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Smart Grids implementation in Poland – worth it or not?

2013 / 02 / 05

New article written by IEn's researchers dr Zygmunt Parczewski and Katarzyna Łabinowicz has been published at the Energy Market Information Centre CIRE website. The article entitled Sieci inteligentne w Polsce – opłacalne czy nie? ("Smart Grids implementation in Poland – worth it or not?") includes cost effectiveness analysis of Smart Grids implementation from the point of view of end-users.

The summary below presents the main conslusions of the paper.

The paper briefly presents the main idea, sense and understanding of the issues concerning an undertaking referred to in literature as the notion of Smart Grid. We have briefly described the conceptual model and main features of smart grids as well as the changes that can possibly occur on energy markets, after the implementation. These changes will be significant as they will concern the changes in behaviours of both end users and distribution system operators. We have raised an important and still unsolved problem associated with smart grids – cyber security and personal data protection. Subsequently, we have conducted a quite detailed analysis and using the example of a pilot project in Oklahoma (USA), we have conducted an analysis and qualitative and quantitative evaluation of profitability of implementation of the SG vs. profitability of construction and operation of a new gas turbine operating only in peak hours (430 h / ​​year).  Because of cost and effect analysis, based on the 6000 individual end users participating in the pilot project, we have formulated in the article a number of observations addressed to polish animators and/or initiators who are somewhat rashly introducing SG implementation because of profit considerations. We have noticed that in Poland, unlike in the USA, the decisions about spending huge funds for SG can be made very easily even though a credible pilot project, which would confirm economic feasibility, has not been conducted yet. This was the first finding of our analysis, which is quite worrying, as it points out the huge risk of inefficiency of the undertaking – decision about the way and rate of implementation.

The results of a comparative analysis of costs and benefits of SG implementation in a very well described and scaled project conducted in Oklahoma, suggests that implementation of SG is perhaps only an ambiguously better solution than the commissioning of a new peak power plant (gas turbine). The noticed and described ambiguity in the evaluation of the project would suggest that conducting a serious research and implementation study in Poland is required. The total investment connected with a gas turbine set would equal about 120-160 USD million. The cost of natural gas that would be spent during the 20-years operation, is equal about 60-66 USD million (in the US price conditions). The total costs that could be avoided therefore are a substantial 200-230 USD million. It is worth mentioning that the budget of the project of Oklahoma equals 357,4 million USD, with 130 million USD share of the federal funds. This means that OG&E has to spend about 227,4 million USD- this amount is very similar to the cost of the commissioning and operation of a new gas turbine set, estimated by the authors of the paper. It would suggest that the assumptions concerning the alternative to SG implementation made were right.

The mentioned remarks about lack of proved profitability of SG implementation are confirmed by comparing the annual expenditures of individual users for SG –the  amount of 20 million USD (for 150 thousand of end-users) and the expenditures associated with a total investments (CAPEX) and exploitation of a new gas turbine (fuel costs mainly)  – about 17 million USD.

Meanwhile in Poland there are serious plans about spending, almost arbitrarily, the amount of 8-10 billion PLN on equipment and SG implementation, even though the profitability of the underrating has not been proven by any credible pilot projects. 

We believe that such an approach is too risky or even reckless and points out a lack of professionalism of national institutions responsible for effectiveness of spending huge amounts of money, in the country, which is sensible from social and economic points of view. This approach definitely does not include the pilot project conducted by RWE. On the other hand, there is no available data on the Hell Peninsula of ENERGA managed project to evaluate of its effectiveness  from end user perspective.

That is why we think it is crucial to determine the alternative cost of SG, before its implementation in Poland starts. The action associated with SG should not only include buying and installing new equipment but also creating new dynamic tariffs (Time of Use), with variable pricing what we have proved in our article. That should be the base for determining which of the considered solutions would be most profitable. The results of the analysis should be reliable and should clearly show costs and benefits of each option. This is the next finding of our analysis.

According to the EU electricity directive 2009/72/EC, all member states were encouraged to conduct an analysis of profitability of SG implementation until September 2012. In Poland, such analysis, against the Commission’s recommendations, has not been conducted, but the state authorities, including ERO, are preparing SG implementation. This could be a very risky strategy, and that is why we claim that urgent investigation of SG profitability, based on at least 1-3 pilot projects is necessary. 

The conditions and results of project Oklahoma (USA) show that it is possible to achieve significant power demand reduction, especially in peak hours – but the reduction strongly depends on the combination of different SG technologies  and parallel use of tariffs variable in time (TOU). We have to emphasize, that despite the reduction of peak power in the range of 26%, economically the construction of a new gas turbine set is slightly more feasible.

We believe also on the base of a project conducted by RWE in Warsaw that reduction of peak demand in Poland can be much lower- in the mentioned RWE project it reached only 2% [1]. It is a result of relatively low electricity consumption in Poland, about 4 times lower than in USA (Oklahoma) and 2 times lower than in most of  the EU countries and few other aspects connected with the conditions of the pilot project. It includes a very small sample of people, a short time of the project and lack of dynamic tariff parallel implemented. Mentioned conditions make the results and recommendations following the projects not very realistic and even quite hasty.

Even though we still trust that, the president of ERO will take all necessary precautions enforcing the improvement of reliability of planning and pilot projects realization. ERO should support all mechanisms and funds necessary to conduct them – preferably in a form of public-private partnership, which we also emphasized in the article (variable EU funds are still not fully used). 

We pose an open, but, as we believe and important question:

Can the social and economic activities in Poland be  regulated intelligent or do they need to rely on EU regulations imitation only? A wrong answer to this question can lead to many unnecessary problems, which were described by MarekSamotyj in a very good publication: “Współczynniki inteligencji przewodów energetycznych”

Dr Zygmunt Parczewski and Katarzyna Łabinowicz
Institute of Power Engineering
Energy Research Integration Centre CENERG

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