SMIGHT

Currently what we pay for electricity is mainly dictated by the fuel that is bought and subsequently burnt to generate the electricity. Even the price of electricity we buy from renewable sources is currently dictated by the cost of fossil fuels due to the merit order mechanism. But what happens when in the future we no longer need to ‘pay for the fuel’ i.e. renewals are fuelled by the sun, and the sun famously doesn’t send a bill for the energy it sends us. Will this make electricity free to use?

Countries like New Zealand and Iceland have long been able to cover almost all their energy needs via renewable energy sources and aren’t connected to other larger grids for their electricity price to be impacted by wider markets. Their citizens don’t enjoy free electricity, so this should give us an indication as to the answer to this question.

Sadly, it is unlikely that electricity will become free in the future, but we can expect to pay for electricity differently. To understand why electricity won’t be free in the future we need to understand what makes up our energy bill. An average European house hold’s electricity bill is made up of 3 distinct thirds each roughly the same size. About one third is the electricity itself, then there’s the grid charges, and the final third is then taxes. When the electricity bit itself doesn’t cost anything then then the other two thirds still remain i.e. we still need to pay for the grid that gets the power from where it is produced to where it is consumer, and most likely the government will still need the tax revenue.

Whilst the fuel for the renewable energy is free, the infrastructure isn’t. When you look at a coal power plant most of the cost is derived from the fuel itself and the cost of the plant itself is spread over many decades and this is much more insignificant. In the case of renewables almost all the cost is in the infrastructure and none in the fuel i.e. if a wind turbine produces 1 watt hour of energy or 1GWh it costs the same to have built the wind turbine.

Often the road network is used as an analogy for the electricity grid with the motorways being the high voltage transmission grid, the regional ‘B roads’ being the medium voltage regional grid, and the local town and village streets being the low voltage grid. Taking this analogy further we could ask ourselves how we pay for roads and whether this can inform the way we think about how we might pay for our electricity in the future.

• In some countries vehicle owners pay a flat road tax based on the vehicle they drive which covers unlimited access to all roads – this would be analogous to having to pay a flat grid fee regardless of the amount of energy used but based on your maximum load.
• In other countries there are tolls for the using the motors based on the amount you use them – this would be analogous to only paying grid fees as and when you pull power from the grid i.e. if you have a high degree of self-sufficiency and only need to occasionally pull power from the grid.
• In some countries there’s a bit of a mix where there’s some flat rate tax combined with tolls for certain vehicle types e.g. heavy goods vehicles, or for certain stretches of road that needed a lot of investment. The analogy here would be that we all pay a relatively low fixed grid fee but those with high loads would pay a much higher fee, and whenever you in effect use a piece of high-cost infrastructure e.g. a high voltage direct current (HVDC) transmission line you pay an additional fee.

The difficulty here of course is that we can’t ‘track your specific electrons’ and you can’t decide where they come from at any given moment – so at some point this analogy breaks down. I think what we can take from it though is that our energy bills in the future will probably be likely to be a single fixed charge for a certain level of maximum load and that we won’t pay for the energy i.e. we will pay for kW max as opposed to kWh. In this world the companies operating the assets would be compensated directly for the investment and operation regardless of their output e.g. if a wind turbine costs €10million to build and €20,000 a year to maintain, and had a 20 year useful life then the company operating would get €10 million split of 20 years plus an interest rate plus the operating costs as a charge (ca €570,000 per year) and they would have to vary their supply based on grid signals. It then becomes the grid operator’s job to get the most out of the installed base of producers and storage whilst maintaining a stable supply. Perhaps in such a world we could do away with the unbundling concept and have the grid operators managing the grid along with the production and even selling directly to the customers. It is worth noting that in some areas of the US this is the case i.e. you have a local ‘utility’ which produces, delivers, and bills for the power.

In a world where there are many smaller distributed producers, many of whom are also consumers (I’m mainly talking about roof top solar installations). Then this would create an interesting shift. Currently, there’s a problem experienced by the grids in that those operating roof top solar systems always want to sell their excess production back to the grid. However, they tend to want to do this all at the same time which causes two problems: Negative prices on the wholesale market and grid congestion. If these prosumers were instead compensated based on the investment as opposed to the energy production this could do away with this issue as there wouldn’t be the need to consider whether and how to compensate them for curtailment.

In such a future world we will need to have smart grids as we will have highly intermittent supply, coupled with highly variable and flexible demand. SMIGHT offers a solution to help distribution network operators take the first steps toward creating a smart local grid by digitising their secondary substations and distribution cabinets.