The Impacts of Distributed Generation on the Wider UK Energy System – Extension of the Project

Restricted – CommercialThe impacts of distributed generation on the wider UK energy systems-extension project

AEA/ED43397/Issue 1

Title / Extension of the project - the impacts of distributed generation on the wider UK energy systems
Customer / Defra, C.E.O.S.A.
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Confidentiality, copyright and reproduction / This report is the Copyright of the Department for Environment, Food and Rural Affairs (Defra) and has been prepared by AEA Technology plc under contract to Defra. The contents of this report may not be reproduced in whole or in part, nor passed to any organisation or person without the specific prior written permission of Defra. AEA Technology plc accepts no liability whatsoever to any third party for any loss or damage arising from any interpretation or use of the information contained in this report, or reliance on any views expressed therein.
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Reference number / ED43397 - Issue 1

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Author / Name / Ken Fletcher
Jeremy Stambaugh
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Date / 21st April 2008

Executive summary

AEA Energy & Environment1

Restricted – CommercialThe impacts of distributed generation on the wider UK energy systems-extension project

AEA/ED43397/Issue 1

There has been growing interest in distributed, embedded and micro-generation over recent years, and this subject was a major theme in the Government’s Energy Review[1] and the recent Energy White Paper. While the Energy Review recognised that the current centralised model for electricity generation and gas supply delivers ‘economies of scale, safety and reliability’, it also proposes that a ‘combination of new and existing technologies are making it possible to generate energy efficiently near where we use it, potentially delivering lower emissions, increased diversity of supply and in some cases lower cost’.

One of the distributed energy technologies that is closest to the market, and that has significant potential for development in the next few years, is micro-CHP (micro Combined Heat and Power). This is where a typical domestic boiler would be replaced by an integrated system, which can produce electricity as well as heat for the home. Large scale CHP systems are well established and understood, but the smaller CHP systems have not yet been exploited to their full potential, for a mixture of reasons which include the early state of development of the smaller scale technology and difficulties in selling any excess electricity back to the grid. As well as domestic applications, there is also potential to use this technology in small commercial applications where there is a significant heat demand.

The objective of this research is to extend an earlier 2007 evaluation of the implications of a substantial number of distributed generation (DG) units on the UK’s electricity and gas networks, with a particular emphasis on micro-CHP. The 2007 analysis reported in the AEA/Carbon Consortium report ‘The Impacts of Distributed Generation on The Wider UK Energy System’, March 2007, flagged up a concern about the robustness of the available data, with a recommendation that the model used in the evaluations be re-run as more robust end-use information emerged; with the most useful release of data anticipated to come from the Carbon Trust (CT) field trial.

This updating work also includes estimates of carbon savings from mini-CHP in larger office / commercial premises; additional systems of 50-100kWe compared with the ‘cut-off’ limit of 50kWe in the initial 2007 study.

In order to understand the potential impacts of micro-CHP technology, we have developed and extended models that allow us to understand the cost effectiveness of these systems, the potential carbon savings (compared to central generation) that they can deliver and their likely impacts on the existing electricity and gas networks. The analysis that we carried out relies on three modelling/data sources:

  • An end-use demand model – the AEA CHP cost and energy and emissions savings model for CHP, which has been adapted for domestic sector use and small scale commercial sector applications;
  • A national electricity supply model – input from a BERR Markets model;
  • Quantitative assessments of the low voltage distribution system add-on costs required by higher levels of micro-generation.

The extension of the study to include the trial data from the Carbon Trust field trials, has shown that out of the 33 sites for which cost and carbon savings analysis could be carried out, only approximately half show carbon savings and these are well below the levels shown for the SIAM Report domestic profiles, which were used in the original 2007 evaluation. However, it must recognised that the situation into which the system is installed and the way it is operated is critical in determining costs to the user and in delivering carbon dioxide savings.

The range of situations trialled in the CT assessments, clearly include domestic situations where micro-CHP cannot be effective. It is concluded that the efficiency of the micro-CHP application is strongly dependent on, not just overall heat demand, but also on the demand profile and the delivered heat to power ratio.

There is further evidence that the time of operation of the micro-CHP (determined by the time of the heat demand) can coincide with peak electricity demand from the grid, which tends to be the most expensive electricity. A significant number of installed micro-CHP systems would help to reduce these peaks and reduce the price spikes at these times. We have factored these effects into our ‘total system cost’ benefit calculations.

