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Guest blog: Distributed energy systems change the way we look at electricity

Renewable energy is becoming a staple feature in the Finnish electricity network at an accelerating speed.

Miko Huomo / April 04, 2019

Renewable energy is becoming a staple feature in the Finnish electricity network at an accelerating speed. Most of it will be wind power, around four terawatt-hours a year. Today, wind power accounts for some five per cent of Finland’s approximately 85-TWh annual consumption, but its share is estimated to rise to 15 TWh by 2025.

In contrast, solar power has a minor share, today less than 0.1 per cent, but this is changing fast. Since 2016, the grid-connected solar power capacity has almost doubled each year. If this growth trend continues, by 2030 we might see as much as 5 gigawatts of solar power fed into the national grid, which corresponds to nearly 4% of estimated consumption. For comparison, solar power in Germany in 2017 covered around 7% of total consumption.

Unpredictable generation creates unpredictable prices

In the near future, wind power in Finnish energy generation has a relatively important position. The baseload is provided by nuclear power stations with a constant output that cannot be adjusted – therefore the fluctuations in demand need to be balanced by other means, such as hydroelectric power or power from fossil-fuelled plants. The share of hydroelectric power has fluctuated between 12 and 16 per cent over the past few years, depending on water resources.

This and other available load-following capacity, however, is not enough for load following, which is why some load-following capacity comes from the pan-Nordic market. This works at least for now when a significant part of Swedish and Norwegian capacity is not yet escaping to the German and UK markets with better margins.

For the energy market, the problem with the increasing share of wind power is the poor predictability of energy production, as well as its fluctuation caused by the winds. If there is a period of strong wind, the price of electricity falls; in a calm period, the price rises.

Because electricity companies traditionally make long-term contracts with consumers at fixed prices, they need to rely on estimated production and consumption figures, which creates a price risk for the seller. The end-customer, in contrast, always pays the agreed price, therefore leaving the price risk entirely to the electricity company that struggles to maintain its forecast balance.

This is why a future shift towards spot pricing will take place – the end-customer paying an hourly price for the electricity. This redistributes the price risk, and price development can be predicted at least on a daily basis.

Unless, however, production and consumption cannot be controlled in any way, price fluctuations between hours and days can become really wild.

How to reduce the self-sufficiency deficit?

Finland's self-sufficiency in electricity was only around 74 per cent in 2018, and some 25 TWh was imported, mainly from Sweden. The pan-Nordic electricity market is one alternative for balancing, but imported electricity may be expensive especially if the domestic balance is exceeded. The capacity of the energy market may also become a problem when the Nordic market begins to sell load-following power elsewhere in Europe. New ways of balancing production and consumption are therefore needed.

The electricity companies are responsible for their balances, so they need to fill the potential gap themselves.

A joint project between Lumme Energia, Etelä-Savon Energia and Tieto is presently piloting a new, modern and smart way to get more out of available resources, based on demand response.

Load-following capacity from a virtual network

When a sufficient number of electricity consumers are connected to form one, dynamically manageable entity, controlling its consumption creates demand response that can be used to compensate for the load-following power deficit.

Finland has approximately 1.2 million houses and tens of thousands of business and industrial properties. If all of them are virtualised, the result is a huge opportunity to manage consumption in a smart way.

The individual homeowner may see this management, for example, in the water heater or underfloor heating switching on during a period of lower hourly price, maybe a few hours earlier or later than usual. In business and industrial properties, heating, ventilation and lighting, in industrial properties even parts of the processes, can be managed in the same way.

The increasing numbers of electric vehicles will in future add significantly to available capacity. Because they are connected to a charging station for most of the time, their batteries can be used as a virtual power plant. Only a small amount of their charge is aggregated, which has no effect on the vehicle warranties or driving range. Home batteries can be used in the same way as soon as their prices come down to a level that increases adoption. Additionally, they will create a necessary buffer for charging electric vehicles without the need to significantly increase the connected capacity of the property.

In a large-enough network, the electricity consumer does not even notice the control, but the electricity company can use the volume reserve and demand response to balance consumption on the electricity market.

This load-following capacity generated through smart control can in the first instance be sold through automatic algorithms on the reserve market of the national grid. Later, artificial intelligence and machine learning may further automate and optimise control and market activities, creating an extensive asset on the electricity market.

Useful for the electricity consumer

When the amount of imported electricity is reduced, it has a significant effect on the national economy, as well as the presently negative electricity and trade balances.

Consumers have an opportunity to use more and more renewable energy. There is a widespread interest in ecologically generated power, but an understandable priority for households is the price. When consumers connect to the demand response market through Lumme Energia's system, they will not even notice the network management but will benefit from the compensation paid for demand response.

Other value-added services may become available that allow consumers to shop for their services in one place instead of the earlier multitude of vendors.

Electricity becomes an open digital resource

The future will open exciting vistas of a new understanding of energy. Artificial intelligence, blockchains and digital currencies will be enablers of electricity becoming an openly and automatically used commodity on different markets.

With the help of a blockchain, the owner of a solar panel or wind turbine might, for example, sell self-generated energy to his neighbour without middlemen, or charge his electric vehicle at the workplace from his home battery.

Demand response contributes to electricity self-sufficiency on the national level and benefits electricity companies through enabling wider resources and more extensive services for operating on the electricity market. Lumme Energia will commercialise and introduce new, digital-based services before the end of 2019.

Read how Lumme Energia, Etelä-Savon Energia and Tieto's groundbreaking energy solution lowers both emissions and the energy bill – first in Finland.

Miko Huomo
Director, New Business, Lumme Energia

Miko Huomo is responsible for new business development and digitalisation at Lumme Energia. He has a strong background in technology and business development in an international business environment. Mr Huomo's latest positions include principal owner and business developer at Green Energy Finland, and CEO and owner of Etec Automation Oy. Before his entrepreneurial career, Mr Huomo has worked in development, sales and marketing roles in nanotechnology at Beneq and industrial automation at Siemens.

Author

Miko Huomo

Director, New Business, Lumme Energia

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