern networks: big changes, big outlays

French power lines: plans call for huge investment. Photo: © Angela Gosmann, 2014

Tomorrow's electricity networks will need not just new and expensive equipment, but also smarter operations.

15 May 2014

Liberalisation of many electricity markets as well as shifts in generation and demand have overturned the monopolistic electricity system of the past, one planned and operated by vertically integrated utilities whose main concern was maintaining reliable regional supply. The very way electricity systems are used has changed, increasing and diversifying power flows, an evolution now magnified by the large-scale introduction of variable renewables.

Adaptation will require heavy investment and smarter operations not just in renewables generation but also transmission and distribution. That would accommodate the growing demand and trade as well as the shift in generation from large centralised power plants to such diffuse sources as windmills along mountain ranges and solar panels on rooftops in multiple neighbourhoods.

Liberalised but never fully unregulated

Renewables and growing demand are not the only source of change, of course: the system is still dealing with the effects of market liberalisation. Besides separating out the network business of integrated utilities, new business models and offerings have empowered customers, enhancing private and competitive operations and investments as well as increasing transparency. In the process, research, policy focus and regulations have had to improve how electricity networks are developed and then operated. IEA member countries’ experience shows that each successful conversion to a modern competitive market offers lessons for those markets and nations that have yet to take the next steps.

More market-based solutions for planning, delivering and using network services can help moderate power systems in their transition. These measures can result in higher transparency, technological neutrality, more competitive service-price formation and service demand as well as fair cost allocation. This can spur the decarbonisation of power systems naturally while keeping supply costs minimal and the lights on.

While the electricity system is changing on many levels, some things are staying the same. Future investment in distribution and transmission infrastructure remains subject to regulatory frameworks, environmental impacts and public acceptance. There is still no single liberalised electricity market globally where all new investments are determined and undertaken by market participants without regulatory support.

One crucial takeaway for IEA member countries already is that timely and efficient investment depends on the planning framework and the nature and scope of regulated incentives. Governments and regulators have to set up sound structures and frameworks which deliver

least-cost power systems and acceptance at the same time. Frameworks that focus solely on minimising network costs can fail to account for the resulting system-wide benefits across the electricity system. And those that focus only on following supply- and demand-side developments are prone to overlook acceptance and economic inefficiencies.

The need for much more transmission

There is often scope within liberalised markets to encourage competitive and private investment into network infrastructure. Getting the frameworks right is essential to support the necessary investment – which is not small, even for those countries with mature and almost saturated markets. The ten-year network development plan from the European Network of Transmission System Operators for Electricity calls for investing about EUR 104 billion in the refurbishment or construction of more than 50 000 kilometres (km) of high-voltage power lines, a 17% increase over the existing network. In the United States over the same period, the North American Electric Reliability Corporation sees need for about 64 000 km of new high-voltage transmission.

In OECD member countries alone, the New Policies Scenario of the World Energy Outlook calls for about 30% of all power sector investment needs until 2035 to go to distribution. Again, without efficient network planning and operational procedures, the risk is that billions will be spent poorly.

A complete rethink on distribution

IEA member countries’ experience shows that distribution not only requires significant investment into the right technologies but also a change in perspective to make that investment effective. Customers’ prices for both electricity delivery and network use are often annual charges with no real-time component, and operators usually lack the capabilities to monitor and manage flows on their network in real-time. The priority in distribution investment is expanding beyond simply meeting peak demand reliably.

Besides the integration of renewables and electric vehicles, and the resulting bidirectional flow of electricity, investment now must accommodate new pricing and services for different forms of customer demand and usage as well as better co-ordination of transmission and distribution. All of which means new forms of regulating, planning, operation and pricing.

This article by Dennis Volk, a member of the IEA Gas, Coal and Power Markets Division, appears in the new issue of IEA Energy: The Journal of the International Energy Agency.  The IEA produces IEA Energy, but analysis and views contained in the journal are those of individual IEA analysts and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation. Click here to read the new and earlier issues of IEA Energy, and click here to send a request a free subscription.