The main conclusions from this study are:

  1. The overall results from the cost-effectiveness and carbon saving calculations for micro-CHP installations (domestic and small commercial) suggest the technology will not be cost effective to the consumer; and saves carbon in the (small) commercial sector applications and in about half of the domestic applications. When the benefits accruing for central generators are also allowed for, there are ‘total system’ cost improvements, but positive costs remain (i.e. technologies remain not cost effective) for domestic sector applications and most commercial situations.
  1. The net present values (NPV) for domestic micro-CHP installations derived from the CT data all show values that are above +£1,300, with an overall average of +£2,000, indicating further losses above the marginal cost of the technology (£1,500). Capital support could in some cases change non-cost effective investments to cost-effective; however, for the majority of applications, the revenue stream will always be negative. This indicates that this technology would require ongoing support if it is to be made cost effective for the consumer i.e. a guaranteed export electricity tariff at higher prices than those for imports.
  1. For mini-CHP systems (33 kWe up to 75 kWe engines) for the commercial sectors, the highest NPV value is typically +£60,000 to +£70,000 (i.e not cost effective). At a typical installed cost at about this value (£65,000 to £72,000), the level of support would need to be very high to make these applications cost-effective.
  1. Alternatively, increasing the export price for customers (up to 80 per cent of the import price) slightly improves the domestic micro-CHP application’s cost-effectiveness (but still remain +ve). At this level of export price, the commercial applications of mini-CHP become slightly more cost effective, but only the applications in health sector shows a -ve NPV (i.e cost effective), with applications in the medium to large health sector buildings showing an NPV of about -£72,000.
  1. Estimates of total UK system cost changes include the costs (or benefits) for the customer installing the micro-CHP units, the benefits for central generation and the likely costs for local network operators. We conclude that for an uptake of domestic micro-CHP at both the 5 and 10 million homes level, and using the average performance of micro-CHP from the CT trials, the total net cost is positive (i.e. there are overall increases in national costs), although at the 5 million homes level the total costs are less.
  1. Approximately 50% of the CT trial applications save carbon and the average performance would provide a total lifetime carbon saving of 7.1 MtCO2 at the 10 million home penetration level (by 2022). This would be at a total cost to the UK in excess of £2,000/tCO2 saved.
  1. For the commercial sector, whilst central generation cost savings help to balance the large CHP operating losses, total system net costs all remain positive under baseline conditions.

AEA Energy & Environment1

Restricted – CommercialThe impacts of distributed generation on the wider UK energy systems-extension project

AEA/ED43397/Issue 1

Table of contents

1Introduction

1.1Technical background

1.2Methodology

2Past results

2.1Domestic micro-CHP

2.2Commercial sector micro-CHP

3Key tasks in the update

4Development of scenarios

4.1Description of scenarios adopted

4.2Technology data

4.3Domestic sector data

4.4Carbon Trust data

4.5Service sector data

4.6Latest fuel price projections

4.7Export electricity prices

4.8Electricity Prices and Embedded Benefit

4.9Central generation carbon emissions factors - averages

5Results – CT trial domestic sector

6Results - commercial sectors

7Total system energy savings: end-users and generators

7.1End-user fuel changes

7.2Central generation fuel use and total system energy changes

8Total system cost changes

8.1Domestic sector

8.2Commercial sectors

9Overall conclusions

Appendices

  1. Models and other analysis adopted
  2. Additional results - commercial sectors
  3. Why are there some good micro- CHP applications in the CT trial sample?

AEA Energy & Environment1

Restricted – CommercialThe impacts of distributed generation on the wider UK energy systems-extension project

AEA/ED43397/Issue 1

1Introduction

The objective of this research is to extend the 2007 evaluation of the implications of a substantial number of distributed generation (DG) units on the UK’s electricity and gas networks, with a particular emphasis on micro-CHP. The earlier analysis reported in the AEA/Carbon Consortium report ‘The Impacts of Distributed Generation on The Wider UK Energy System’, March 2007, flagged up a concern about the robustness of the available data, with a recommendation that the model used in the evaluations be re-run as more robust end-use information emerged; with the most useful release of data anticipated to come from the Carbon Trust (CT) field trial.

Following meetings with the Carbon Trust and DEFRA, the further actions and requirements were identified:

  • The need to obtain better information, from the CT field trials, on heating and electricity profiles from houses with micro-CHP units.
  • The Carbon Trust to supply 5-minute profiles to AEA (as specified by AEA for their modelling work), together with details of the housing (e.g. house size, date of construction, details of state of insulation).
  • The Carbon Trust to also supply a provisional figure for the working efficiency of condensing boilers (a better estimate than that used in the AEA modelling work).
  • AEA/Carbon Consortium to review and, as necessary, revise the modelling work and the carbon factors for electricity used by Defra, SAP, CERT etc.
  • To be aware of the need to conserve confidentiality, and to agree an approach between AEA and the Carbon Trust.

Other issues:

The updating work is to also include estimates of carbon savings from CHP in larger office / commercial premises (additional systems of 50-100kWe compared with the ‘cut-off’ limit of 50kWe in the initial 2007 study). There is a requirement to check the status of ‘best practice’ data for large office / commercial premises with BRE. This is required to allow an update of the size and demand profile data used in the earlier study. In the event of such data not being available from BRE, we are to use our previous estimation method to extend the service sector size range up to 100kWe. In practice, this latter approach has proved necessary.

This update report will be used for the Foresight project; noting that the reporting date for the Foresight Project has been changed to late 2008.

1.1Technical background

The term Distributed Generation (DG) covers the heat and electricity generated at, or near to, its point of use. These are typically small installations; and are also sometimes referred to as de-centralised energy systems or micro-generators. In the context used in this study, we have been asked to extend micro-generators at the lower end of the range (up to 100kWe), which are intended for installation in domestic (~1kWe) and small commercial premises[2].

The main focus of this report is on micro-CHP applications used in a domestic or small business premises situation to provide heat for use on site and electricity, which can either be used on site or exported to the electricity grid.

A sizeable amount of work has already been published on Distributed Generation systems, both on the projected technology uptake rates and the likely barriers and issues that surround the practicalities of connecting Distributed Generation systems to the electricity grid. The issues and assumptions published in these reports have been evaluated and considered as part of the original AEA study; and a summary of these reports was provided in Appendix 1 of that report.

1.2Methodology

The existing AEA CHP model and the macro-models developed by the Carbon Consortium[3] have been used to assess the implication of the changes derived from three components:

  • Costs (or benefits) for the consumer i.e. the customer installing the micro-CHP system. These benefits are calculated using the AEA CHP model.
  • The costs or benefits for central generation, who will produce less electricity overall and will not have to meet peak demands as in the base case. These profile changes by season, are described further in Appendix A - Models and other analysis adopted. Our current measure of these benefits is through the electricity wholesale price calculation, which shows a significant reduction as micro-CHP generation increases. In our total system cost change calculation, we have carried out a ‘net present value’ calculation in which we discount the annual changes in future years total wholesale value (the total for all generation) compared with the base case (no micro-CHP) total wholesale value.
  • The likely costs for local network operators, with a net present value based on future discounted costs of future network re-enforcements and changes required to accommodate increasing levels of micro-CHP. In this case the cost data used is from the SIAM report and others, as described in our February 2007 report.

We have used modified electricity generation profiles to reflect the effect of different levels of penetration of micro-CHP on the central dispatch of electricity. The DTI (now BERR) ran their markets model to identify, amongst other things, the wholesale clearing price of electricity and implied generator emissions variations. This was done for dispatch profiles at 2006 and projected out to 2020. In the current work we use the same modelling data[4].

We consider the total system energy savings, which includes energy savings at central generation - considering both gas and coal fuel demand changes, coupled with the net effect of increased energy use compared with boilers from the application of micro-CHP. The analysis also factors-in the effect of daily emissions generation profile changes in the emission savings calculations.

In our calculations we derive the cost components and total savings for two scenarios of domestic micro-CHP uptake (5 and 10 million homes by 2021). We assess the lifetime carbon saving together with the CHP net present value, both derived from the AEA model. The central generation carbon savings are derived from the BERR electricity model and the generator NPV savings are calculated via a spreadsheet discounted cash flow (DCF) model (a 3.5% DCR is assumed). Network costs have been taken from the literature, and in the higher penetration case, have been assumed to be at the upper level of figures quoted. For the 5 million home penetration scenario and other ‘lower total electricity generation’ scenarios[5] the low quoted network costs have been assumed.

2Past results

2.1Domestic micro-CHP

The February 2007 results suggest that:

  • For both cases of 5 and 10 million homes by 2021, the total net cost is positive (i.e. there are overall increased costs) although at the 5 million homes level, the total increased costs are less;
  • The overall cost effectiveness over the period 2006 to 2021 is + (plus) £81/tCO2 for the 10 million home penetration scenario and + (plus) £69/tCO2 for the lower penetration scenario;
  • For the micro-CHP alone, the cost effectiveness, again to 2021, derived from the AEA model is significantly less attractive at +£196/tCO2. In the overall cost effectiveness calculation, the savings in central generation improve the balance.

We also assessed the effect of improving the value of the exported electricity to a price equivalent to 80% of the import price. Under these circumstances the total net cost benefit becomes negative and the overall cost effectiveness is – (minus) £28.5/tCO2 saved.

The same set of ‘scenario’ outputs are produced in the updating work.

2.2Commercial sector micro-CHP

The results for the commercial sector applications (less than 50 kWe) demonstrated that in only one case (medium health) the total system net costs are negative; with the overall cost effectiveness (to 2021) range from between – (minus) £24/tCO2 for the health sector up to +(plus) £81/tCO2 for education. Central generation savings (both cost and carbon) tend to balance the CHP losses. At a higher export price scenario[6] all of the medium 33kWe CHP examples become more cost effective (a -ve NPV) even at lower assumed efficiency values.